v3.25.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income before provision (benefit) for income taxes included the following components for the years ended December 31 (in thousands):
202420232022
United States$357,484$134,509$191,353 
Foreign24,02022,5524,885
Total$381,504$157,061$196,238
Significant components of the provision (benefit) for income taxes were as follows for the years ended December 31 (in thousands):
202420232022
Current:
Federal$60,924$33,084$10,804 
State18,29810,37110,118
Foreign3,3882,8042,892 
Total current82,61046,25923,814
Deferred:
Federal(63,073)(60,673)26,180 
State(20,838)(9,172)(2,015)
Foreign(1,815)89 (2,146)
Total deferred(85,726)(69,756)22,019 
Tax impact of unrecorded tax benefits liability7,5864,7753,475 
Provision for (benefit from) income taxes$4,470 $(18,722)$49,308 
A reconciliation of our effective income tax rate to the federal statutory rate follows for the years ended December 31 (in thousands):
202420232022
Federal income tax at the statutory rate$80,120 $32,983 $41,224 
Excess stock-based compensation benefit(83,748)(106,522)(4,616)
Executive compensation limitation51,858 77,350 5,784 
R&D credits(36,571)(26,204)(13,340)
Nontaxable gain on investments(19,727)— — 
Change in unrecognized tax benefits7,356 4,351 3,215 
Other permanent differences
5,176 1,201 1,118 
Global intangible low-taxed income3,081 1,890 653 
Foreign derived intangible income deduction(2,558)(961)(2,597)
Foreign tax credit(1,914)(1,922)— 
State income taxes, net of federal benefit1,713 3,730 7,915 
Change in valuation allowance(903)(4,695)10,216 
Tax effects of intercompany transactions(222)(2,033)(417)
Difference between statutory and foreign tax rates801 1,013 (428)
Other8 1,097 581 
Provision for (benefit from) income taxes$4,470 $(18,722)$49,308 
Effective tax rate1.2 %(11.9)%25.1 %
Significant components of our deferred income tax assets and liabilities are as follows at December 31, 2024 and December 31, 2023 (in thousands):
20242023
Deferred income tax assets:
R&D capitalization, net$193,265 $99,746 
Deferred revenue66,948 59,443 
Stock-based compensation51,088 10,544 
Convertible debt, net31,603 39,649 
Reserves, accruals, and other21,634 12,264 
R&D tax credit carryforward19,100 16,554 
Net operating loss carryforward17,824 2,115 
Accrued bonus12,101 11,253 
Lease liability11,966 9,664 
Inventory reserve5,794 1,986 
Deferred compensation4,021 2,803 
Strategic investments— 6,109 
Amortization— 4,425 
Total gross deferred tax assets435,344 276,555 
Valuation allowance(23,054)(21,600)
Total deferred income tax assets, net of valuation allowance412,290 254,955 
Deferred income tax liabilities:
Strategic investments(42,260)— 
Amortization(36,185)— 
Depreciation(16,739)(14,575)
Right of use asset(10,639)(8,404)
Prepaid expenses(2,874)(2,223)
Customer contract asset(1,174)(690)
Goodwill amortization(509)(314)
Other — (965)
Total deferred income tax liabilities(110,380)(27,171)
Net deferred income tax assets$301,910 $227,784 
Deferred taxes are reflected in the consolidated balance sheet as follows:
Non-current tax assets (included in deferred tax asset, net)304,282 227,784 
Non-current tax liabilities (included in other long-term liabilities)(2,372)— 
Total$301,910 $227,784 
The following table presents the valuation allowance activity for years ended December 31, 2024, 2023 and 2022 (in thousands):
202420232022
Balance, beginning of period$21,600$26,368$16,168
Tax provision (benefit) (576)(4,262)10,409 
Deductions charged to tax provision / benefit(327)(505)(164)
Additions (reversals) to other accounts
2,357(1)(45)
Balance, end of period$23,054$21,600$26,368
As of December 31, 2024, we have recorded a net tax benefit totaling $17.8 million for U.S. federal, state, and foreign net operating loss carryforwards ("NOLs"). As of December 31, 2024, $15.5 million of NOLs may be carried forward indefinitely while the remaining $2.3 million will begin to expire at various times from 2036 through 2044. As of December 31, 2024, we have a total of $26.1 million state (net of federal benefit) R&D credit carryforwards available to offset future income taxes. A total of $2.5 million of the state R&D credits may be carried forward indefinitely while the remaining $23.6 million will begin to expire at various times from 2025 through 2044.
As of December 31, 2024, we anticipate sufficient future pre-tax book income to realize a significant portion of our deferred tax assets. However, as we have Arizona R&D tax credits expiring unutilized each year, unrealized investment losses for which realization is uncertain, and specific identified intangibles with an indefinite life, we have recorded a 23.1 million valuation allowance against these specific deferred tax assets as of December 31, 2024.
The net change in total valuation allowance for the years ended December 31, 2024, and 2023 was an increase of $1.5 million and decrease of $4.8 million, respectively. The valuation allowance changes are driven primarily by certain state R&D tax credits that are expected to expire unutilized, acquired state NOLs, and movement in deferred tax assets associated with unrealized investment losses and transaction costs incurred in connection with certain investments that are not more likely than not to be realized. Of the net change in the valuation allowance in 2024 and 2023, a decrease of $0.9 million and $4.8 million, respectively, was recorded to tax expense and an increase of $2.4 million and $0 million, respectively, was recorded through the consolidated balance sheet.
We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be utilized offshore for working capital and future foreign growth and we have not made a provision for U.S. or additional foreign withholding taxes of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. We have estimated the amount of deferred tax liability related to investments in these foreign subsidiaries undistributed earnings is approximately $1.1 million. If we decide to repatriate the undistributed foreign earnings, we will recognize the income tax effects in the period we change our assertion on indefinite reinvestment.
We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state income tax purposes. We have made the determination that it is not more likely than not that the full benefit of the R&D tax credit will be sustained on examination. As such, we recorded a liability for unrecognized tax benefits of $32.7 million as of December 31, 2024. We expect the amount of the unrecognized tax benefit to decrease by approximately $9.0 million within the next 12 months due to statute of limitations expirations. Should the unrecognized benefit of $32.7 million be recognized, our effective tax rate would be favorably impacted.
The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest, as of December 31 (in thousands):
202420232022
Balance, beginning of period$25,754$21,492$18,249
Increase (decrease) in previous year tax positions501 (215)232
Increase in current year tax positions7,3136,9633,343
Decrease due to lapse of statute of limitations(842)(2,486)(332)
Balance, end of period$32,726$25,754$21,492
Federal income tax returns for 2021 through 2023 remain open to examination by the U.S. Internal Revenue Service, while state and local income tax returns for 2020 through 2023 also generally remain open to examination by state taxing authorities. The 2010 through 2019 state and local income tax returns are only open to the extent that net operating losses or other tax attributes carrying forward from those years were utilized in 2020 through 2023. The foreign tax returns for 2020 through 2023 also generally remain open to examination, although some foreign jurisdictions can audit returns up to ten years.
We recognize interest and penalties related to unrecognized tax benefits within the provision (benefit) for income tax expense line in the consolidated statements of operations and comprehensive income. We have recognized expense (benefit), before federal tax impact, related to interest of $1.2 million, $0.3 million, and $0.1 million in 2024, 2023, and 2022 respectively. As of December 31, 2024, and 2023, we had accrued interest of $1.8 million and $0.6 million, respectively.
As part of the OECD global minimum tax framework, certain jurisdictions in which we operate have enacted or are in the process of implementing top-up tax provisions under Pillar Two. We have assessed the impact of these regulations on our tax position and included an immaterial adjustment in our income tax provision as of December 31, 2024. We continue to monitor legislative developments and will assess potential future impacts as additional guidance and implementation details become available.