Annual report pursuant to Section 13 and 15(d)

Provision for Income Taxes

v3.22.4
Provision for Income Taxes
 12 Months Ended
Dec. 31, 2022
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,
2022 2021 2020
Federal statutory rate 21.0  % 21.0  % 21.0  %
Stock-based compensation (7.3) % (0.6) % (1.7) %
Remeasurement of derivative liabilities 17.5  % (0.2) % (0.3) %
Other 0.4  % —  % 0.5  %
Change in valuation allowance (31.6) % (20.2) % (19.5) %
Provision for income taxes —  % —  % —  %
The components of net deferred tax assets are as follows (in thousands):
December 31,
2022 2021
Deferred tax assets:
Net operating loss carryforwards $ 119,345  $ 95,311 
Deferred revenue 2,581  2,665 
Inventory reserve and uniform capitalization 3,365  2,795 
Operating lease liabilities 4,720  5,576 
Accruals and other reserves 1,876  1,908 
Stock-based compensation 6,856  4,339 
Other 5,108  3,103 
Total deferred tax assets 143,851  115,697 
Less: valuation allowance (139,033) (107,300)
Total deferred tax assets, net of valuation allowance 4,818  8,397 
Deferred tax liabilities:
Operating lease right-of-use assets (2,933) (5,017)
Depreciation and amortization (1,885) (3,380)
Total deferred tax liabilities (4,818) (8,397)
Net deferred tax assets $ —  $ — 
The following summarizes the activity related to valuation allowances on deferred tax assets:
December 31,
2022 2021
Valuation allowance, as of beginning of year $ 107,300  $ 75,061 
Valuation allowance established 31,271  32,511 
Changes to existing valuation allowances 462  (272)
Valuation allowance, as of end of year $ 139,033  $ 107,300 
As of December 31, 2022, the Company had federal and state net operating loss carryforwards of $512.1 million and $209.1 million, respectively, of which $234.0 million expire beginning in 2036 and $487.1 million have no expiration but can only be used to offset 80% of the Company’s future taxable income. 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.
Our valuation allowance was $139.0 million as of December 31, 2022, which represents an increase of $31.7 million from December 31, 2021. The increase in the valuation allowance primarily relates to the following: (i) an increase of $31.3 million relating to current year operating activity, and (ii) an increase of $0.5 million relating to changes to our 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
The Company’s unrecognized tax benefits are as follows (in thousands):
December 31,
2022 2021
Balance at beginning of year $ 40  $ 35 
Decrease related to prior period tax positions —  — 
Increase related to current year tax positions —  5 
Balance at end of year $ 40  $ 40 
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 U.S. federal and various state and local income tax returns, including the State of California. 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.