INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

18. INCOME TAXES

The components of (loss) before provision for (benefit from) income taxes are:

(in thousands)	2022		2021		2020
Domestic	$	(185,820)	$	(125,947)	$	(59,281)
Foreign	24,023		(6,040)		(65,608)
	$	(161,797)	$	(131,987)	$	(124,889)

The components of provision for (benefit from) income taxes are:

(in thousands)	2022		2021		2020
Current:
Federal	$	3,920	$	1,921	$	(11,251)
State	775		363		399
Foreign	10,200		4,105		7,113
Total current provision for (benefit from)	14,895		6,389		(3,739)
Deferred:
Federal	149,028		(42,214)		(34,573)
State	20,704		(9,413)		(8,119)
Foreign	(842)		(23,709)		(17,085)
Total deferred provision (benefit)	168,890		(75,336)		(59,777)
	$	183,785	$	(68,947)	$	(63,516)

A reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate:

(in thousands)	2022		2021		2020
U.S. federal income taxes at statutory rates	$	(33,977)	$	(27,717)	$	(26,227)
Valuation allowance	188,258		(469)		(5,881)
State income taxes, net of federal benefit and tax credits	(2,433)		(7,217)		(6,994)
Permanent differences	11,561		541		1,773
Federal research and experimentation credits	(5,012)		(6,380)		(5,716)
Tax effects of foreign activities	3,770		3,599		3,050
GILTI, FDII, and BEAT	16,390		—		—
Provision to return adjustments	(6,317)		(2,016)		3,416
Non-deductible compensation	4,769		5,464		1,806
Expiration of statutes and changes in estimates	5,673		(2,250)		55
Excess tax benefits related to stock-based compensation	1,563		(20,697)		(25,797)
CARES Act	—		—		(10,576)
Impact of change in tax law	(793)		(11,811)		7,489
Other	333		6		86
	$	183,785	$	(68,947)	$	(63,516)

Deferred income taxes

Significant components of net deferred tax assets and liabilities are:

	December 31,
(in thousands)	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	109,286	$	133,164
Accruals and reserves	32,467		38,526
Interest expense carryforward	208		7,759
Software revenue	1,828		336
Convertible senior notes	5,794		8,362
Depreciation	3,698		3,764
Tax credit carryforwards	39,122		40,590
Research and development capitalization	38,425		—
Other	622		1,015
Total deferred tax assets	231,450		233,516
Valuation allowances	(212,808)		(25,855)
Total net deferred tax assets	18,642		207,661
Deferred tax liabilities:
Capped call transactions	(644)		(14,961)
Convertible senior notes	—		—
Software revenue	—		—
Intangibles	(14,280)		(12,044)
Total deferred tax liabilities	(14,924)		(27,005)
	$	3,718	$	180,656

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on sufficient taxable income within the available carryback or carryforward periods. The Company’s deferred tax valuation allowance requires significant judgment and has uncertainties, including assumptions about future taxable income based on historical and projected information. On a quarterly basis, the Company reassesses the need for a valuation allowance on its existing net deferred tax assets by tax-paying jurisdiction, weighing positive and negative evidence to assess its recoverability. In making such a determination, the Company considers all available and objectively verifiable negative and positive evidence, including future reversals of existing taxable temporary differences, committed contractual backlog (“Backlog”), projected future taxable income inclusive of the impact of enacted legislation, tax-planning strategies, and results of recent operations. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified.

As of June 30, 2022, the Company’s Backlog balance was not sufficient to recover the Company’s net deferred tax assets. The Backlog balance and other unsettled circumstances, impacting the Company’s operations, reduced the Backlog’s weight as objectively verifiable positive evidence to generate sufficient taxable income to recover its net deferred tax assets. These unsettled circumstances include growing and extended geopolitical turmoil, increasing inflation, and an uncertain global economic outlook.

As of June 30, 2022, the combination of the above factors caused the Company to conclude there is not sufficient objectively verifiable positive evidence to support that it is more likely than not the Company will generate sufficient future taxable income to recover the Company’s U.S. and U.K. net deferred tax assets.

The Company intends to maintain a full valuation allowance on its U.S and U.K deferred tax assets until there is sufficient evidence to support the realization of these deferred tax assets. Accordingly, the Company recorded a valuation allowance of $188.3 million in income tax expense in 2022.

As of December 31, 2022, the Company’s net operating losses and credit carryforwards are:

(in thousands)	Federal		State
Net operating losses (1)	$	147,294	$	10,807
Net operating losses due to acquisitions (1)	$	27,442	$	2,849
Credit carryforwards (2)	$	29,080	$	1,686
Credit carryforwards due to acquisitions	$	640	$	60

(1) Excludes federal and state net operating losses of $19.8 million and $0.8 million, respectively, from prior acquisitions that the Company expects will expire unutilized.

(2) Excludes federal and state tax credits of $0.1 million and $9.2 million, respectively, that the Company expects will expire unutilized.

Carryforward losses and credits expire between 2023 and 2040, except for the 2020 and 2021 federal net operating loss of $119.9 million and $1.2 million of state credits, which both have unlimited carryforward periods.

The Company’s India subsidiary is primarily located in Special Economic Zones (“SEZs”) and is entitled to a tax holiday in India. The tax holiday reduces or eliminates income tax in India. The tax holiday in the Hyderabad SEZ is expected to expire in 2023. The tax holiday in the Bengaluru SEZ is expected to expire in 2027.

Uncertain tax benefits

A rollforward of the Company’s gross unrecognized tax benefits is:

(in thousands)	2022		2021		2020
Balance as of January 1,	$	17,584	$	23,801	$	23,271
Additions for tax positions related to the current year	1,706		653		653
Additions for tax positions of prior years	728		—		962
Reductions for tax positions of prior years	(272)		(6,870)		(1,085)
Balance as of December 31,	$	19,746	$	17,584	$	23,801

As of December 31, 2022, the Company had $19.7 million of total unrecognized tax benefits, which would decrease the Company’s effective tax rate if recognized.

Tax examinations

The Company files federal and state income tax returns in the U.S. and various foreign jurisdictions. In the ordinary course of business, the Company and its subsidiaries are examined by various tax authorities, including the Internal Revenue Service in the U.S. As of December 31, 2022, the Company’s U.S. federal tax returns for the years 2015 through 2018 were under examination by the Internal Revenue Service. In addition, certain foreign jurisdictions are auditing the Company’s income tax returns for periods ranging from 2013 through 2020. The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows. With few exceptions, the statute of limitations remains open in all jurisdictions for all tax years since 2016 to the present.