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Income Taxes
 12 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income Tax Provision
The components of the loss before income taxes are as follows:
Year Ended September 30,
202320222021
(in thousands)
Domestic
$(194,639)$(170,570)$(140,846)
Foreign
(7,852)(1,708)— 
Total
$(202,491)$(172,278)$(140,846)
The provision for income taxes consisted of the following components:
Year Ended September 30,
202320222021
(in thousands)
Current:
Federal
$1,074 $— $— 
State
1,710 304 2 
Foreign
— 3,481 — 
Total current tax
$2,784 $3,785 $2 
Deferred:
Federal
$— $— $— 
State
— — — 
Foreign
— — — 
Total deferred tax
$— $— $— 
Income tax provision$2,784 $3,785 $2 
The following table presents a reconciliation of the tax expense based on the statutory rate to the Company’s actual tax expense in the consolidated statements of operations. A notional 21% tax rate was applied as follows:
September 30,
202320222021
U.S. federal statutory income tax21.0 %21.0 %21.0 %
State income taxes, net of federal tax benefit0.4 %8.6 %7.0 %
Tax credits6.8 %— %— %
Permanent and other items-4.6 %-1.7 %— %
Non-deductible compensation-4.6 %— %— %
Foreign-derived intangible income deduction1.2 %— %— %
Stock compensation-1.1 %-1.7 %1.3 %
Valuation allowance-20.5 %-28.4 %-29.3 %
Effective income tax rate-1.4 %-2.2 %— %
Deferred Income Taxes
The following table presents the significant components of the Company’s net deferred tax assets and liabilities:
September 30,
20232022
(in thousands)
Deferred tax assets:
Net operating loss carryforwards$60,495 $171,319 
Capitalized research and development75,208 324 
Tax credits66,407 — 
Deferred revenue59,441 38,810 
Lease liabilities25,382 2,844 
Stock compensation10,296 41,479 
Accrued compensation3,082 2,961 
Intangible assets1,523 2,973 
Other2,636 2,162 
Total gross deferred tax assets$304,470 $262,872 
Valuation allowance$(284,626)$(242,394)
Deferred tax liabilities:
Fixed assets$(9,878)$(1,088)
Right-of-use assets(9,966)— 
State taxes— (19,390)
Total gross deferred tax liability$(19,844)$(20,478)
Net deferred tax assets (liabilities)$— $— 
A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2023. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation at September 30, 2023 and 2022, a valuation allowance of $284.6 million and $242.4 million, respectively, has been recorded.
As of September 30, 2023, the Company had accumulated federal and state net operating loss (“NOL”) carry forwards of $134.3 million and $491.5 million, respectively. Of the $134.3 million of federal NOL carryforwards, $34.0 million was generated before January 1, 2018 and is subject to the 20-year carryforward period (“pre-Tax Act losses”). The remaining $100.3 million (“post-Tax Act losses”) can be carried forward indefinitely but is subject to the 80% taxable income limitation. Of the $491.5 million of state NOL carryforwards $2.9 million can be carried forward indefinitely. The pre-Tax Act U.S. federal and state net operating loss carryforwards will expire at various dates through 2041.
Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of an entity’s NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the entity immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. To date, the Company has not completed an analysis pursuant to Sections 382 and 383. Future changes in ownership may occur which could limit the Company’s ability to utilize attributes.
Uncertainty in Income Taxes
The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more-likely-than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more-likely-than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities.
The following table summarizes the Company’s gross unrecognized tax benefits:
Year Ended September 30,
202320222021
(in thousands)
Beginning balance of unrecognized tax benefits$3,481 $— $— 
Gross increase for prior period tax positions9,495 3,481 — 
Gross decrease for prior period tax positions(1,489)— — 
Gross increase for current period tax positions3,049 — — 
Ending balance of unrecognized tax benefits$14,536 $3,481 $— 
For the years ended September 30, 2023, 2022 and 2021, the Company has recorded income tax expense of $0, $3.5 million and $0 respectively, related to uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits associated with uncertain tax positions, if any, in the income tax provision. As of September 30, 2023, the Company has accrued interest and penalties of $0.6 million and $0.9 million, respectively.
If the unrecognized tax benefit at September 30, 2023 are ultimately recognized, excluding the impact of U.S. Tax benefits netted against deferred taxes that are subject to a valuation allowance, approximately $3.5 million would result in a reduction in the Company’s income tax expense and effective tax rate. The Company expects that $3.5 million of its unrecognized tax benefits to change over the next 12 months.
The Company is subject to taxation in the U.S. and various states along with other foreign countries. Due to the presence of NOL carryforwards, all of the income tax years remain open for examination domestically. The Company has not been notified that it is under audit by the Internal Revenue Service or foreign taxing authorities; however, the Company has been notified of an income tax examination by the state of California. There are no other audits in any other jurisdictions.