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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13. Income Taxes

For financial reporting purposes, loss before income taxes includes the following components (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Domestic

 

$

(106,833

)

 

$

(113,558

)

 

$

(65,415

)

Foreign

 

 

(1,380

)

 

 

283

 

 

 

203

 

Loss before income taxes

 

$

(108,213

)

 

$

(113,275

)

 

$

(65,212

)

 

Provision for Income Taxes

The provision for income taxes consists of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

(9

)

 

$

—

 

 

$

—

 

State

 

 

3

 

 

 

5

 

 

 

—

 

Foreign

 

 

35

 

 

 

66

 

 

 

43

 

Total current

 

 

29

 

 

 

71

 

 

 

43

 

Deferred:

 

 

 

 

 

 

 

 

 

Foreign

 

 

54

 

 

 

(31

)

 

 

(29

)

Total deferred

 

 

54

 

 

 

(31

)

 

 

(29

)

Provision for income taxes

 

$

83

 

 

$

40

 

 

$

14

 

 

Income tax provision related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows:

 

 

 

Year Ended December 31,

 

 

2023

 

2022

 

2021

Expected tax (benefit) at federal statutory rate

 

(21%)

 

(21%)

 

(21%)

Effect of:

 

 

 

 

 

 

State taxes

 

(7%)

 

(6%)

 

(9%)

Change in valuation allowance

 

26%

 

28%

 

36%

Stock-based compensation

 

3%

 

1%

 

(3%)

Research and development credit

 

(3%)

 

(2%)

 

(3%)

Other

 

2%

 

–%

 

–%

Effective tax rate

 

–%

 

–%

 

–%

 

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows (in thousands):

 

 

 

December 31,

 

 

 

2023

 

 

2022

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

83,983

 

 

$

72,408

 

Research and development credits

 

 

22,669

 

 

 

16,824

 

Capitalized research and development

 

 

22,089

 

 

 

11,972

 

Deferred revenue

 

 

362

 

 

 

38

 

Accruals and reserves

 

 

2,883

 

 

 

1,914

 

Stock-based compensation

 

 

4,614

 

 

 

5,197

 

Operating lease liabilities

 

 

13,124

 

 

 

13,455

 

Other intangibles

 

 

209

 

 

 

267

 

Other

 

 

132

 

 

 

236

 

Total gross deferred tax assets

 

 

150,065

 

 

 

122,311

 

Less: valuation allowance

 

 

(144,861

)

 

 

(114,483

)

Total deferred tax assets

 

 

5,204

 

 

 

7,828

 

Deferred tax liabilities:

 

 

 

 

 

 

Property and equipment

 

 

(113

)

 

 

(108

)

Operating lease right-of-use assets

 

 

(5,084

)

 

 

(7,659

)

Total deferred tax liabilities

 

 

(5,197

)

 

 

(7,767

)

Net deferred tax assets

 

$

7

 

 

$

61

 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of the Company’s lack of U.S. earnings history, the net U.S. deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $30.4 million and $32.9 million during the years ended December 31, 2023 and 2022, respectively.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2023, the Company had a net operating loss carryforward for federal income tax purposes of $285.5 million, of which $86.1 million is subject to expiration beginning in 2031. The Company had a total state net operating loss carryforward of $274.7 million, which will begin to expire in 2031. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 (specifically Section 382), as amended, and similar state provisions. The Company performed a Section 382 analysis through December 31, 2023 and determined that ownership changes occurred in the year 2011 and again in 2020. The ownership changes identified had no significant impact on federal and state net operating losses. The annual limitations may result in the expiration of net operating losses and credits before utilization in the future.

As of December 31, 2023, the Company has federal credits of $12.2 million, which will begin to expire in 2031 and state research credits of $10.5 million, which have no expiration date. These tax credits are subject to the same limitations discussed above. The Company determined that the ownership changes identified above had no significant impact on federal and state research credits.

Unrecognized Tax Benefits

The Company has incurred net operating losses since inception and does not have any significant unrecognized tax benefits. The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations. If the Company is eventually able to recognize its uncertain positions, the effective tax rate would be reduced. The Company currently has a full valuation allowance against its net deferred tax assets, which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. Any adjustments to the Company’s uncertain tax positions would result in an adjustment of net operating loss or tax credit carryforwards rather than resulting in a cash outlay.

The Company files U.S. federal income tax returns and various state income tax returns. Because of net operating losses and research credit carryovers, substantially all the Company’s tax years remain open to examination.

The Company has the following activity relating to unrecognized tax benefits (in thousands):

 

 

 

December 31,

 

 

 

2023

 

 

2022

 

Beginning balance

 

$

4,240

 

 

$

3,066

 

Gross increase—tax position in prior periods

 

 

162

 

 

 

-

 

Gross increase—tax position in current period

 

 

1,299

 

 

 

1,174

 

Ending balance

 

$

5,701

 

 

$

4,240

 

 

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next 12 months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the years ended December 31, 2023, 2022, and 2021, no interest or penalties were required to be recognized relating to unrecognized tax benefits.