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Income Tax
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Tax Income Tax
Income (loss) before provision for income taxes were as follows (in thousands):
Year Ended December 31,
202320222021
United States$(263,292)$(172,038)$(73,070)
International14,529 10,067 19,355 
Total$(248,763)$(161,971)$(53,715)
The provision for income taxes consisted of the following (in thousands):
Year Ended December 31,
202320222021
Current provision:
Federal$351 $— $— 
State180 533 50 
Foreign6,252 3,360 5,148 
Total current provision for income taxes6,783 3,893 5,198 
Deferred provision:
Federal— — — 
State— — — 
Foreign(447)136 (690)
Total deferred provision for income taxes(447)136 (690)
Provision for income taxes$6,336 $4,029 $4,508 
A reconciliation of the federal statutory income tax provision to the effective income tax provision is as follows (in thousands):
Year Ended December 31,
202320222021
Income tax provision at federal statutory rate$(52,240)$(34,014)$(11,280)
State taxes, net of federal benefit(14,831)(11,782)(20,136)
Tax credits(14,551)(9,028)(11,836)
Foreign taxes3,888 1,522 142 
Stock-based compensation2,422 5,812 (78,852)
Change in valuation allowance79,551 50,077 126,386 
Acquisition related expenses2,296 — (793)
Other(199)1,442 877 
Total provision for income taxes$6,336 $4,029 $4,508 
Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows (in thousands):
Year Ended December 31,
20232022
Deferred tax assets
Net operating loss carryforwards$166,607 $175,018 
Research and development tax credits89,521 69,271 
Accruals and reserves10,610 7,116 
Operating lease liability22,000 21,873 
Intangibles39,117 39,061 
Stock-based compensation24,342 20,910 
Capitalized research and development 1
108,255 49,462 
Total deferred tax assets460,452 382,711 
Valuation allowance(443,074)(364,263)
Net deferred tax assets$17,378 $18,448 
Deferred tax liabilities
Property and equipment(2,609)(4,046)
Operating right-of-use assets$(14,975)$(15,054)
Total deferred tax liabilities$(17,584)$(19,100)
Net deferred tax liabilities$(206)$(652)
1 Effective beginning January 1, 2022, under the 2017 Tax Cuts and Jobs Act, our research and development expenditures were capitalized and amortized.
As of December 31, 2023 and 2022, the Company maintained a full valuation allowance on its U.S. net deferred tax assets. The U.S. deferred tax assets predominantly relate to operating losses, tax credits and capitalized R&D intangibles. The U.S. valuation allowance was estimated based on an assessment of both positive and negative evidence to determine whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses, required that a full valuation allowance be recorded against all U.S. net deferred tax assets. The Company intends to maintain a full valuation allowance on U.S. net deferred tax assets until sufficient positive evidence exists to support a reversal of the valuation allowance. The valuation allowance increased by $78.8 million and by $51.1 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2023, the Company had federal net operating loss (NOL) carryforwards of $672.3 million and federal tax credit carryforwards of $77.3 million. The federal NOL carryforwards generated after December 31, 2017 totaling $665.9 million are carried forward indefinitely, while all others, along with the federal tax credit carryforwards, expire in years beginning in 2033. As of December 31, 2023, the Company had state NOL carryforwards of $412.2 million, which begin to expire in 2033. In addition, the Company had state tax credit carryforwards of $58.5 million, which do not expire.
The federal and state NOL and tax credit carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a 3-year period (a “Section 382 ownership change”), utilization of its pre-change NOL and credit carryforwards are subject to an annual limitation. The Company completed a study through September 30, 2023 and determined that a Section 382 ownership change occurred in 2013. As a result, the Company’s NOLs generated through November 1, 2013 may be subject to limitation under Section 382 of the Code. The amount of pre-change NOL carryforwards which may be subject to this limitation is $4.8 million. In addition, certain attributes are subject to annual limitations as a result of the Company’s acquisition of ReadCoor, Inc. in 2020, which constituted a change in ownership as defined under Section 382. Such limitations may result in expiration of a portion of the carryforwards before utilization. The Company’s ability to use NOL or tax credit carryforwards to reduce future taxable income and liabilities may be further limited as a result of future changes in stock ownership. As a result, if the Company generates taxable income, its ability to use pre-change NOL or tax credit carryforwards to offset U. S. federal and state taxable income may still be subject to limitations, which could potentially result in increased future tax liability.
The total balance of unrecognized gross tax benefits resulting primarily from research and development tax credits claimed on the Company’s annual tax returns were as follows (in thousands):
20232022
Unrecognized tax benefits at beginning of year$31,755 $23,759 
Reductions based on prior year tax provisions— (380)
Additions based on prior year tax provisions3,511 2,474 
Additions based on current year tax provisions10,447 5,902 
Unrecognized tax benefits at end of year$45,713 $31,755 
The total amount of unrecognized gross tax benefits was $45.7 million and $31.8 million as of December 31, 2023 and 2022, respectively, of which $2.7 million and $2.4 million, if recognized, would affect our effective tax rate, respectively.
The Company is subject to the examination of its income tax returns by the U.S. Internal Revenue Service and other domestic and foreign tax authorities. The United States, California, and Sweden are considered as major jurisdictions. The Company has not been audited in such jurisdictions. Tax examinations are expected to focus primarily on research and development tax credits and intercompany transfer pricing practices. Due to NOLs and tax credit carryforwards, as of December 31, 2023, federal and California income tax returns for the years ended 2012 through the current period are open to examination. Significant foreign income tax returns for the years 2019 through the current period are open to examination. Due to the number of years remaining that are subject to examination, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.
It is reasonably possible that the Company's unrecognized tax benefits will change significantly over the next 12 months, likely due to increases related to research and development tax credits. For U.S. uncertain tax positions, due to a full valuation allowance, such liabilities have been netted against deferred tax attribute carryovers. As a result, if recognized, the unrecognized tax benefits would not materially impact income tax expense.
The Company includes interest and penalties related to income tax matters within the provision for income taxes. As of December 31, 2023, the total amount of gross interest and penalties accrued was $0.9 million. The Company recognized interest and penalty expenses of $0.5 million in 2023.
The Company maintained undistributed earnings overseas as of December 31, 2023 and the Company believed the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S. However, if these funds were repatriated to the U.S. or used for U.S. operations, the Company may be subject to withholding taxes in the foreign countries. As a result of tax reform, the Company’s unrepatriated earnings are no longer subject to federal income tax in the U.S. when distributed.