Five9, Inc.FIVN

Five9, Inc. Income Taxes Disclosure

10-KFiled Feb 20, 20267 min read
Income Taxes
The following table presents components of loss before income taxes for the periods presented (in thousands):
Year Ended December 31,
202520242023
United States$34,312 $(22,903)$(80,348)
International10,630 10,148 925 
Income (loss) before income taxes$44,942 $(12,755)$(79,423)
Provision for (benefit from) income taxes for the periods presented consisted of (in thousands):
Year Ended December 31,
202520242023
Current:
U.S. federal$16 $519 $— 
U.S. state1,866 2,728 2,531 
Foreign2,674 1,628 (243)
Total provision for income taxes - Current4,556 4,875 2,288 
Deferred:
U.S. federal191 (4,308)— 
U.S. state92 (1,174)— 
Foreign687 647 53 
Total provision for (benefit from) income taxes - Deferred970 (4,835)53 
Total provision for income taxes$5,526 $40 $2,341 
The Company recorded current income tax expense during 2025 principally due to U.S. state tax attribute utilization limitations and foreign income produced by the Company’s intercompany operating model. As a result of adopting ASU 2023-09 retroactively, the Company has revised certain disclosures to align with enacted requirements and has conformed prior year disclosures for comparability. Income tax expense (benefit) differed from the amount computed by applying the U.S. federal statutory income tax rate of 21% to pre-tax income (loss) for the periods presented as a result of the following (in thousands):
202520242023
U.S. federal tax at statutory rate$9,438 21 %$(2,679)21 %$(16,676)21 %
Domestic federal reconciling items:
Tax credits
Research and Development tax credit(224)— %(2,766)22 %(1,681)2 %
Nontaxable and Nondeductible Items:
Stock-based compensation21,476 48 %17,905 (140)%11,359 (14)%
Officers’ compensation2,196 5 %4,473 (35)%6,417 (8)%
Transaction costs19 — %862 (7)%415 (1)%
State taxes deduction(509)(1)%(277)2 %(94)— %
Other(170)— %303 (2)%322 — %
Cross-Border Tax Laws:
Base Erosion Anti-Abuse Tax— — %(7,752)61 %7,752 (10)%
Net Controlled Foreign Corporations Tested Income Exclusion507 1 %— — %(3,831)5 %
US Branch tax impact898 2 %381 (3)%132 — %
Other Adjustments:
Tax expense (benefit) from acquisition / reorganizations207 — %(4,308)34 %— — %
Net Operating Loss Carryforward adjustment— — %(1,241)10 %— — %
Fixed Assets deferred adjustments158 — %(788)6 %(72)— %
Miscellaneous deferred adjustments225 1 %(1,013)8 %(525)1 %
Return-to-Provision adjustments (317)(1)%35 — %(170)— %
Change in valuation allowance(31,565)(70)%(6,176)48 %(4,077)5 %
Domestic state and local income taxes, net of federal effect (1)
1,601 4 %252 (2)%1,386 (2)%
Foreign Reconciling Items:
Australia
Return-to-Provision Adjustments548 1 %(161)1 %44 — %
Other57 — %185 (1)%(76)— %
United Kingdom
Stock-based compensation, net716 2 %593 (5)%(963)1 %
Other(274)(1)%828 (6)%639 (1)%
India
Write-off of Income Tax Receivables831 2 %— — %— — %
Other(385)(1)%(580)5 %— — %
Other Foreign Jurisdictions(1,228)(3)%(530)4 %306 — %
Foreign Withholding Taxes866 2 %— — %— — %
Changes in Unrecognized Tax Benefits:455 1 %2,494 (20)%1,734 (2)%
Tax provision for income taxes5,526 12 %40 — %2,341 (3)%
(1) State taxes in Illinois, Texas, New Hampshire and Oregon made up the majority (greater than 50%) of the current tax effect in this category.
Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 is as follows (in thousands):
Year Ended December 31,
202520242023
US Federal *$740 $745 $— 
US State and Local:
Illinois560 978 380 
Pennsylvania *— 368 200 
Texas247 295 205 
New York *— — 114 
Other states1,282 765 251 
Total State and Local2,089 2,406 1,150 
Foreign:
United Kingdom *1,460 — — 
Canada *— 317 178 
Philippines *— — 118 
Other foreign554 283 143 
Total Foreign2,014 600 439 
Total Worldwide$4,843 $3,751 $1,589 
* Jurisdiction did not incur tax payments which exceeded the disclosure threshold for years with no payments shown.
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 related to the following (in thousands):    
December 31,
20252024
Deferred tax assets:
Net operating loss and credit carryforwards$97,816 $91,826 
Capitalized R&D costs40,223 78,961 
Accrued liabilities1,781 872 
Provision for credit losses1,381 671 
Property and equipment103 35 
Amortizable intangibles— — 
Deferred revenue3,148 3,687 
Accrued compensation6,396 5,797 
Long-term lease liabilities18,169 15,928 
Stock-based compensation6,697 10,224 
Deferred interest expense— 349 
Other1,259 755 
Gross deferred tax assets176,973 209,105 
Valuation allowance(75,701)(123,141)
Net deferred tax assets101,272 85,964 
Deferred tax liabilities:
Property and equipment(11,637)(8,647)
Amortizable intangibles(5,399)(7,697)
Right of use assets(15,663)(13,493)
Deferred contract acquisition costs(65,576)(52,663)
Other(214)— 
Gross deferred tax liabilities(98,489)(82,500)
Net deferred taxes$2,783 $3,464 
With the exception of Russia, the Company has not provided for U.S. income taxes on undistributed earnings of its foreign subsidiaries because it intends to permanently re-invest those earnings outside the United States. The Company has plans to liquidate its Russian subsidiary. As such, the Company no longer asserts an intention to permanently re-invest those earnings.
A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes the Company’s historical operating losses, lack of taxable income and the accumulated deficit for the year ended December 31, 2025, the Company has provided a valuation allowance against its U.S. net deferred tax assets. The Company has recorded net foreign deferred tax assets associated with its Australia, Germany, India and the U.K. operations totaling $2.8 million since management has assessed it is more likely than not that the results of future operations within these jurisdictions will generate sufficient taxable income to realize the deferred tax assets. The foreign deferred tax assets cannot increase its U.S. valuation allowance. The net change in the valuation allowance for the years ended December 31, 2025 and 2024 were decreases of $47.4 million and $11.7 million, respectively. The decrease of the valuation allowance in the current year was primarily attributed to the acceleration of domestic research and development expenditures under H.R. 1 (“OBBBA”), historically capitalized under Section 174.
As of December 31, 2025, the Company had net operating loss carryforwards for federal, state and foreign income tax purposes of $344.1 million, $247.1 million and $5.5 million, respectively, available to reduce future income subject to income taxes. If not utilized, various amounts of state net operating loss carryforwards will begin to expire in 2026. The federal and foreign net operating losses will not expire. As of December 31, 2025, the
Company also had gross research credit carryforwards for federal and California state tax purposes of $14.3 million and $8.2 million, available to reduce future income subject to income taxes. The federal research credit carryforwards will expire between 2026 and 2045. The California state research credits do not expire. The IRC imposes restrictions on the utilization of net operating losses and credits in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses and credits may be subject to substantial limitation as prescribed under the IRC Sections 382 and 383 and similar state provisions. Events that may cause limitations in the amount of the net operating losses and credits that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. In the event the Company has changes in ownership, net operating losses and research and development credit carryforwards, which are fully reserved by the deferred tax asset valuation allowance, could be limited and may expire unutilized.
Unrecognized Tax Benefits
The table below shows the changes in the gross amount of unrecognized tax benefits for the periods presented (in thousands):
Year Ended December 31,
202520242023
Unrecognized benefit — beginning of period$13,575 $11,124 $9,415 
Gross increases — current year tax positions490 2,502 1,413 
Gross increases — prior year tax positions— 40 299 
Gross decreases — prior year tax positions(83)(91)(3)
Settlements with tax authorities— — — 
Unrecognized benefit — end of period$13,982 $13,575 $11,124 
As of each of December 31, 2025 and 2024, the Company had unrecognized tax benefits that, if recognized, would impact its effective tax rate by $1.0 million. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense, which has cumulatively been immaterial to the financial statements.
The Company is subject to taxation in the United States, various states and several foreign jurisdictions. Due to the Company’s net carryover of unused tax attributes, all years from 2003 forward remain subject to future examination by the U.S. federal and state tax authorities. The Company’s foreign tax returns are open to audit under the statutes of limitation of the respective foreign countries in which the subsidiaries are located.

Historical Timeline

Fiscal YearFiled
2025Feb 20, 2026Showing above
2024Feb 21, 2025
2023Feb 22, 2024
2022Feb 24, 2023
2021Feb 28, 2022
2020Mar 1, 2021
2019Feb 27, 2020
2018Feb 25, 2019
2017Mar 1, 2018
2016Feb 28, 2017
2015Mar 3, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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