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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)202220212020
Domestic$(185,820)$(125,947)$(59,281)
Foreign24,023 (6,040)(65,608)
$(161,797)$(131,987)$(124,889)
The components of provision for (benefit from) income taxes are:
(in thousands)202220212020
Current:
Federal$3,920 $1,921 $(11,251)
State775 363 399 
Foreign10,200 4,105 7,113 
Total current provision for (benefit from)14,895 6,389 (3,739)
Deferred:
Federal149,028 (42,214)(34,573)
State20,704 (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)202220212020
U.S. federal income taxes at statutory rates$(33,977)$(27,717)$(26,227)
Valuation allowance188,258 (469)(5,881)
State income taxes, net of federal benefit and tax credits(2,433)(7,217)(6,994)
Permanent differences11,561 541 1,773 
Federal research and experimentation credits(5,012)(6,380)(5,716)
Tax effects of foreign activities3,770 3,599 3,050 
GILTI, FDII, and BEAT16,390 — — 
Provision to return adjustments(6,317)(2,016)3,416 
Non-deductible compensation4,769 5,464 1,806 
Expiration of statutes and changes in estimates5,673 (2,250)55 
Excess tax benefits related to stock-based compensation1,563 (20,697)(25,797)
CARES Act— — (10,576)
Impact of change in tax law(793)(11,811)7,489 
Other333 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)20222021
Deferred tax assets:
Net operating loss carryforwards$109,286 $133,164 
Accruals and reserves32,467 38,526 
Interest expense carryforward208 7,759 
Software revenue1,828 336 
Convertible senior notes5,794 8,362 
Depreciation3,698 3,764 
Tax credit carryforwards39,122 40,590 
Research and development capitalization38,425 — 
Other622 1,015 
Total deferred tax assets231,450 233,516 
Valuation allowances(212,808)(25,855)
Total net deferred tax assets18,642 207,661 
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)
FederalState
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)
202220212020
Balance as of January 1,
$17,584 $23,801 $23,271 
Additions for tax positions related to the current year1,706 653 653 
Additions for tax positions of prior years728 — 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.