Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2023
INCOME TAXES  
INCOME TAXES

18. INCOME TAXES

During the years ended December 31, 2023, 2022, and 2021, the Company recorded $3.1 million, $1.5 million and $29.7 million, respectively, of income tax benefit, which was primarily driven by book losses and a partial release of the valuation allowance related to the deferred tax liabilities acquired on various acquisitions during 2021. For financial reporting purposes, loss before provision for income taxes, includes the following components (in thousands):

Years Ended December 31, 

    

2023

    

2022

    

2021

Domestic

$

(262,779)

$

(474,942)

$

(252,343)

Foreign

 

(63,597)

 

(266,899)

 

(17,659)

Loss before income taxes

$

(326,376)

$

(741,841)

$

(270,002)

The provision (benefit) for income taxes consists of the following (in thousands):

Years Ended December 31, 

2023

    

2022

    

2021

Current:

Federal

$

(257)

$

$

(33)

Foreign

657

368

State

45

35

20

Total Current

445

403

(13)

Deferred:

Federal

(892)

196

(23,378)

State

(148)

16

(5,494)

Foreign

(2,510)

(2,113)

(783)

Total Deferred

(3,550)

(1,901)

(29,655)

Benefit for income taxes

$

(3,105)

$

(1,498)

$

(29,668)

A reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, 2023, 2022 and 2021, is as follows:

Years Ended December 31, 

    

2023

    

2022

    

2021

    

Effective income tax rate:

Expected income tax benefit at the federal statutory rate

 

21

%

 

21

%

 

21

%

State taxes

1

%

2

%

(2)

%

Change in valuation allowance

(15)

%

(9)

%

(4)

%

Goodwill impairment

(9)

%

(15)

%

%

Research and development credit carryover

%

%

(1)

%

Stock-based compensation expense

(1)

%

(1)

%

3

%

Warrant Expense

%

%

(5)

%

Permanent differences

%

%

%

Other

4

%

2

%

(1)

%

Effective income tax rate

1

%

(0)

%

11

%

As of the years ended December 31, 2023 and 2022, deferred tax assets and liabilities consist of the following (in thousands):

Years Ended December 31, 

    

2023

    

2022

Deferred tax assets:

Federal and state net operating carryforwards

$

181,666

$

185,842

Research and development and other credits

10,974

10,974

Start-up costs

11,548

11,854

Stock-based compensation

3,630

3,554

Capitalized research and development

53,702

20,793

Reserves and accruals

4,034

3,311

Deferred lease liability

11,456

7,581

Depreciation

140

Divisional foreign entity deferred

Other deferred tax assets

7,885

7,960

Total gross deferred tax asset

285,035

251,869

Valuation allowance

(244,400)

(195,309)

Net deferred tax asset

40,635

56,560

Deferred tax liabilities:

Right‑of‑use asset

(11,159)

(7,234)

Intangible assets

(32,999)

(56,794)

Depreciation

(962)

Other

Total deferred tax liabilities

(44,158)

(64,990)

Net deferred tax liability

$

(3,523)

$

(8,430)

Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC 740 Income Taxes, the Company evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets as of December 31, 2023. As a result of the fact that the Company has incurred tax losses from inception, the Company has determined that it was more likely than not that the Company would not realize the benefits of federal and state net deferred tax assets nor the benefits of deferred tax assets in certain non-U.S. jurisdictions.

As a result of acquisitions in 2021, the Company recorded U.S. deferred tax liabilities in purchase accounting related to non-tax-deductible intangible assets recognized in the financial statements. The acquired deferred tax liabilities are a source of income to support recognition of the Company’s existing deferred tax assets. Pursuant to ASC 805, the impact on a Company’s existing deferred tax assets and liabilities caused by an acquisition should be recorded in the financial statements outside of acquisition accounting. Accordingly, in 2021 the Company recorded an income tax benefit of $29.6 million for the decrease in the valuation allowance as a result of such purchase accounting considerations. The Company maintains a valuation allowance on other U.S. deferred tax assets; and on non-U.S. deferred tax assets in certain jurisdictions.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023 and 2022 were as follows (in thousands):

Years Ended December 31, 

    

2023

    

2022

Valuation allowance at beginning of the year

$

195,309

$

127,150

Increases recorded to income tax provision

 

52,420

 

68,159

Decreases recorded as a benefit to income tax provision

(3,329)

Valuation allowance at end of year

$

244,400

$

195,309

As of the years ended December 31, 2023 and 2022, the Company had federal net operating loss carryforwards of $700.0 and $692.8 million, respectively, which may be available to reduce future taxable income. $118.1 million of carryforwards generated in 2017 and prior expire at various dates through 2037. The $581.9 million in carryforwards generated from 2018 forward do not expire. As of the years ended December 31, 2023 and 2022, the Company had State net operating loss carryforwards of $420.8 million and $387.7 million, respectively, which may be available to reduce future taxable income. These carryforwards expire at various dates through 2043. In addition, the Company had federal and state research and development tax credit carryforwards of $10.9 million available to reduce future tax liabilities, which will expire at various dates through 2043.

The Company has foreign net operating loss carryforwards available to reduce taxable income in Germany, Japan, and Italy. As of the years ended December 31, 2023 and 2022, the Company had total foreign net operating loss carryforwards of $23.4 million and $35.4 million, respectively. In Germany, the Company has $20.2 million of net operating loss carryforwards, which have an unlimited carryforward period and do not expire. The Company has smaller loss carryforwards in Italy and Japan.

Utilization of the Company’s net operating loss (“NOL”) carryforwards and research and development (“R&D”) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“Section 382”) as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three year period. During the year ended December 31, 2022, the Company has completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception. The study concluded that multiple changes of control did occur since inception and that the net operating loss carryforwards and research and development tax credit carryforwards are subject to an annual limitation under Section 382. As of December 31, 2023, $434.7 million in federal carryforwards and $5.9 million of federal R&D credit carryforwards are subject to limitation.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code Section 174. The capitalization of research and development resulted in a decrease to the Company’s taxable loss however no tax benefit is recognized for the deferred tax asset established for these capitalized expenses due to the Company’s valuation allowance position in the U.S.

The Company operates within multiple tax jurisdictions and could be subject to audit in those jurisdictions. Such audits can involve complex income tax issues, which may require an extended period of time to resolve and may cover multiple years. In management’s opinion, adequate provisions for income taxes have been made for all years subject to audit.

In the U.S., the Company files income tax returns in the U.S. federal tax jurisdiction and various states. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years after 2019; and for 2019 and earlier years to the extent of the losses carried forward from such earlier years. The Company is currently not under examination by the Internal Revenue Service or any other jurisdiction for any tax years. The Company remains subject to non-U.S. income tax examinations in various jurisdictions for tax years 2018 through 2023.

As of December 31, 2023, the Company has a liability of $0.8 million for uncertain tax positions acquired in various acquisitions during 2021. None of these positions are expected to reverse within twelve months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. At December 31, 2023, the Company had a balance in accrued interest and penalties related to uncertain tax positions of $0.1 million. A reconciliation of the beginning and ending amount of unrecognized tax liabilities as of the years ended December 31, 2023 and 2022 is as follows (in thousands):

Years Ended December 31, 

2023

    

2022

Unrecognized tax liability, beginning of year

$

997

$

997

Unrecognized tax liability acquired through purchase accounting

Decreases for tax positions taken related to a prior period

(221)

Unrecognized tax liability, end of year

$

776

$

997

The Company intends to permanently reinvest all earnings of its international subsidiaries in order to support the current and future capital needs of their operations in the foreign jurisdictions.