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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | (14) Income Taxes We have provided for current and deferred U.S. federal, state, and foreign income taxes for all tax jurisdictions in which we operate. Income (loss) before income taxes included in the consolidated statements of operations was as follows:
|  |  | Year Ended December 31,
|  |  |  |  | 2024 |  | 2023 |  | 2022
|  |  |  |  | (in thousands)
United States |  |  |  |  | $ | 35,699 |  |  | $ | (139,295) |  |  | $ | (109,381) |
Foreign |  |  |  |  | 5,756 |  |  | (14,038) |  |  | (12,924) |
Income (loss) before income taxes |  |  |  |  | $ | 41,455 |  |  | $ | (153,333) |  |  | $ | (122,305) |
Income tax expense included in the consolidated statements of operations was as follows:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
| (in thousands)
Current: |  |  |  |  |
Federal | $ | 2,426 |  |  | $ | 428 |  |  | $ | 1 |
State and local | 2,848 |  |  | 1,361 |  |  | 243 |
Foreign | 9,864 |  |  | 3,317 |  |  | 3,608 |
Total current tax expense | 15,138 |  |  | 5,106 |  |  | 3,852 |
Deferred: |  |  |  |  |
Federal | 12 |  |  | 9 |  |  | 10 |
State and local | — |  |  | 2 |  |  | 2 |
Foreign | 779 |  |  | (5,635) |  |  | (1,452) |
Total deferred tax expense (benefit) | 791 |  |  | (5,624) |  |  | (1,440) |
Total income tax expense (benefit) | $ | 15,929 |  |  | $ | (518) |  |  | $ | 2,412 |
The reconciliation of the federal statutory rate of 21% to the effective income tax rate for the years ended December 31, 2024, 2023 and 2022 was as follows:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State taxes, net of federal benefit | 6.0 |  |  | (0.5) |  |  | (0.1) |
Permanent differences | 7.0 |  |  | (0.9) |  |  | (0.2) |
Stock-based compensation | 15.7 |  |  | (7.0) |  |  | (2.4) |
Research and development credits | (18.5) |  |  | 0.9 |  |  | 1.4 |
Foreign rate differential | 3.0 |  |  | 0.3 |  |  | 0.1 |
Change in valuation allowance | (11.2) |  |  | (3.2) |  |  | (24.8) |
Excess officers' compensation | 5.5 |  |  | (1.7) |  |  | (3.1) |
Tax rate change | (13.4) |  |  | (3.4) |  |  | 7.8 |
Induced conversion expense | — |  |  | (9.5) |  |  | — |
Tax reserves | 12.6 |  |  | (0.1) |  |  | (0.2) |
Provision to return | (0.5) |  |  | 5.2 |  |  | (0.3) |
U.S. taxation of international operations | 3.5 |  |  | — |  |  | — |
Other | 7.7 |  |  | (0.8) |  |  | (1.1) |
Effective income tax rate | 38.4 | % |  | 0.3 | % |  | (1.9) | %
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,
| 2024 |  | 2023
| (in thousands)
Deferred tax assets: |  |  |
Accruals and reserves | $ | 824 |  |  | $ | 335 |
Net operating loss carryforwards | 121,343 |  |  | 137,706 |
Deferred revenue | 3,192 |  |  | 15,726 |
Depreciation | 4,304 |  |  | 836 |
Research and development credits | 13,697 |  |  | 14,116 |
Capitalized research and development | 90,965 |  |  | 63,234 |
Operating lease liabilities | 18,164 |  |  | 24,012 |
Stock-based compensation | 12,290 |  |  | 9,113 |
Tax credits | — |  |  | 1,148 |
Other | 3,369 |  |  | 1,170 |
Gross deferred tax assets | $ | 268,148 |  |  | $ | 267,396 |
Valuation allowance | (229,283) |  |  | (231,661) |
Total deferred tax assets | $ | 38,865 |  |  | $ | 35,735 |
Deferred tax liabilities: |  |  |
Operating lease ROU assets | $ | (10,329) |  |  | $ | (11,307) |
Deferred contract acquisition and fulfillment costs | (26,277) |  |  | (24,251) |
Other | (2,944) |  |  | (65) |
Total deferred tax liabilities | $ | (39,550) |  |  | $ | (35,623) |
Net deferred tax liabilities | $ | (685) |  |  | $ | 112 |
As of December 31, 2024, we had federal and state net operating loss (“NOL”) carryforwards in the United States of $265.6 million and $306.0 million, respectively. Of these amounts, $251.5 million of federal and $47.8 million of state NOLs can be carried forward indefinitely. We had foreign NOL carryforwards of $215.5 million that can be carried forward indefinitely. We also had federal, state and foreign research and development credit carryforwards of $9.3 million, $4.1 million and $0.3 million as of December 31, 2024, respectively. The remaining NOLs and credits expire at various dates beginning in 2025. As of December 31, 2024, 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. Beginning January 1, 2022, the Tax Cuts and Jobs 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 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 $91.0 million and $63.2 million as of December 31, 2024 and 2023, respectively. During the fourth quarter of 2024, we completed an analysis of our U.S. federal research and development tax credits. As a result, we recorded additional credits of $4.2 million, which have a full valuation allowance and are subject to the potential limitations discussed above. Valuation Allowances As of December 31, 2024, 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 Company's valuation allowance decreased by $2.4 million for the year ended December 31, 2024, due primarily to a decrease in operating losses, as well as a decrease of $1.7 million related to release of our valuation allowance related to our net deferred tax assets in Israel, offset by an increase related in capitalized research and development. The release of the valuation allowance in Israel was primarily the result of an internal restructuring, which changed the overall deferred tax position of the Israeli subsidiary. 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 and against the net operating loss carryforwards of our Ireland subsidiary. We may release additional valuation allowances in future periods if objective negative evidence of cumulative losses is no longer present and positive evidence, such as projection of future growth, supports the realization of such deferred tax assets. Release of all or a portion of these valuation allowances would result in a decrease in the provision for income taxes in the period of the release. Unrecognized Tax Benefits 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 2023 through 2024 and in Israel for tax years 2018 through 2022. The following is a reconciliation of the beginning and ending balances of unrecognized tax benefits (excluding interest and penalties), in thousands:
Balance, January 1, 2024 |  |  |  |  | $ | 5,041 |
Additions based on tax positions related to the current year |  |  |  |  | 4,520 |
Additions for tax positions of prior years |  |  |  |  | 315 |
Reductions for tax positions of prior years |  |  |  |  | — |
Settlements |  |  |  |  | — |
Balance, December 31, 2024 |  |  |  |  | $ | 9,876 |
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. The change in our reserves during the year ended December 31, 2024 primarily relates to an intercompany sale of intellectual property as part of a post-acquisition integration strategy related to our acquisition of Minerva Labs Ltd. We recorded $0.4 million of interest in 2024 related to unrecognized tax benefits. During the next twelve months, the Company does not expect any change to its unrecognized tax benefits other than the accrual of interest in the normal course of business. We recognize interest and penalties related to unrecognized tax benefits in the income tax line of the statement of operations. From time to time, we may receive income tax assessments from taxing authorities asserting additional tax liabilities owed by the Company. During the quarter ended June 30, 2024, we received an initial assessment from the Israel Tax Authority (“ITA”) of approximately 324 million Israeli New Shekels (approximately $88 million, based upon exchange rates as of December 31, 2024 between the Israeli New Shekel and the US Dollar) related to fiscal year 2021. Based on our interpretation of the regulations and available case law, we believe that the tax positions we have taken on our filed tax return in Israel are sustainable and we intend to defend our position through all available means. As such, we have not recorded any impact of the ITA assessment in our consolidated financial statements for the year ended December 31, 2024. We are continuing to monitor developments related to this matter and its impact on our existing income tax reserves for all open years. If we are unsuccessful in sustaining our tax position in this matter, our financial condition and results of operations would be adversely affected. Other Tax Matters As of December 31, 2024, we have accumulated earnings generated by foreign subsidiaries. We have not recognized a deferred tax liability for the majority of these unremitted earnings as our intention is to indefinitely reinvest these accumulated earnings in our foreign subsidiaries. During the fourth quarter of 2024, we made the determination that the unremitted foreign earnings associated with our Israel legal entity are no longer indefinitely reinvested. We recorded a liability of $0.1 million related to the taxes expected to be imposed upon the repatriation of these unremitted foreign earnings that are not considered indefinitely reinvested. The Organization for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules (“Pillar Two”) for the global 15% minimum tax have been adopted in a number of jurisdictions in which we operate. We are continuing to evaluate the potential impact on future periods of the Pillar Two framework, pending legislative adoption by additional individual countries.

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