Annual report pursuant to Section 13 and 15(d)

Provision for Income Taxes

v3.24.1
Provision for Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Provision for Income Taxes Provision for Income Taxes
The Company is subject to U.S. federal, state, and local corporate income taxes.
The Company’s effective income tax rate reconciliation is composed of the following for the periods presented:
Year Ended December 31,
2023 2022 2021
Federal statutory rate 21.0  % 21.0  % 21.0  %
Stock-based compensation (9.2) % (7.3) % (0.6) %
Remeasurement of derivative liabilities 0.1  % 17.5  % (0.2) %
Other —  % 0.4  % —  %
Change in valuation allowance (12.0) % (31.6) % (20.2) %
Provision for income taxes (0.1) % —  % —  %
The components of net deferred tax assets are as follows (in thousands):
December 31,
2023 2022
Deferred tax assets:
Net operating loss carryforwards $ 125,850  $ 119,345 
Deferred revenue 1,745  2,581 
Inventory reserve and uniform capitalization 2,509  3,365 
Operating lease liabilities 4,364  4,720 
Accruals and other reserves 1,332  1,876 
Stock-based compensation 5,570  6,856 
Business Interest Carryforwards 7,660  4,840 
Other 268  268 
Total deferred tax assets 149,298  143,851 
Less: valuation allowance (145,711) (139,033)
Total deferred tax assets, net of valuation allowance 3,587  4,818 
Deferred tax liabilities:
Operating lease right-of-use assets (2,344) (2,933)
Depreciation and amortization (1,243) (1,885)
Total deferred tax liabilities (3,587) (4,818)
Net deferred tax assets $ —  $ — 
The following summarizes the activity related to valuation allowances on deferred tax assets:
December 31,
2023 2022
Valuation allowance, as of beginning of year $ 139,033  $ 107,301 
Valuation allowance established 5,947  31,270 
Changes to existing valuation allowances 731  462 
Valuation allowance, as of end of year $ 145,711  $ 139,033 
As of December 31, 2023, the Company had federal and state net operating loss (“NOL”) carryforwards of $536.8 million and $226.8 million, respectively. $511.9 million of the federal NOL carryforwards have no expiration and can only be used to offset 80% of the Company’s future taxable income. The state NOL carryforwards include $197.0 million with definitive expiration dates and $29.8 million with no expiration. The state NOLs are presented as an apportioned amount.
Valuation Allowance
The realization of deferred tax assets is based on historical tax positions and estimates of future taxable income. We evaluate both the positive and negative evidence that we believe is relevant in assessing whether we will realize the deferred tax assets. A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax assets will not be realized. To the extent that a valuation allowance has been established and it is subsequently determined that it is more likely than not that the deferred tax assets will be recovered, the valuation allowance will be released.
The Company’s valuation allowance was $145.7 million as of December 31, 2023, which represents an increase of $6.7 million from the prior year. The increase in the valuation allowance primarily relates to the following: (i) an increase of $5.9 million relating to current year operating activity, and (ii) an increase of $0.7 million relating to changes to the state blended rate.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the effect of available carryback and carryforward periods), as well as projected pre-tax book income in making this assessment. To fully utilize the NOL and tax credits carryforwards we will need to generate sufficient future taxable income in each respective jurisdiction.
Uncertain Tax Positions
During the years ended December 31, 2023 and 2022, the Company did not record any uncertain tax positions and the balances of unrecognized tax positions were nominal.
The amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statute of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes. Accrued interest and penalties are included within the related tax liability.
The Company files income tax returns in the U.S. federal and various state and local jurisdictions. The Company has no ongoing tax examinations by the U.S. income tax authorities at this time. The Company is subject to U.S. federal, state or local income tax examinations for all prior years.