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Income taxes

12 Months Ended

Sep. 30, 2021

9.	Income taxes

The Company recorded an income tax benefit of $1.9 million for the year ended September 30, 2021. The Company recorded provisions for income taxes of $0.4 million and $0.3 million for the years ended September 30, 2020 and 2019, respectively.

The domestic and foreign components of pre-tax loss for the year ended September 30, 2021, 2020, and 2019 are as follows:


	Year ended September 30,
(in thousands)	2021	2020	2019
US	(149,533)	(138,016)	(107,847)
Foreign	(4,495)	(1,533)	470
Total	(154,028)	(139,549)	(107,377)

The components of the provision for income taxes for the year ended September 30, 2021, 2020, and 2019 are as follows:


	Year ended September 30,
(in thousands)	2021	2020	2019
Current
Federal	—	—	—
State	(29)	—	108
Foreign	108	382	184
Total Current	79	382	292

Deferred
Federal	(2,268)	—	—
State	259	—	—
Foreign	—	—	—
Total Deferred	(2,009)	—	—

Total Provision	(1,930)	382	292

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:


	Year ended
	September 30,
	2021		2020		2019
Tax expense computed at the federal statutory rate	21	%	21	%	21	%
Change in valuation allowance	(33)	%	(25)	%	(22)	%
Research and development credit benefit	3	%	1	%	1	%
Business combination	(2)	%	—		—
Stock-based compensation	12	%	3	%	—
Total income tax expense	1	%	—	%	—	%

The significant components of the Company’s deferred tax assets and liabilities are as follows:


	September 30,
(in thousands)	2021		2020
Net operating loss carryforwards	$	163,782	$	112,434
Research and development credit carryforwards		20,163		9,407
Operating lease liability		14,890		7,506
Other		11,631		5,639
Gross deferred tax assets		210,466		134,986
Less: Valuation allowance		(190,428)		(127,336)
Net deferred tax assets		20,038		7,650
Fixed assets		(785)		(105)
Operating lease right-of-use asset		(14,893)		(7,498)
Intangible assets		(4,360)		(47)
Gross deferred tax liabilities		(20,038)		(7,650)
Total net deferred tax asset	$	—	$	—

Based on the available objective evidence, management believes it is more likely than not that the deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its deferred tax assets at September 30, 2021 and 2020. The valuation allowance was $190.4 million and $127.3 million as of September 30, 2021, and 2020, respectively. The change in the valuation allowance was mainly due to an increase in the net operating loss and research and development credits during the fiscal year 2021.

The Company intends to continue maintaining a full valuation allowance on the Company’s deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowance. The release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.

As of September 30, 2021, the Company had net operating loss carryforwards of approximately $664.5 million and $377.1 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The net operating losses will begin to expire in fiscal year 2032.

The Company also had federal and state research and development credit carryforwards of approximately $16.9 million and $12.5 million, respectively, at September 30, 2021. The federal credits will expire starting in 2033 if not utilized. The California research and development credits have no expiration date. Utilization of the net operating losses and tax credits is subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations may result in the expiration of the net operating losses and tax credits before utilization.

The provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes, prescribe a comprehensive model for the recognition, measurement, and presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. The Company has identified uncertain tax positions related to federal and state research and development credits and foreign jurisdictions.

The aggregate changes in the balance of gross unrecognized tax benefits are as follows:


	Federal
(in thousands)	and state
Balance as of September 30, 2018	$	2,249
Increases related to tax positions taken during 2019		1,042
Balance as of September 30, 2019	$	3,291
Increases related to tax positions taken during 2020		1,409
Balance as of September 30, 2020	$	4,700
Increases related to tax positions taken during 2021		2,737
Balance as of September 30, 2021	$	7,437

The Company does not expect a material change in unrecognized tax benefits in the next twelve months. As of September 30, 2021, approximately $0.1 million of unrecognized tax benefit would, if recognized, impact the Company’s effective income tax rate.

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. The Company’s management determined that no accrual for interest and penalties was required as of September 30, 2021 and 2020.

The Company’s files federal and state income tax returns with varying statutes of limitations. All tax years remain open to examination due to the carryover of net operating losses or tax credits. The Company currently has no federal or state tax examinations in progress.

In March and December 2020, in response to the COVID-19 pandemic, the CARES Act and the Consolidated Appropriations Act, 2021 were passed into law and provide additional economic stimulus to address the impact of the COVID-19 pandemic. The Company does not expect any significant benefit to its income tax provision as a result of this legislation.

- 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.

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