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Income Taxes
12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
(Loss) income before income tax expense (benefit) for the years ended December 31, 2023, 2022 and 2021 is as follows (in thousands):
 202320222021
(Loss) income before income tax expense (benefit):
Domestic$(62,489)$(90,058)$24,761 
Foreign(34,608)(69,284)(39,836)
Total$(97,097)$(159,342)$(15,075)
Income tax expense (benefit)
Current:   
Federal$— $(41)$41 
State391 176 41 
Foreign— 17 — 
Total current tax expense$391 $152 $82 
Deferred:
Federal$(373)$614 $(575)
State602 (647)1,241 
Foreign(9,749)(15,211)(7,476)
Total deferred tax benefit$(9,520)$(15,244)$(6,810)
Total tax benefit$(9,129)$(15,092)$(6,728)
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31, 2023, 2022 and 2021 is as follows:
 202320222021
Federal statutory tax rate21.00 %21.00 %21.00 %
State income taxes, net of federal income tax benefit1.01 %2.06 %17.77 %
Transaction Costs(0.03)%(0.01)%(10.11)%
Penalties— %(0.03)%(15.61)%
Compensation expense(4.13)%(2.17)%(0.96)%
Inivata acquisition fair value adjustment— %— %159.14 %
Capped call interest— %4.50 %— %
Tax credits0.90 %1.32 %11.63 %
Return to provision and other deferred tax adjustments(0.04)%(0.22)%— %
Foreign tax rate differential1.20 %1.20 %2.74 %
Enacted Rate Changes1.02 %— %— %
Other, net(0.08)%(0.12)%(2.91)%
Valuation allowance(11.45)%(18.07)%(138.07)%
Effective tax rate9.40 %9.46 %44.62 %
At December 31, 2023 and 2022, deferred income tax assets and liabilities consisted of the following (in thousands):
 20232022
Deferred tax assets:
Accrued compensation9,157 5,282 
Net operating loss carry-forwards114,856 106,742 
Tax credits11,076 8,983 
Stock-based compensation2,622 2,797 
Operating lease liabilities18,764 19,248 
Interest expense1,026 2,751 
Convertible debt discount4,319 5,287 
Research expenditures5,234 4,348 
Other3,313 4,529 
     Gross deferred tax assets170,367 159,967 
     Less: valuation allowance(76,281)(65,166)
Total deferred tax assets$94,086 $94,801 
Deferred tax liabilities:
Operating lease right-of-use assets$(18,088)$(18,215)
Intangible assets (94,004)(101,886)
Property and equipment(6,279)(9,450)
Total deferred tax liabilities $(118,371)$(129,551)
Net deferred income tax liabilities$(24,285)$(34,750)
At December 31, 2023, the Company has federal net operating loss carry forwards of approximately $276.0 million, foreign net operating loss carryforwards of approximately $217.3 million, including $180.1 million in the United Kingdom, and state net operating loss carry forwards of approximately $180.8 million. Federal net operating loss (“NOLs”) carry forwards will begin to expire in 2030. Under the Tax Act, as modified by the CARES Act, the Company’s federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, however, the deductibility of such federal net NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. State tax NOLs began to expire in 2023. NOLs in Switzerland and China begin to expire in 2024 and 2025, respectively, if not utilized in future periods. The NOLs in Singapore and the United Kingdom do not expire. As of December 31, 2023, the Company has federal R&D credit carryforwards of approximately $8.6 million that begin to expire in 2036 and state research and investment credit carryforwards of approximately $5.4 million that do not expire.
An ownership change of more than 50 percent could result in a limitation of the use of net operating loss carryforwards and credit carryforwards under IRC Section 382, IRC Section 383, and the regulations thereunder. Based on a completed formal study, there were no ownership changes in prior periods that would materially limit the use of the Company’s net operating loss carryforwards and credit carryforwards under IRC Section 382 and IRC Section 383.
Management assesses the recoverability of its deferred tax assets as of the end of each quarter, weighing all positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed. As of December 31, 2023 and 2022, management determined that sufficient positive evidence did not exist and concluded that it is more likely than not that a valuation allowance is required against deferred tax assets. Accordingly, management established a valuation allowance of $67.8 million related to the Company’s domestic operations, a valuation of $1.5 million related to the Company's United Kingdom operations, and a full valuation allowance of $6.9 million related to the Company’s China, Switzerland and Singapore operations.
The Company files income tax returns in the United States, as well as Singapore, Switzerland, China, United Kingdom and in various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment. For U.S. federal purposes, the Company has open tax years ended December 31, 2011 to December 31, 2023. For the United Kingdom the Company has open tax years ended December 31, 2021 and December 31, 2023.
The Company applied the accounting standard for uncertain tax positions and recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Increases or decreases to the unrecognized tax benefits could result from management’s belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions.
The following are the unrecognized tax benefits as of December 31, 2023, 2022, and 2021 (in thousands):
202320222021
Unrecognized tax benefits - January 1$3,159 $2,351 $1,670 
Increases in prior year positions— 82 83 
Increases in tax positions taken in current year4,794 726 632 
Statute expirations— — (34)
Unrecognized tax benefits - December 31$7,953 $3,159 $2,351 
Due to the valuation allowance, the majority of unrecognized tax benefits at December 31, 2023, if recognized, would not impact the Company’s effective tax rate. The interest and penalties related to the unrecognized tax benefit are immaterial. Interest and tax penalties related to unrecognized tax benefits are included in income tax expense. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months.