XML 28 R18.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Income Taxes
 3 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
11. Income Taxes
The Company’s income tax expense (benefit), 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 judgment and estimates are required in determining the consolidated income tax expense (benefit).
During interim periods, the Company generally utilizes the estimated annual effective tax rate (“AETR”) method which involves the use of forecasted information. Under the AETR method, the provision is calculated by applying the estimated
AETR for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Jurisdictions with tax assets for which the Company believes a tax benefit cannot be realized are excluded from the computation of its AETR.
The Company’s provision for income taxes was $3.6 million for the three months ended March 31, 2024, compared to $0.1 million for the three months ended March 31, 2023. The effective tax rate was 24.8% for the three months ended March 31, 2024, compared to 1.0% for the three months ended March 31, 2023. The change in effective tax rate was primarily attributable to an increase in tax expense due to profit increase and a decrease in excess tax benefits from stock-based compensation attributable to its U.S. jurisdiction.
Significant domestic deferred tax assets (“DTAs”) were generated in recent years, primarily due to excess tax benefits from stock option exercises and vesting of restricted stock units. The Company evaluates all available positive and negative evidence, objective and subjective in nature, in each reporting period to determine if sufficient taxable income will be generated to realize the benefits of its DTAs and, if not, a valuation allowance to reduce the DTAs is recorded.
As of March 31, 2024, the Company maintains a valuation allowance primarily against its California R&D tax credit DTAs for which the Company does not believe a tax benefit is more likely than not to be realized due to the computation of California taxes under the single sales factor and non-conformity of the Section 174 capitalization rule.
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 United States and therefore deferred taxes attributable to such earnings are not provided for in the Company’s condensed consolidated financial statements as of March 31, 2024.