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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Loss before income ta xes includes the following components:
|  | Year ended December 31,
|  | 2023 |  | 2022 |  | 2021
|  | (in thousands)
United States |  | $ | (137,240) |  |  | $ | (196,469) |  |  | $ | (224,159) |
Foreign |  | 3,931 |  |  | 5,789 |  |  | 1,531 |
Loss before income taxes |  | $ | (133,309) |  |  | $ | (190,680) |  |  | $ | (222,628) |
The income tax expense (benefit) consists of the following:
|  | Year ended December 31,
|  | 2023 |  | 2022 |  | 2021
|  | (in thousands)
Current tax provision (benefit): |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  | 57 |  |  | (79) |  |  | — |
Foreign |  | 622 |  |  | 173 |  |  | 322 |
Deferred tax benefit: |  |  |  |  |  |
Federal |  | — |  |  | — |  |  | (253) |
State |  | — |  |  | — |  |  | — |
Foreign |  | (900) |  |  | — |  |  | — |
Total tax expense (benefit) |  | $ | (221) |  |  | $ | 94 |  |  | $ | 69 |
Reconciliation between the Company’s effective tax rate on income from continuing operations and the U.S. federal statutory rate is as follows:
|  | Year ended December 31,
|  | 2023 |  | 2022 |  | 2021
Provision at federal statutory tax rate |  | 21 | % |  | 21 | % |  | 21 | %
Change in valuation allowance |  | (25) |  |  | (14) |  |  | (30) |
Foreign tax rate differential |  | 1 |  |  | — |  |  | — |
Stock-based compensation |  | (4) |  |  | (9) |  |  | 2 |
Research and development credits |  | 10 |  |  | 2 |  |  | 5 |
Disallowed executive compensation |  | (3) |  |  | — |  |  | — |
Restructuring |  | — |  |  | — |  |  | 2 |
Effective tax rate |  | — | % |  | — | % |  | — | %
The Company recorded tax benefit of $0.2 million for the year ended December 31, 2023 and recorded tax expense of $0.1 million for both the years ended December 31, 2022 and 2021. The Company’s income tax expense (benefit) is primarily due to income taxes from certain foreign jurisdictions where the Company conducts business and state minimum income taxes in the United States. The Company’s deferred tax assets and liabilities were as follows:
|  | Year ended December 31,
|  | 2023 |  | 2022
|  | (in thousands)
Deferred tax assets: |  |  |  |
Net operating losses |  | $ | 178,149 |  |  | $ | 183,306 |
Lease liability |  | 20,137 |  |  | 23,245 |
Research and development credits |  | 38,280 |  |  | 21,383 |
Capitalized research and development |  | 45,418 |  |  | 21,032 |
Stock-based compensation |  | 11,765 |  |  | 10,429 |
Deferred revenue |  | 4,934 |  |  | 2,811 |
Reserves and accruals |  | 4,336 |  |  | 4,648 |
Other |  | 1,889 |  |  | 4,179 |
Deferred tax assets |  | 304,908 |  |  | 271,033 |
Intangible asset amortization |  | (16,310) |  |  | (21,713) |
Right-of-use asset |  | (15,322) |  |  | (18,847) |
State taxes |  | (13,032) |  |  | (10,732) |
Prepaid commissions |  | (13,868) |  |  | (11,526) |
Deferred tax liabilities |  | (58,532) |  |  | (62,818) |
Valuation allowance |  | (245,476) |  |  | (208,215) |
Net deferred tax (liabilities) assets |  | $ | 900 |  |  | $ | — |
As of December 31, 2023 and 2022, t he Company had NOL carryforwards for U.S. federal income tax purposes of approximately $626.4 million and $658.8 million, respectively; and for state income tax purposes of approximately $568.3 million and $528.9 million, respectively. The federal NOL carryforwards, if not utilized, will begin to expire in 2035. The state NOL carryforward, if not utilized, will begin to expire on various dates starting in 2024. The Company also has federal and California research and development credit carryforwards totaling $42.1 million and $12.2 million as of December 31, 2023, respectively. The federal research and development credit carryforwards will begin to expire in 2033, unless previously utilized. The California research credits do not expire. As of December 31, 2023, the Company has NOL carryforwards for United Kingdom purposes of approximately $27.9 million. The UK NOL carryforwards do not expire. Based on all available evidence on a jurisdictional basis t he Company believes that it is more likely than not that the Company’s U.S. deferred tax assets will not be utilized and have recorded a full valuation allowance against its U.S. net deferred tax assets. The Company assesses on a periodic basis the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical losses. The Company determined that it is more likely than not that the U.S. net deferred tax assets will not be fully realizable for the years ended December 31, 2023 and 2022. T he Company has a valuation allowance for U.S. deferred tax assets, including NOL carryforwards. The Company expects to maintain this valuation allowance for the foreseeable future. During the year ended December 31, 2023, the valuation allowance related to the Company’s U.S. deferred tax assets increased by $37.3 million. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations under the Code and similar state provisions. Under Section 382 of the Code, a corporation that undergoes an “ownership change” may be subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. A detailed analysis was performed through December 31, 2021 for the Company to determine whether an ownership change under Section 382 of the Code has occurred, and ownership changes were identified in 2013 and 2020. As a result of this analysis, the Company concluded that there is no longer any limitation on the utilization of such NOLs. A detailed analysis was performed for the period March 1, 2014 to October 1, 2020 for Signal Sciences to determine whether an ownership change under Section 382 of the Code has occurred and an ownership change was identified in 2020. As a result of this analysis, the Company concluded that there is no longer any limitation on its utilization of the NOLs of Signal Sciences. No provision for U.S. income and foreign withholding taxes has been made for these permanently reinvested foreign earnings because it is management’s intention to permanently reinvest such undistributed earnings outside the United States. A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):
| Year ended December 31,
| 2023 |  | 2022
Balance at beginning of year | $ | 17,337 |  |  | $ | 7,808 |
Increases related to prior year tax positions | 2,674 |  |  | 8,697 |
Decreases related to prior year tax positions | — |  |  | (751) |
Increases related to current year tax positions | 3,234 |  |  | 1,583 |
Balance at end of year | $ | 23,245 |  |  | $ | 17,337 |
The Company has considered the amounts and probabilities of the outcomes that can be realized upon ultimate settlement with the tax authorities and determined unrecognized tax benefits primarily related to credits should be established as noted in the summary rollforward above. The unrecognized tax benefits, if recognized and in absence of full valuation allowance, would impact the income tax provision by $23.2 million and $17.3 million at December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company does not believe that it is reasonably possible that its unrecognized tax benefits would significantly change in the following 12 months. The Company’s policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on its consolidated balance sheet. To date, t he Company has not recognized any interest and penalties in its consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. Generally, in the U.S. federal and state taxing jurisdictions, tax periods in which certain loss and credit carryovers are generated remain open for audit until such time as the limitation period ends for the year in which such losses or credits are utilized.

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