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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | (14) Income Taxes Loss before income taxes included in the consolidated statements of operations was as follows:
|  |  | Year Ended December 31,
|  |  |  |  | 2023 |  | 2022 |  | 2021
|  |  |  |  | (in thousands)
United States |  |  |  |  | $ | (136,637) |  |  | $ | (109,381) |  |  | $ | (106,281) |
Foreign |  |  |  |  | (13,141) |  |  | (12,924) |  |  | (29,632) |
Loss before income taxes |  |  |  |  | $ | (149,778) |  |  | $ | (122,305) |  |  | $ | (135,913) |
Income tax expense included in the consolidated statements of operations was as follows:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
| (in thousands)
Current: |  |  |  |  |
Federal | $ | 428 |  |  | $ | 1 |  |  | $ | 124 |
State and local | 1,361 |  |  | 243 |  |  | 177 |
Foreign | 3,317 |  |  | 3,608 |  |  | 9,690 |
Total current tax expense | 5,106 |  |  | 3,852 |  |  | 9,991 |
Deferred: |  |  |  |  |
Federal | 9 |  |  | 10 |  |  | 10 |
State and local | 2 |  |  | 2 |  |  | 2 |
Foreign | (5,635) |  |  | (1,452) |  |  | 418 |
Total deferred tax (benefit) expense | (5,624) |  |  | (1,440) |  |  | 430 |
Income tax expense | $ | (518) |  |  | $ | 2,412 |  |  | $ | 10,421 |
The reconciliation of the federal statutory rate of 21% to the effective income tax rate for the years ended December 31, 2023, 2022 and 2021 was as follows:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes, net of federal benefit | (0.5) |  |  | (0.1) |  |  | (0.1) |
Permanent differences | (0.9) |  |  | (0.2) |  |  | (0.2) |
Stock-based compensation | (7.0) |  |  | (2.4) |  |  | 14.2 |
Federal research and development credit | 0.9 |  |  | 1.4 |  |  | 1.4 |
Foreign rate differential | 0.3 |  |  | 0.1 |  |  | (0.5) |
Change in valuation allowance | (3.2) |  |  | (24.8) |  |  | (36.0) |
Excess officers' compensation | (1.7) |  |  | (3.1) |  |  | (5.9) |
Tax rate change | (3.4) |  |  | 7.8 |  |  | 11.2 |
Induced conversion expense | (9.5) |  |  | — |  |  | (0.6) |
Tax reserves | (0.1) |  |  | (0.2) |  |  | (3.8) |
Prior year true-ups | 5.2 |  |  | (0.3) |  |  | (0.1) |
Capital gain on sale | — |  |  | — |  |  | (7.0) |
Other | (0.8) |  |  | (1.1) |  |  | (1.2) |
Effective income tax rate | 0.3 | % |  | (1.9) | % |  | (7.6) | %
Net deferred tax assets and liabilities, as set forth in the table below, reflect the impact of temporary differences between the amounts of assets and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax laws:
| As of December 31,
| 2023 |  | 2022
| (in thousands)
Deferred tax assets: |  |  |
Accruals and reserves | $ | 335 |  |  | $ | 109 |
Net operating loss carryforwards | 137,706 |  |  | 166,173 |
Deferred revenue | 15,726 |  |  | 9,597 |
Depreciation | 836 |  |  | 3,258 |
Research and development credits | 14,116 |  |  | 11,047 |
Capitalized research and development | 63,234 |  |  | 40,253 |
Operating lease liabilities | 24,012 |  |  | 25,134 |
Stock-based compensation | 9,113 |  |  | 9,072 |
Tax credits | 1,148 |  |  | 1,148 |
Other | 1,170 |  |  | 1,918 |
Gross deferred tax assets | $ | 267,396 |  |  | $ | 267,709 |
Valuation allowance | (231,661) |  |  | (230,205) |
Total deferred tax assets | $ | 35,735 |  |  | $ | 37,504 |
Deferred tax liabilities: |  |  |
Intangible assets | $ | — |  |  | $ | — |
Operating lease ROU assets | (11,307) |  |  | (20,159) |
Convertible senior notes | — |  |  | — |
Deferred contract acquisition and fulfillment costs | (24,251) |  |  | (22,664) |
Other | (65) |  |  | (55) |
Total deferred tax liabilities | $ | (35,623) |  |  | $ | (42,878) |
Net deferred tax liabilities | $ | 112 |  |  | $ | (5,374) |
Beginning January 1, 2022, the Tax Cuts and Jobs Act (the "Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code (“IRC”) Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. We have included the impact of this provision, which results in additional deferred tax assets of approximately $63.2 million and $37.1 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023, we have evaluated the need for a valuation allowance on our deferred tax assets. In making this determination, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance increased by $1.5 million for the year ended December 31, 2023. Due to our history of generating losses, we continue to record a valuation allowance against our net deferred tax assets in the United States and U.K. In addition to the United States, we have recognized valuation allowance against a net deferred tax asset in Israel. Based on our assessment of future profitability in Ireland, we have released a portion of valuation allowance in respect of our deferred tax assets. As of December 31, 2023, we had federal and state net operating loss (“NOL”) carryforwards in the United States of $346.5 million and $293.5 million, respectively. Of these amounts, $332.7 million of federal and a portion of state NOLs can be carried forward indefinitely. The remaining NOLs expire at various dates beginning in 2024. We had foreign NOL carryforwards of $241.6 million that can be carried forward indefinitely. We also had federal, state and foreign research and development credit carryforwards of $7.2 million, $3.1 million and $3.8 million as of December 31, 2023, respectively. These credit carryforwards expire at various dates beginning in 2024. As of December 31, 2023, our ability to utilize NOLs remains limited under IRC Sections 382 and 383 due to an ownership change we experienced in January 2018. We will not be precluded from realizing the NOL carryforwards and tax credits but may be limited in the amount we could utilize in any given tax year in the event that the federal and state taxable income exceeds the limitation imposed by Section 382. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. We file income tax returns in all jurisdictions in which we operate. In the normal course of business, we are subject to examination by federal, state, and foreign tax authorities, where applicable. The statute of limitations for these jurisdictions is generally three to seven years. However, to the extent we utilize net operating losses or other similar carryforward attributes such as credits, the statute remains open to the extent of the net operating losses or credits that are utilized. We are currently under tax examination in the state of Massachusetts for tax years 2021 through 2022 and in Israel for tax years 2016 through 2019. We have established reserves to provide for additional income taxes that management believes will more likely than not be due in future years. The reserves have been established based upon our assessment of the potential exposure. Our reserve for unrecognized income tax benefits of $5.0 million remained unchanged from December 31, 2022. We recorded $0.2 million of interest in 2023 related to uncertain tax positions. During the next twelve months, the Company does not expect any change to its uncertain tax positions other than the accrual of interest in the normal course of business. We plan to permanently reinvest the undistributed earnings of our foreign subsidiaries. If we repatriate these earnings, we may be required to pay U.S. state and local taxes, as well as foreign withholding taxes.

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