Income Taxes

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

The Company computes provision for income taxes by applying the estimated annual effective tax rate to year-to-date income from recurring operations and adjust the provision for discrete tax items recorded in the period. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate primarily as a result of changes in the Company’s valuation allowance against its deferred tax assets.

A deferred income tax benefit of $3.5 million was recognized for the fiscal year ended March 31, 2022 related to the partial release of the valuation allowance for deferred tax assets due to the recognition of deferred tax liabilities in connection with the Lemonaid Acquisition (see Note 4, “Acquisitions”). Accordingly, this benefit from income taxes is reflected on the consolidated statements of operations and comprehensive loss for the year ended March 31, 2022. The Company continues to maintain a full valuation allowance on the remaining net deferred tax assets of the U.S. entities as it is more likely than not that the Company will not realize the deferred tax assets. For the fiscal years ended March 31, 2021 and 2020, the Company recognized no provision for income taxes. Utilization of net operating loss carryforwards may be subject to future annual limitations provided by Section 382 of the Code and similar state provisions.

The components of the Company’s loss before provision for (benefit from) income taxes for the fiscal years ended March 31, 2022, 2021 and 2020 were as follows:

	Year Ended March 31,
	2022			2021			2020
	(in thousands)
Domestic	$	(221,212	)	$	(183,619	)	$	(250,863	)
Foreign		242			—			—
Loss before income taxes	$	(220,970	)	$	(183,619	)	$	(250,863	)

There has historically been no federal or state provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

	Year Ended March 31,
	2022			2021			2020
Statutory federal tax expense rate		21	%		21	%		21	%
Non-deductible stock-based compensation		(3	)		(7	)		(2	)
Fair Market Value adjustment on Warrants		3			—			—
Change in valuation allowance related to acquisition		2			—			—
Change in valuation allowance		(20	)		(14	)		(19	)
Other		(2	)		—			—
Effective tax rate		2	%		0	%		0	%

Deferred income taxes result from differences in the recognition of revenue and expenses for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards. The components of net deferred tax assets, as of March 31, 2022 and 2021 consisted of:

	Year Ended March 31,
	2022			2021
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	248,856		$	181,020
Accruals and reserves		3,685			3,591
Stock-based compensation		10,000			6,291
Deferred revenue		6,865			17,785
Operating lease liabilities		20,590			23,393
Intangibles	—				355
Other		19			391
Gross deferred tax assets		290,015			232,826
Valuation allowance		(261,795	)		(213,267	)
Total deferred tax assets		28,220			19,559
Deferred tax liabilities:
Prepaid expenses		(1,235	)		(841	)
Intangibles		(15,709	)
Operating lease right-of-use assets		(13,233	)		(15,755	)
Property and equipment		(1,138	)		(2,963	)
Gross deferred tax liabilities		(31,315	)		(19,559	)
Net deferred taxes	$	(3,095	)	$	—

As of March 31, 2022 and 2021, the Company had $1.0 billion of federal and $548.5 million state net operating loss carryforwards and $733.3 million of federal and $410.5 million state net operating loss carryforwards, respectively, available to reduce future taxable income, which will begin to expire in 2026 for federal and state tax purposes. As a result of the Tax Cuts and Jobs Act, net operating losses generated after December 31, 2017 have an indefinite life and losses are limited to 80% of taxable income. Included in the $1.0 billion carryover losses is $656.1 million of net operating losses with an indefinite life. The Company does not have any federal and state research and development tax credit carryforwards. The change in the valuation allowance in the current year was an increase of $40.2 million primarily related to the increase of current year losses.

The Tax Reform Act of 1986 and similar California legislation impose substantial limitations on the utilization of net operating loss and tax credit carryforwards, if there is a change in ownership as provided by Section 382 of the Internal Revenue Code and similar state provisions. Such a limitation could result in the expiration of the net operating loss carryforwards and tax credits before utilization. The Company performed a preliminary study for the period through March 31, 2022 and determined that no ownership change exceeding 50 percentage points had occurred subsequent to the date of the Lemonaid Acquisition. The Company’s ability to use net operating loss carryforwards to reduce future taxable income and liabilities may be subject to annual limitations as a result of ownership changes in subsequent years.

Significant management judgment is required in determining the provision for income taxes and, in particular, any valuation allowance recorded against the Company’s deferred tax assets. The Company determined that, due to the Company’s cumulative tax loss history and the difficulty in forecasting the timing of future revenue, it was necessary to maintain a valuation allowance under ASC 740 to the full amount of the deferred tax asset. The Company determined that it was not more-likely-than-not that the deferred tax asset would be utilized.

The Company complies with ASC 740-10, Accounting for Uncertainty in Income Taxes, which prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statement of any uncertain tax positions that have been taken or expected to be taken on a tax return. This pronouncement sets a “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions. The Company does not anticipate any significant changes to unrecognized tax benefits in the next 12 months. The Company recognizes interest and

penalties related to uncertain tax positions in income tax expense. As of March 31, 2022 and 2021, there was no unrecognized tax benefits.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is summarized as follows:

	Unrecognized Tax Benefits
	(in thousands)
Balance as of March 31, 2019	$	282
Decreases in unrecognized tax benefits related to prior year tax positions		—
Increases in unrecognized tax benefits related to current year tax positions		17
Balance as of March 31, 2020		299
Decreases in unrecognized tax benefits related to prior year tax positions		(299	)
Increases in unrecognized tax benefits related to current year tax positions		—
Balance as of March 31, 2021		—

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. During the fiscal years ended March 31, 2022, 2021 and 2020, the Company recognized no interest and penalties associated with the unrecognized tax benefits. There are no tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date. If recognized, there would be no impact on the Company’s effective tax rate due to its valuation allowance.

The Company files income tax returns in the U.S. federal jurisdiction, various states, and the U.K. The Company is not currently under examination by income tax authorities in federal, state, or other jurisdictions. All tax returns will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits.