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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | 10. Income Taxes For the years ended December 31, 2022, 2021, and 2020, our loss before income taxes was comprised of the following (in thousands):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Domestic | $ | (102,434) |  |  | $ | (48,743) |  |  | $ | (25,463) |
Foreign | (47,794) |  |  | (39,120) |  |  | (7,131) |
Total | $ | (150,228) |  |  | $ | (87,863) |  |  | $ | (32,594) |
For the years ended December 31, 2022, 2021, and 2020, our income tax expense (benefit) was comprised of the following (in thousands):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |
Federal | $ | 72 |  |  | $ | 15 |  |  | $ | 11 |
State | 119 |  |  | 79 |  |  | 79 |
Foreign | 1,409 |  |  | 1,156 |  |  | 977 |
Total current expense | 1,600 |  |  | 1,250 |  |  | 1,067 |
Deferred: |  |  |  |  |
Federal | — |  |  | — |  |  | — |
State | — |  |  | — |  |  | — |
Foreign | (908) |  |  | (472) |  |  | (184) |
Total deferred benefit | (908) |  |  | (472) |  |  | (184) |
Total income tax expense | $ | 692 |  |  | $ | 778 |  |  | $ | 883 |
For the years ended December 31, 2022, 2021, and 2020, the provision for income taxes differs from the amount computed by applying the federal statutory income tax rates to our loss before the provision (benefit) for income taxes as follows:
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State tax expense | 4.1 |  |  | 4.7 |  |  | 18.2 |
Foreign rate differential | (3.3) |  |  | (4.1) |  |  | (3.6) |
Nondeductible expenses | (0.3) |  |  | (0.5) |  |  | (0.6) |
Foreign tax expense | 0.3 |  |  | (0.2) |  |  | — |
Equity compensation | 1.0 |  |  | 7.0 |  |  | 46.2 |
Tax credits | 4.7 |  |  | 5.0 |  |  | 12.0 |
Unrecognized tax benefits | (0.9) |  |  | (0.9) |  |  | (2.2) |
Change in tax rate | 0.3 |  |  | (1.2) |  |  | — |
Other | (0.5) |  |  | (0.1) |  |  | (1.1) |
Deferred adjustments | (0.8) |  |  | 0.9 |  |  | (1.7) |
Change in valuation allowance | (26.1) |  |  | (32.5) |  |  | (90.9) |
Total | (0.5) | % |  | (0.9) | % |  | (2.7) | %
The effective tax rate of (0.5)% in 2022 includes $39.2 million of tax expense attributable to the change in the valuation allowance in the United States, Switzerland, and Germany (Lana Labs GmbH), partially offset by $8.6 million of favorable excess tax benefits for equity compensation and research credits. Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amount of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2022 and 2021, significant components of our deferred tax assets and liabilities were as follows (in thousands):
| As of December 31,
| 2022 |  | 2021
Deferred tax assets: |  |  |
Net operating losses | $ | 85,442 |  |  | $ | 81,499 |
Tax credits | 21,215 |  |  | 15,510 |
Deferred revenue | 416 |  |  | 466 |
Equity compensation | 5,314 |  |  | 4,917 |
Lease liabilities | 17,732 |  |  | 15,089 |
Accrued compensation | 4,510 |  |  | 3,390 |
Bad debt | 656 |  |  | 373 |
Other accrued expense | 16 |  |  | 1,452 |
Capitalized research and development costs | 29,991 |  |  | — |
Other | 431 |  |  | 301 |
Gross deferred tax assets | 165,723 |  |  | 122,997 |
Less: Valuation allowance | (132,581) |  |  | (94,399) |
Total deferred tax assets | 33,142 |  |  | 28,598 |
Deferred tax liabilities: |  |  |
Prepaid expenses | (15,309) |  |  | (12,576) |
Right-of-use assets | (10,056) |  |  | (7,361) |
Unbilled receivables | — |  |  | (1,248) |
Depreciation | (4,275) |  |  | (3,892) |
Intangible assets | (1,540) |  |  | (2,102) |
Other | (123) |  |  | (603) |
Total deferred tax liabilities | (31,303) |  |  | (27,782) |
Net deferred tax assets | $ | 1,839 |  |  | $ | 816 |
As of December 31, 2022 and 2021, we had $237.7 million and $239.9 million of gross net operating loss (“NOL”) carryforwards for U.S. federal tax purposes, respectively. U.S. federal NOL carryforwards in the amount of $16.9 million, gross, generated prior to 2018 will expire, if unused, in 2037. Under the Tax Cuts and Jobs Act of 2017 (the “TCJA”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), federal NOL carryforwards generated in tax years beginning after December 31, 2017 may be carried forward indefinitely. As of December 31, 2022, we had $220.8 million of gross NOL carryforwards generated after 2017 for U.S. federal tax purposes, which may be used to offset 80% of our taxable income annually. Section 382 of the Internal Revenue Code limits the utilization of NOL carryforwards when ownership changes occur, as defined by that section. A number of states have similar state laws that limit utilization of state NOL carryforwards when ownership changes occur. We have performed an analysis of our Section 382 ownership changes and have determined all U.S. federal and state NOL carryforwards are available for use as of December 31, 2022. Beginning in 2022, the TCJA eliminated the option to deduct research and development expenditures immediately in the year incurred and requires companies to amortize such expenditures over five or fifteen years for tax purposes, depending on whether the activities were incurred in the U.S. or outside of the U.S. This change resulted in an increase to gross deferred tax assets of approximately $30.0 million in 2022. Due to the full valuation allowance recorded against our U.S. deferred tax assets, there was no impact to net deferred tax assets. Additionally, there was no cash tax impact for 2022 due to our ability to use NOL carryforwards to fully offset taxable income generated by the changes to research and development expenditures. As of December 31, 2022 and 2021, we had $19.3 million and $13.7 million, respectively, of U.S. federal tax credit carryforwards which will expire, if unused, between 2031 and 2042. As of December 31, 2022 and 2021, we had U.S. gross state NOL carryforwards of $256.3 million and $249.8 million, respectively. We had tax effected state NOL carryforwards of $14.8 million and $14.1 million as of December 31, 2022 and 2021, respectively. The rules regarding carryforwards vary from state to state, and the ability to utilize NOLs varies based on timing and amount. The majority of state NOL carryforwards generated prior to 2018 will expire, if unused, in 2037. Due to the TCJA, certain state NOL carryforwards generated after 2017 have an indefinite carryforward period. As of December 31, 2022 and 2021, we had foreign gross NOL carryforwards of $163.4 million and $126.6 million, respectively, primarily attributable to our subsidiary in Switzerland. In 2022, $8.1 million of Swiss NOLs expired related to the 2015 tax year. An additional piece of those NOL carryforwards will expire each year, if unused, between 2023 and 2029. The net change in the total valuation allowance during the year ended December 31, 2022 was $38.2 million, primarily driven by the valuation allowance recorded against the United States and Switzerland deferred tax assets. The $1.1 million valuation allowance against the Germany (Lana Labs GmbH) deferred tax assets was released in 2022 as a result of post-integration tax planning and the merger of German subsidiaries. As of December 31, 2022, we continued to maintain a full valuation allowance against U.S. deferred tax assets based on our cumulative operating results as of December 31, 2022, three-year cumulative loss, and an assessment of our expected future results of operations. We have evaluated all evidence, both positive and negative, in assessing the likelihood of realizability, and we determined the negative evidence outweighed the positive evidence. As of December 31, 2022, we have a valuation allowance of $18.7 million against foreign deferred tax assets at our subsidiary in Switzerland. Based on our cumulative operating results as of December 31, 2022 and assessment of our expected future results of operations, we determined it was not more likely than not we would be able to realize the deferred tax assets prior to expiration. We plan to distribute previously undistributed earnings of our foreign subsidiaries back to the United States in future years. Upon repatriation of those earnings, if any, we may be subject to taxes, including withholding taxes, net of any applicable foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable. As of December 31, 2022 and 2021, we had unrecognized tax benefits of $4.5 million and $3.1 million, respectively, none of which would affect our effective tax rate if recognized due to the valuation allowance. The following table summarizes the activity related to our unrecognized tax benefit from December 31, 2019 to December 31, 2022 (in thousands):
Balance as of December 31, 2019 | $ | 1,575 |
Additions for tax positions in current years | 702 |
Additions for tax positions in prior years | — |
Reductions due to lapse in statutes of limitations | — |
Settlements | — |
Balance as of December 31, 2020 | 2,277 |
Additions for tax positions in current years | 812 |
Additions for tax positions in prior years | — |
Reductions due to lapse in statutes of limitations | — |
Settlements | — |
Balance as of December 31, 2021 | 3,089 |
Additions for tax positions in current years | 1,399 |
Additions for tax positions in prior years | — |
Reductions due to lapse in statutes of limitations | — |
Settlements | — |
Balance as of December 31, 2022 | $ | 4,488 |
We recognize interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2022, 2021, and 2020, we recognized nominal amounts in interest. The cumulative balance of interest and penalties as of December 31, 2022 and 2021 were not meaningful. We anticipate total unrecognized tax benefits will not decrease over the next year. We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Due to the NOL carryforward, tax years 2016 through 2022 remain open to examination by the major taxing jurisdictions to which we are subject. There are no open examinations that would have a meaningful impact to our consolidated financial statements.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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