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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
13.
Income Taxes

The components of loss before income taxes are as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Domestic

 

$

(307,056

)

 

$

(268,499

)

 

$

(195,617

)

Foreign

 

 

12,187

 

 

 

(22,184

)

 

 

6,888

 

Loss before provision for income taxes

 

$

(294,869

)

 

$

(290,683

)

 

$

(188,729

)

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

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

 

$

—

 

State

 

 

—

 

 

 

—

 

 

 

—

 

Foreign

 

 

358

 

 

 

347

 

 

 

360

 

Total current

 

 

358

 

 

 

347

 

 

 

360

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

—

 

 

 

—

 

 

 

—

 

State

 

 

—

 

 

 

—

 

 

 

—

 

Foreign

 

 

—

 

 

 

—

 

 

 

—

 

Total deferred

 

 

—

 

 

 

—

 

 

 

—

 

Total provision for income taxes

 

$

358

 

 

$

347

 

 

$

360

 

The following is the reconciliation between the statutory federal income tax rate and the Company’s effective tax rate:

 

 

Years Ended December 31,

 

 

2022

 

 

2021

 

 

2020

 

Tax at statutory federal rate

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State tax

 

—

%

 

 

—

%

 

 

—

%

Stock-based compensation expense

 

(2.5

)%

 

 

(1.8

)%

 

 

2.4

%

Benefit due to intercompany transfer of assets

 

—

%

 

 

—

%

 

 

41.7

%

Valuation allowance on intercompany transfer of assets

 

—

%

 

 

—

%

 

 

(41.7

)%

Net operating losses not benefitted

 

(16.3

)%

 

 

(16.8

)%

 

 

(23.2

)%

Foreign net operating losses not benefitted

 

0.9

%

 

 

(1.6

)%

 

 

0.7

%

Deduction limitation on executive compensation

 

(0.2

)%

 

 

(0.3

)%

 

 

(0.8

)%

Global intangible low-taxed income

 

(2.8

)%

 

 

(0.4

)%

 

 

—

%

Other

 

(0.2

)%

 

 

(0.2

)%

 

 

(0.3

)%

Total

 

(0.1

)%

 

 

(0.1

)%

 

 

(0.2

)%

 

Significant components of the Company’s deferred tax assets are as follows (in thousands):

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

Federal and state net operating loss carryforwards

 

$

166,708

 

 

$

167,135

 

Tax credit carryforwards

 

 

106,131

 

 

 

78,832

 

Foreign net operating loss carryforwards

 

 

49,990

 

 

 

38,117

 

Capitalized research and development expenses

 

 

45,125

 

 

 

—

 

Stock-based compensation

 

 

8,616

 

 

 

10,050

 

Lease obligations

 

 

18,442

 

 

 

20,415

 

Reserves and accruals

 

 

4,929

 

 

 

6,067

 

Deferred revenue

 

 

21,624

 

 

 

20,101

 

Intangible assets

 

 

69,159

 

 

 

84,625

 

Other

 

 

1,277

 

 

 

825

 

Subtotal

 

 

492,001

 

 

 

426,167

 

Less: Valuation allowance

 

 

(477,969

)

 

 

(409,810

)

Net deferred tax assets

 

 

14,032

 

 

 

16,357

 

 

 

 

 

 

 

 

Fixed assets

 

 

(13,101

)

 

 

(16,357

)

Non-deductibale accrued expenses

 

 

(931

)

 

 

—

 

Net deferred tax liabilities

 

 

(14,032

)

 

 

(16,357

)

Total net deferred tax assets

 

$

—

 

 

$

—

 

A valuation allowance has been provided to reduce the deferred tax assets to an amount management believes is more likely than not to be realized. Expected realization of the deferred tax assets for which a valuation allowance has not been recognized is based on upon the reversal of existing temporary differences and future taxable income.

The valuation allowance increased by $68.2 million, $72.0 million and $124.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Due to uncertainty surrounding the realization of the favorable tax attributes in the future tax returns, the Company has established a valuation allowance against its otherwise recognizable net deferred tax assets.

The Company intends to continue maintaining a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.

During 2020, the Company transferred certain intellectual property rights relating to its Chinese business between its wholly owned subsidiaries that are based in different tax jurisdictions. The transferor entity was not subject to income taxes in its local jurisdiction. The acquiring entity of the intellectual property is entitled to amortize the acquisition price of the intangible assets for tax purposes. In accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, the Company recognized a deferred tax asset of $78.7 million for the temporary difference arising from the acquirer’s excess tax basis. Furthermore, based upon the weight of available evidence, the Company recognized a full valuation allowance against this deferred tax asset since it does not currently believe that realization of this gross deductible temporary difference is more likely than not. Accordingly, this inter-company transfer did not have a material impact to the Company’s consolidated financial statements.

At December 31, 2022, the Company had net operating loss carryforwards available to offset future taxable income of approximately $758.3 million and $140.1 million for federal and state tax purposes, respectively. These carryforwards will begin to expire in 2026 for federal and 2028 for state purposes, if not utilized before these dates. The Company also had foreign net operating loss carryforwards of approximately $242.6 million, which expire between 2023 and 2032 if not utilized.

At December 31, 2022, the Company had approximately $121.6 million of federal and $46.6 million of California research and development tax credit and other tax credit carryforwards available to offset future taxable income. The federal credits begin to expire in 2023 and the California research credits have no expiration dates.

Federal and state tax laws impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an “ownership change” for tax purposes, as defined in IRC Section 382. The Company reviewed its stock ownership for year ended December 31, 2022 and concluded no ownership changes occurred which would result in a reduction of its net operating loss or in its research and development credits expiring unused. If additional ownership change occurs, the utilization of net operating loss and credit carryforwards could be significantly reduced.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other changes to the Internal Revenue Code, the IRA imposes a 15% corporate alternative minimum tax on certain corporations and 1% excise tax on public company stock buybacks for tax years beginning after December 31, 2022. The Company does not expect these provisions to have a material impact on its consolidated financial statements and related disclosures.

Uncertain Tax Positions

The Company had unrecognized tax benefits of approximately $72.8 million as of December 31, 2022. Approximately $0.7 million of unrecognized tax benefits, if recognized, would affect the effective tax rate. The interest accrued as of December 31, 2022 and 2021 was immaterial.

A reconciliation of the beginning and ending amounts of unrecognized income tax benefits during the three years ended December 31, 2022 is as follows (in thousands):

 

 

 

Federal and State

 

Balance as of December 31, 2019

 

$

32,263

 

Decrease due to prior positions

 

 

(137

)

Increase due to current year position

 

 

16,448

 

Balance as of December 31, 2020

 

 

48,574

 

Decrease due to prior positions

 

 

(245

)

Increase due to current year position

 

 

8,415

 

Foreign exchange rate differential

 

 

927

 

Balance as of December 31, 2021

 

 

57,671

 

Increase due to prior positions

 

 

6,954

 

Increase due to current year position

 

 

9,074

 

Foreign exchange rate differential

 

 

(908

)

Balance as of December 31, 2022

 

$

72,791

 

Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months that would affect the Company’s effective tax rate.

The Company classifies interest and penalties as a component of tax expense, if any.

The Company files income tax returns in the U.S. federal jurisdiction, U.S. state and other foreign jurisdictions. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes. The foreign statute of limitation generally remains open from 2013 to 2022. The Company is not currently under audit in any tax jurisdiction.