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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes For the years ended December 31, 2023, 2022, and 2021, our loss before income taxes was comprised of the following (in thousands):
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Domestic | $ | (89,925) |  |  | $ | (102,434) |  |  | $ | (48,743) |
Foreign | (18,307) |  |  | (47,794) |  |  | (39,120) |
Total | $ | (108,232) |  |  | $ | (150,228) |  |  | $ | (87,863) |
For the years ended December 31, 2023, 2022, and 2021, our income tax expense was comprised of the following (in thousands):
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal | $ | 34 |  |  | $ | 72 |  |  | $ | 15 |
State | 223 |  |  | 119 |  |  | 79 |
Foreign | 4,523 |  |  | 1,409 |  |  | 1,156 |
Total current expense | 4,780 |  |  | 1,600 |  |  | 1,250 |
Deferred: |  |  |  |  |
Federal | — |  |  | — |  |  | — |
State | — |  |  | — |  |  | — |
Foreign | (1,571) |  |  | (908) |  |  | (472) |
Total deferred benefit | (1,571) |  |  | (908) |  |  | (472) |
Total income tax expense | $ | 3,209 |  |  | $ | 692 |  |  | $ | 778 |
For the years ended December 31, 2023, 2022, and 2021, the provision for income taxes differs from the amount computed by applying the federal statutory income tax rates to our loss before the provision for income taxes as follows:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State tax expense | 3.8 |  |  | 4.1 |  |  | 4.7 |
Foreign rate differential | (3.1) |  |  | (3.3) |  |  | (4.1) |
Nondeductible expenses | (0.7) |  |  | (0.3) |  |  | (0.5) |
Foreign tax expense | (0.4) |  |  | 0.3 |  |  | (0.2) |
Equity compensation | (2.4) |  |  | 1.0 |  |  | 7.0 |
Tax credits | 9.5 |  |  | 4.7 |  |  | 5.0 |
Unrecognized tax benefits | (1.8) |  |  | (0.9) |  |  | (0.9) |
Change in tax rate | (0.9) |  |  | 0.3 |  |  | (1.2) |
Other | 0.2 |  |  | (0.5) |  |  | (0.1) |
Deferred adjustments | (3.0) |  |  | (0.8) |  |  | 0.9 |
Change in valuation allowance | (25.2) |  |  | (26.1) |  |  | (32.5) |
Total | (3.0) | % |  | (0.5) | % |  | (0.9) | %
The effective tax rate of (3.0)% in 2023 includes $27.3 million of tax expense attributable to the change in the valuation allowance in the United States and Switzerland, partially offset by $10.3 million of favorable tax benefits for 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, 2023 and 2022, significant components of our deferred tax assets and liabilities were as follows (in thousands):
| As of December 31,
| 2023 |  | 2022
Deferred tax assets: |  |  |
Net operating losses | $ | 103,299 |  |  | $ | 85,442 |
Tax credits | 29,582 |  |  | 21,215 |
Deferred revenue | 861 |  |  | 416 |
Equity compensation | 4,879 |  |  | 5,314 |
Lease liabilities | 18,822 |  |  | 17,732 |
Accrued compensation | 3,323 |  |  | 4,510 |
Bad debt | 447 |  |  | 656 |
Other accrued expense | 218 |  |  | 16 |
Capitalized research and development costs | 35,047 |  |  | 29,991 |
Other | 1,369 |  |  | 431 |
Gross deferred tax assets | 197,847 |  |  | 165,723 |
Less: Valuation allowance | (161,966) |  |  | (132,581) |
Total deferred tax assets | 35,881 |  |  | 33,142 |
Deferred tax liabilities: |  |  |
Prepaid expenses | (16,505) |  |  | (15,309) |
Right-of-use assets | (10,626) |  |  | (10,056) |
Depreciation | (3,779) |  |  | (4,275) |
Intangible assets | (1,179) |  |  | (1,540) |
Other | (341) |  |  | (123) |
Total deferred tax liabilities | (32,430) |  |  | (31,303) |
Net deferred tax assets | $ | 3,451 |  |  | $ | 1,839 |
As of December 31, 2023 and 2022, we had $295.9 million and $237.7 million, respectively, of gross net operating loss (“NOL”) carryforwards for U.S. federal tax purposes. U.S. federal NOL carryforwards in the gross amount of $24.4 million and 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, 2023, we had $271.5 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, 2023. 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. The new research and development expenditures rules resulted in a tax-effected deferred tax asset (before valuation allowance) of approximately $35.0 million and $30.0 million as of December 31, 2023 and 2022, respectively. 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 2023 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, 2023 and 2022, we had $27.2 million and $19.3 million, respectively, of U.S. federal tax credit carryforwards which will expire, if unused, between 2031 and 2043. As of December 31, 2023 and 2022, we had U.S. gross state NOL carryforwards of $306.8 million and $256.3 million, respectively. We had tax-effected state NOL carryforwards of $17.0 million and $14.8 million as of December 31, 2023 and 2022, 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, 2023 and 2022, we had foreign gross NOL carryforwards of $192.3 million and $163.4 million, respectively, primarily attributable to our subsidiary in Switzerland. We had tax-effected foreign NOL carryforwards of $21.8 million and $18.7 million as of December 31, 2023 and 2022, respectively. In 2023, $1.1 million of tax-effected Swiss NOLs expired related to the 2016 tax year. An additional portion of those NOL carryforwards will expire each year, if unused, between 2024 and 2030. As of December 31, 2023 and 2022 we had a total valuation allowance of $162.0 million and $132.6 million, respectively. The following table summarizes the activity related to our valuation allowances for the years ended December 31, 2023, 2022, and 2021 (in thousands):
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Beginning balance | $ | 132,581 |  |  | $ | 94,399 |  |  | $ | 65,914 |
Charged to expense | 27,267 |  |  | 39,203 |  |  | 28,450 |
Foreign currency translation adjustments | 2,118 |  |  | (1,021) |  |  | 35 |
Deductions from reserve | — |  |  | — |  |  | — |
Ending balance | $ | 161,966 |  |  | $ | 132,581 |  |  | $ | 94,399 |
As of December 31, 2023, we continued to maintain a full valuation allowance against U.S. deferred tax assets based on our cumulative operating results as of December 31, 2023, 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, 2023, we have a valuation allowance of $21.8 million against foreign deferred tax assets at our subsidiary in Switzerland. Based on our cumulative operating results as of December 31, 2023 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, 2023 and 2022, we had unrecognized tax benefits of $6.5 million and $4.5 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, 2020 to December 31, 2023 (in thousands):
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 |
Additions for tax positions in current years | 1,740 |
Additions for tax positions in prior years | 256 |
Reductions due to lapse in statutes of limitations | — |
Settlements | — |
Balance as of December 31, 2023 | $ | 6,484 |
We recognize interest and penalties related to uncertain tax positions in income tax expense. Our uncertain tax positions primarily relate to federal research and development tax credits. During the years ended December 31, 2023, 2022, and 2021, we recognized nominal amounts in interest. The cumulative balances of interest and penalties as of December 31, 2023 and 2022 were immaterial. 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 2023 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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