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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income (loss) before provision for income taxes consisted of the following (in thousands):
Years Ended December 31,
202420232022
United States$426,944 $174,637 $(402,834)
Foreign62,229 62,454 41,807 
Income (loss) before provision for income taxes$489,173 $237,091 $(361,027)
Provision for income taxes consisted of the following (in thousands):
Years Ended December 31,
202420232022
Current:
Federal$— $— $— 
State1,556 2,333 765 
Foreign20,265 22,189 9,476 
Total current provision21,821 24,522 10,241 
Deferred:
Federal— — — 
State— — — 
Foreign(566)(4,806)(174)
Total deferred provision(566)(4,806)(174)
Total provision for income taxes$21,255 $19,716 $10,067 
A reconciliation of the expected tax provision at the statutory federal income tax rate to the Company’s recorded tax provision consisted of the following (in thousands):
Years Ended December 31,
202420232022
Expected tax (benefit) at U.S. federal statutory rate$102,726 $49,789 $(75,592)
State income taxes - net of federal benefit1,365 2,309 766 
Foreign tax rate differential(15,767)859 832 
Research and development tax credits(103,858)(45,667)(34,546)
Stock-based compensation(513,841)(79,128)1,374 
Non-deductible officers’ compensation
33,404 34,479 40,629 
Change in valuation allowance507,149 35,070 49,833 
Base Erosion Anti-Abuse Tax and related elections— 14,700 25,200 
Taxes withheld at source5,599 4,378 — 
Non-deductible expenses5,545 3,610 — 
Other(1,067)(683)1,571 
Total provision for income taxes$21,255 $19,716 $10,067 
For the year ended December 31, 2024, the Company recorded a provision for income taxes of $21.3 million compared to $19.7 million for the year ended December 31, 2023, primarily due to the increased foreign tax expense as the result of higher foreign taxable income and withholding taxes.
For the year ended December 31, 2023, the Company recorded a provision for income taxes of $19.7 million compared to $10.1 million for the year ended December 31, 2022, primarily due to the increase in foreign income taxes as the result of higher foreign taxable income and higher foreign withholding taxes in the current year.
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consisted of the following (in thousands):
As of December 31,
20242023
Net operating loss carryforwards$1,583,076 $1,317,684 
Capitalized research and experimental expenses504,156 214,848 
Reserves and accruals87,111 99,105 
Tax credit carryforwards394,579 277,060 
Stock-based compensation76,604 139,419 
Lease liabilities60,103 53,902 
Depreciation and amortization15,839 14,413 
Capitalized facilitative expenses38,436 28,906 
Gross deferred tax assets2,759,904 2,145,337 
Acquisition related intangibles(6,827)(8,428)
Right-of-use assets(50,208)(42,721)
Total net deferred tax assets before valuation allowance2,702,869 2,094,188 
Valuation allowance(2,710,393)(2,102,251)
Net deferred tax assets (liabilities)$(7,524)$(8,063)
The Company reviews the recognition of deferred tax assets on a regular basis to determine if realization of such assets is more likely than not. Due to the weight of objectively verifiable negative evidence, including the Company’s history of U.S. and certain foreign net operating tax losses, primarily in the U.K., the Company has continued to maintain a full valuation
allowance against potential future benefits for U.S, federal, state, and certain foreign deferred tax assets as of December 31, 2024.
The Company will release the valuation allowance when there is sufficient positive evidence to support a conclusion that it is more likely than not the future benefit on such deferred tax assets will be realized. Although the Company has achieved positive cumulative income before provision for income taxes in the U.S. over the past three years, when adjusting for permanent differences, primarily related to excess tax benefits from stock-based compensation, the outcome resulted in a cumulative tax loss position for that period. The future timing and amount of such valuation allowance being released is uncertain based on the Company’s future assessment of all available evidence, including its recent earnings and anticipated future earnings, expected temporary and permanent differences, especially those related to excess tax benefits from stock-based compensation, scheduled reversals of deferred tax liabilities, and tax planning strategies. As such, there is a reasonable possibility that the Company may have sufficient positive evidence in the future to release all or a portion of the valuation allowance it recorded against its deferred tax assets. The release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and may result in a material decrease to income tax expense for the period the release is recorded.
The valuation allowance totaled $2.7 billion and $2.1 billion for the years ended December 31, 2024 and 2023, respectively. The valuation allowance on our net deferred tax assets increased by $608.1 million and $50.6 million during the years ended December 31, 2024 and 2023, respectively. Such increase was primarily a result of an increase in excess tax benefits from permanent differences related to excess tax benefits from stock-based compensation, partially offset by an increase in income before provision for income taxes in the U.S.
Provisions enacted by the 2017 Tax Cuts and Jobs Act related to the capitalization for tax purposes of research and experimental (“R&E”) expenditures became effective on January 1, 2022. All U.S. and foreign based R&E expenditures must be capitalized and amortized over five years and 15 years, respectively. As a result of this enactment, the Company began capitalizing and amortizing R&E expenditures over five years for domestic research and 15 for foreign research rather than expensing these costs as incurred during fiscal year ended December 31, 2022. The Company has recorded a deferred tax asset of $504.2 million as of December 31, 2024 compared to $214.8 million as of December 31, 2023 related to the capitalization requirement.
As of December 31, 2024, the Company had U.S. federal and state net operating losses of approximately $5.5 billion and $3.2 billion, respectively. As of December 31, 2023, the Company had U.S. federal and state net operating losses of approximately $5.0 billion and $2.5 billion, respectively. The U.S. federal net operating loss carryforwards will expire at various dates beginning in 2035 through 2037 if not utilized, with the exception of $4.8 billion which can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2025 through 2044 if not utilized.
Additionally, as of December 31, 2024, the Company had federal and California research and development credits of approximately $426.3 million and $122.6 million, respectively. As of December 31, 2023, the Company had federal and California research and development credits of approximately $290.1 million and $99.5 million, respectively. The federal research and development credits will begin to expire in the years 2027 through 2044 if not utilized and the California research and development credits have no expiration date. Utilization of the net operating losses and research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research and development credit carryforwards before utilization.
As of December 31, 2024, the Company had U.S. federal capital loss carryforwards of $351.5 million. As of December 31, 2023, the Company had U.S. federal capital loss carryforwards of $324.0 million. The capital loss carryforwards will expire beginning in 2027 if not utilized.
As of December 31, 2024, the Company had foreign net operating losses, primarily in the U.K., of approximately $946.2 million. As of December 31, 2023, the Company had foreign net operating losses, primarily in the U.K., of approximately $464.7 million. These net operating losses can be carried forward indefinitely.
As of December 31, 2024, the Company had an immaterial amount of earnings from its wholly-owned foreign subsidiaries indefinitely reinvested outside the U.S. The Company does not intend to repatriate these earnings and, accordingly, the Company does not provide for U.S. income taxes and foreign withholding tax on these earnings.
On August 16, 2022, the Inflation Reduction Act was signed into law, with tax provisions primarily focused on implementing a 15% minimum tax on global adjusted financial income and a 1% excise tax on the value of net share repurchases. The Inflation Reduction Act became effective beginning in fiscal year 2023. Based on the Company’s current analysis of the provisions, the law has not had a material impact on the Company’s consolidated financial statements.
The Company has considered the impact of the new Organization for Economic Co-operation and Development (“OECD”) global minimum tax provision (“Pillar 2”) rules and has determined that the Pillar 2 rules were applicable to the Company starting January 1, 2024. Based on the Company’s current analysis of Pillar Two provisions, these tax law changes did not have a material impact on the Company’s consolidated financial statements.
Uncertain Tax Positions
A reconciliation of the gross unrecognized tax benefits consists of the following (in thousands):
Years Ended December 31,
202420232022
Unrecognized tax benefit beginning of year$112,016 $81,904 $65,070 
Increases in current year tax positions39,494 14,346 5,733 
Increases in prior year tax positions2,926 15,766 11,497 
Decreases in prior year tax positions— — (36)
Decreases in prior year tax positions due to settlements(3,253)— (360)
Decreases in prior year tax positions due to lapse of statute of limitations— — — 
Unrecognized tax benefit end of year$151,183 $112,016 $81,904 
As of December 31, 2024, 2023, and 2022, the Company recorded gross unrecognized tax benefits of $151.2 million, $112.0 million, and $81.9 million, respectively, that, if recognized, would not benefit the Company’s effective tax rate due to the valuation allowance that currently offsets deferred tax assets.
As of December 31, 2024, no significant increases or decreases are expected to the Company’s uncertain tax positions within the next twelve months.
It is the Company’s policy to recognize interest and penalties related to income tax matters in provision for income taxes on the consolidated statements of operations. The Company has recorded immaterial interest and penalties related to uncertain tax positions as of December 31, 2024, 2023, and 2022.
The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitation. The material jurisdictions where the Company is subject to potential examination by tax authorities are the U.S. (federal and state) for tax years 2004 through 2024 and the U.K. for tax years 2017 through 2024.