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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
15. Income Taxes
The Company’s income tax (benefit) expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax (benefit) expense.
The Company is incorporated in the United States and operates in various countries with different tax laws and rates. A portion of the Company’s income or (loss) before taxes and the (benefit from) provision for income taxes are generated from international operations.
Income (loss) before income taxes and equity in losses of unconsolidated investee for the years ended December 31, 2023, 2022 and 2021 is summarized as follows (in thousands):
Year Ended December 31,
202320222021
United States$72,936 $(1,837)$(15,155)
Foreign6,714 5,729 4,653 
Total income (loss) before income taxes$79,650 $3,892 $(10,502)
Income tax (benefit) or provision in 2023, 2022 and 2021 is comprised of federal, state, and foreign taxes.
The components of the (benefit from) provision for income taxes are summarized as follows (in thousands):
Year Ended December 31,
202320222021
Current:
Federal$5,897 $1,672 $44 
State3,033 1,428 439 
Foreign4,890 1,725 1,345 
Total current$13,820 $4,825 $1,828 
Deferred:
Federal(19,221)1,905 (13,698)
State(4,648)(360)(1,131)
Foreign(1,255)(476)(124)
Total deferred$(25,124)$1,069 $(14,953)
(Benefit from) provision for income taxes$(11,304)$5,894 $(13,125)
The Company’s actual (benefit from) or provision for tax differed from the amounts computed by applying the Company’s U.S. federal statutory income tax rate to pretax income as a result of the following:
Year Ended December 31,
2023
2022(1)
2021(1)
Income tax at federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefit3.0 15.9 7.6 
Rate differential on foreign operations0.2 (11.7)(2.7)
Foreign taxes1.5 (6.9)1.3 
Mutual agreement procedure adjustment— — 2.1 
Prepaid tax ASC 810-100.2 51.9 (0.3)
Meals expenses1.9 — — 
Stock-based compensation(8.5)72.9 86.1 
Global intangible low-taxed income (“GILTI”)
— — (6.5)
Permanent differences1.0 6.9 (2.7)
Foreign Derived Intangible Income(1.3)(3.3)— 
In-Process Research & Development4.8 — — 
Change in valuation allowance(32.0)— 18.2 
Research and Development tax credits(5.9)— — 
Other(0.1)4.7 0.9 
Effective tax rate(14.2)%151.4 %125.0 %
(1) The 2022 and 2021 effective tax rate reconciliations have been updated to conform to the 2023 presentation.
Deferred income tax assets and liabilities consist of the following (in thousands):
December 31,
20232022
Deferred tax assets:
Net operating loss carryforwards$7,972 $37,290 
Tax credits45,127 41,934 
Accruals and reserves10,779 9,236 
Capitalized research expenses41,611 22,960 
Stock-based compensation9,110 12,478 
UNICAP adjustments12,441 10,810 
ASC 842 Lease Liabilities56,584 57,161 
Foreign Withholding Tax1,078 — 
Other2,787 2,901 
Gross deferred tax assets187,489 194,770 
Valuation allowance(23,957)(46,693)
Total deferred tax assets163,532 148,077 
Deferred tax liabilities:
Depreciation and amortization(26,327)(29,781)
ASC 842 Lease ROU Assets(53,093)(54,786)
Other(3)(257)
Total deferred tax liabilities(79,423)(84,824)
Net deferred tax assets$84,109 $63,253 
As of December 31, 2023, the Company had approximately $21.8 million and $63.2 million of federal and state net operating loss (“NOL”) carryforwards, respectively, available to offset future taxable income. The federal NOL has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized. The state NOL carryforwards have various carryover periods and will begin to expire as early as 2035. As of December 31, 2023, the Company had federal research and development tax credits of $27.1 million which are generally carried forward for 20 years and will begin to expire in 2037. The Company had California state research and development tax credits of $29.4 million that may be carried forward indefinitely.
The Company generated significant domestic DTAs in recent years, primarily due to the excess tax benefits from stock option exercises and vesting of restricted stock units, as well as operating expenditures including research and development. The Company assessed its ability to realize the benefits of its domestic DTAs by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitations on NOL utilization against taxable income. The Company measured its current DTA balances against estimate of future income based on objectively verifiable operating results from recent history, and concluded that sufficient future taxable income will be generated to realize the benefits of its federal DTAs prior to expiration, including federal research and development tax credit DTAs. Furthermore, due to substantial profitability increase in recent years, the Company determined that sufficient future California taxable income will be generated to realize partial benefit of California DTAs. As a result, the Company released the valuation allowance against federal research and development tax credit DTAs, net of ASC 740-10 reserve and recorded a partial release of its California DTAs, resulting in a $25.5 million income tax benefit recorded as of December 31, 2023. The Company continues to maintain a valuation allowance against its California tax credit DTAs until new evidence becomes available to justify realization of the asset.
As of December 31, 2023, the Company does not maintain valuation allowance against any of its foreign DTAs, because sufficient future taxable income will be generated by foreign subsidiaries to utilize the benefit of their DTAs in full at the required more-likely-than-not level of certainty.
The change in the Company’s deferred tax valuation allowance against net DTAs from January 1, 2021 to December 31, 2023, is as follows (in thousands):
Beginning Balance
Additions Charged To Expenses or Other Accounts(1)
Deductions Credited to Expenses or Other Accounts(2)
Ending Balance
For the year ended:
December 31, 2021$28,768 $10,386 $(2,044)$37,110 
December 31, 202237,110 9,583 — 46,693 
December 31, 202346,693 1,673 (24,409)23,957 
(1) Additions include current year additions charged to expenses and current year build due to increases in net DTAs, return to provision true-ups, and other adjustments.
(2) Deductions include current year releases credited to expenses and current year reductions due to decreases in net DTAs, return to provision true-ups, and other adjustments.
The Company maintains that all foreign earnings, with the exception of a portion of the earnings of its German subsidiary, are permanently reinvested outside the U.S. and therefore deferred taxes attributable to such are not provided for in the Company’s financial statements as of December 31, 2023.
IRC Sections 382 and 383 limit the use of NOL and business credits if there is a change in ownership. In 2023, the Company determined there has been no ownership changes from 2013 to 2023, and therefore, is not subject to any tax attributes utilization limit in the current year. The NOLs and tax credits gained from the 2021 acquisition of Sixense would be subject to IRC Section 382 and 383 limitations. However, the Company does not believe such limitation would cause any impairment of those tax attributes. Their full tax benefit is anticipated to be realized in future years.
A reconciliation of the change in the gross unrecognized tax benefits from January 1, 2021 to December 31, 2023, is as follows (in thousands):
December 31,
202320222021
Beginning Balance$11,237 $9,026 $8,625 
Gross increase for tax positions of current year1,702 1,842 1,935 
Gross increase for tax positions of prior years15 481 216 
Gross decrease for tax positions of prior years(366)(112)(1,411)
Settlement with taxing authority— — (339)
Lapse of statute of limitations(27)— — 
Ending Balance$12,561 $11,237 $9,026 
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, 2022 and 2021, the Company consistently had $0.2 million of accrued interest and penalties attributable to uncertain tax positions for each period. Included in the $12.6 million balance of unrecognized tax benefits as of December 31, 2023 is $6.8 million of tax benefit that, if recognized, would affect the effective tax rate.
The Company files U.S., state and foreign income tax returns in jurisdictions with various statutes of limitations. Due to NOL and tax credit carryovers, the tax years ending December 31, 2004 through December 31, 2023 remain subject to examination by federal and state tax authorities. In Australia and Canada, tax years ending December 31, 2009 through December 31, 2023 generally remain subject to examination by tax authorities. In Germany, tax years ending December 31, 2018 through December 31, 2023 remain subject to examination by tax authorities.
The Company does not anticipate significant changes in the balance of gross unrecognized tax benefits over the next 12 months.
In December 2021, the Organizational for Economic Co-operation and Development (“OECD”) released guidance on the new global minimum tax regime known as Pillar Two. While various countries have adopted or in the process of passing legislation to adopt it, the United States has not yet conformed to Pillar Two as of December 31, 2023. The Company is currently evaluating the potential global tax implications of this new tax regime.