Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of the Company’s income tax provision consisted of (in thousands):

	Year Ended December 31,
	2023		2022		2021
Current:
Federal	$	—	$	—	$	—
State	283		172		56
Total current tax expense	283		172		56
Deferred:
Federal	—		—		—
State	—		—		—
Total deferred tax expense	—		—		—
Total provision for income taxes	$	283	$	172	$	56

The reconciliation of the Federal statutory income tax provision for the Company’s effective income tax provision (in thousands):

	Year Ended December 31,
	2023		2022		2021
Tax at federal statutory rate	$	(35,290)	$	(41,209)	$	(49,480)
State taxes, net of federal effect	(9,554)		(11,257)		(13,704)
Stock-based compensation	8,956		419		(2,698)
Non-deductible items	504		524		3,661
Tax credits	(531)		(563)		—
Convertible Notes	—		—		16,782
Adoption of ASU 2020-06	—		(28,045)		—
Provision to return adjustments	9,259		—		—
Valuation allowance	26,501		80,254		42,327
Other	438		49		3,168
Provision for income taxes	$	283	$	172	$	56

The Company’s deferred tax assets and liabilities (in thousands):

	December 31,
	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	232,259	$	219,872
Fixed assets and intangibles	6,364		3,904
Capitalized research and development (1)	13,835		7,899
Accruals and reserves	12,477		10,867
Stock options	840		2,474
Operating lease liabilities	33,683		39,143
Capped calls	15,065		15,082
Convertible debt	2,329		1,675
Tax credits	2,569		1,416
Gross deferred tax assets	319,421		302,332
Less: valuation allowance	(292,297)		(265,796)
Total deferred tax assets	27,124		36,536
Deferred tax liabilities:
Operating lease right-of-use assets	(24,416)		(34,330)
Other	(2,708)		(2,206)
Gross deferred tax liabilities	(27,124)		(36,536)
Net deferred tax assets	$	—	$	—

(1) Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement increases our gross deferred tax assets, which are fully offset by the valuation allowance.

In assessing the realizability of deferred tax assets, the Company evaluates all available positive and negative evidence by considering whether it is more likely than not that some portion or all of the deferred tax assets will not be recognized. The ultimate realization of deferred tax assets is dependent upon future taxable income, future reversals of existing taxable temporary difference, taxable income in carryback years and tax-planning strategies. The Company believes it is more likely than not that the deferred tax assets in the U.S. will not be realized; accordingly, a valuation allowance has been established against our U.S. deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2023 and December 31, 2022 was an increase of $26.5 million and an increase of $80.3 million, respectively.

As of December 31, 2023 and 2022, the Company has a net operating loss carryforward of $871.3 million and $827.6 million for federal tax purposes, respectively, and $817.5 million and $770.0 million for state tax purposes, respectively. If not utilized, these losses will expire beginning in 2024 for state tax purposes. However, beginning in tax year 2018 and forward, the Federal law has changed such that net operating losses generated after December 31, 2017 may be carried forward indefinitely. Accordingly, $168.2 million of the federal net operating losses will begin to expire in 2032. However, $703.1 million of the federal net operating losses will not expire.

As of December 31, 2023 and 2022, the Company has a credit carryforward of $4.3 million and $2.0 million for federal tax purposes, respectively, and $1.0 million and $1.0 million for state tax purposes, respectively. If not utilized, these credits will expire beginning in 2041 for federal tax purposes and do not expire for state tax purposes.

The Tax Reform Act of 1986 limits the use of net operating losses and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. During 2019, the Company analyzed whether any of the reported net operating losses would be limited because of these rules. Based on the analysis the Company believes $3.3 million of the Federal and $2.1 million of California net operating losses will not be available to offset future taxable income because of the limitation. The reported net operating losses have been adjusted based on this analysis.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local, jurisdictions, where applicable. As of December 31, 2023 and 2022, all years generally remain open to examination. Additionally, net operating loss

carryforwards are subject to examination by the Internal Revenue Service and the California Franchise Tax Board for up to three and four years, respectively, after utilization.

Uncertain Income Tax Positions

The following table reflects the changes to the Company's unrecognized tax benefits (in thousands):

	December 31,
	2023		2022
Unrecognized tax benefits beginning balance	$	1,525	$	—
Increases related to current year tax positions	531		563
Increases related to prior year tax positions	622		962
Unrecognized tax benefits ending balance	$	2,678	$	1,525

As of December 31, 2023 and 2022, the Company had unrecognized tax benefits of $2.7 million and $1.5 million, respectively, none of which, if recognized, would favorably impact the Company’s effective tax rate. The unrecognized tax benefits relate to federal and state research and development credits. The Company's policy is to include interest and penalties as a component to the statement of operations, however there were no associated interest and penalties during the years ended December 31, 2023 and 2022. The Company estimates that there will be no material changes in its uncertain tax positions in the next 12 months.