Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.

The Company's quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in pretax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company does business, tax law developments and possible outcomes of audits. The Company's estimated effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to non-deductible stock-based compensation expense, state taxes, the benefit of U.S. federal income tax credits, the impact of mandatory capitalization of research expenses for U.S. tax purposes, and the benefits related to foreign-derived intangible income deduction.

The Company recorded an income tax provision of $1.5 million and $6.2 million for the three months ended September 30, 2023 and 2022, respectively, resulting in an effective tax rate of 3.1% and 18.3%, respectively. The decrease in income tax provision for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, was primarily due to higher foreign tax credits and lower net capitalization of research and development expenses for tax purposes than previously estimated. The decrease was partially offset by the tax effect of an increase in pretax income and a decrease in excess tax benefits arising from stock-based compensation compared to the same period in 2022.

The Company recorded an income tax provision of $20.1 million and $19.6 million for the nine months ended September 30, 2023 and 2022, respectively, resulting in an effective tax rate of 15.3% and 19.8%, respectively. The increase in income tax provision for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, was primarily due to an increase in pretax income and a decrease in excess tax benefits arising from stock-based compensation compared to the same period in 2022. The increase was partially offset by higher foreign tax credits and lower net capitalization of research and development expenses for tax purposes than previously estimated.

As of September 30, 2023, the Company had unrecognized tax benefits of $11.6 million, of which $6.0 million, if recognized, would favorably impact the Company's effective tax rate. As of December 31, 2022, the Company had unrecognized tax benefits of $10.5 million, of which $5.3 million, if recognized, would favorably impact the Company's effective tax rate. The Company does not anticipate a material change in its unrecognized tax benefits in the next 12 months.