Income Taxes

12 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

17. Income Taxes

The components of the Company’s loss before income taxes are summarized as follows:

	Year Ended March 31,
	2023			2022			2021
	(in thousands)
Domestic	$	(292,730	)	$	(221,212	)	$	(183,619	)
Foreign		(21,698	)		242			-
Loss before income taxes	$	(314,428	)	$	(220,970	)	$	(183,619	)

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. During the fiscal year ended March 31, 2023, the Company recognized a deferred foreign income tax benefit of $2.8 million related to the reversal of a deferred tax liability related to U.K. intangibles acquired in the Lemonaid Acquisition. During the fiscal year ended March 31, 2022, the Company recognized a deferred income tax benefit of $3.5 million 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. For the fiscal year ended March 31, 2021, the Company recognized no provision for income taxes.

A reconciliation of income tax (benefit) computed at the statutory federal tax rate to the effective income tax rate is summarized as follows:

	Year Ended March 31,
	2023			2022			2021
Statutory federal tax expense rate		21	%		21	%		21	%
Non-deductible stock-based compensation		(4	%)		(3	%)		(7	%)
Fair Market Value adjustment on Warrants		0	%		3	%		0	%
Change in valuation allowance related to acquisition		0	%		2	%		0	%
Change in valuation allowance		(16	%)		(20	%)		(14	%)
Other		0	%		(2	%)		0	%
Effective tax rate		1	%		2	%		(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 the Company's deferred tax assets and liabilities as of March 31, 2023 and 2022 were as follows:

	March 31,
	2023			2022
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	262,295		$	248,856
Capitalized research and development expenses		33,709			-
Accruals and reserves		3,865			3,685
Stock-based compensation		18,065			10,000
Deferred revenue		11,498			6,865
Operating lease liabilities		21,474			20,590
Other		332			19
Gross deferred tax assets		351,238			290,015
Valuation allowance		(322,104	)		(261,795	)
Total deferred tax assets		29,134			28,220
Deferred tax liabilities:
Prepaid expenses		(892	)		(1,235	)
Intangibles		(13,689	)		(15,709	)
Operating lease right-of-use assets		(14,117	)		(13,233	)
Property and equipment		(436	)		(1,138	)
Gross deferred tax liabilities		(29,134	)		(31,315	)
Net deferred taxes	$	—		$	(3,095	)

The Company maintains a full valuation allowance on the remaining net deferred tax assets of the U.S. and U.K. entities as it is more likely than not that the Company will not realize the deferred tax assets. Utilization of net operating loss carryforwards may be subject to future annual limitations provided by Section 382 of the Code and similar state provisions.

As of March 31, 2023, the Company had $1.0 billion of federal, $689.0 million of state, and $9.6 million of foreign net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2026 for federal and state tax purposes. Included in the $1.0 billion carryover losses is $654.7 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 $60.3 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, 2023, and no tax attributes are anticipated to expire due to a Section 382 limitation. 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 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 had no unrecognized tax benefits for the fiscal years ended March 31, 2023 and 2022. A reconciliation of the beginning and ending balance of unrecognized tax benefits for the fiscal year ended March 31, 2021 is summarized as follows:

	Unrecognized Tax Benefits
	(in thousands)
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, 2023, 2022, and 2021, 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.