Pulmonx CorpLUNG
Pulmonx Corp Income Taxes Disclosure
Income Taxes
Loss before the provision for income taxes consists of the following (in thousands):
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Domestic | $ | (57,570) | $ | (60,503) | |||||||
| Foreign | 1,676 | 231 | |||||||||
| Total loss before provision for taxes | $ | (55,894) | $ | (60,272) | |||||||
The components of income tax expense are as follows (in thousands):
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | 53 | 62 | |||||||||
| Foreign | 471 | 483 | |||||||||
| Total current expense | $ | 524 | $ | 545 | |||||||
| Deferred: | |||||||||||
| Federal | $ | 7 | $ | 7 | |||||||
| State | 8 | 10 | |||||||||
| Foreign | (39) | 9 | |||||||||
| Total deferred expense | (24) | 26 | |||||||||
| Total income tax expense | $ | 500 | $ | 571 | |||||||
The reconciliation between the federal statutory rate and the Company’s effective tax rate is summarized below:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| State taxes, net of federal benefit | (0.1) | % | (0.1) | % | |||||||
| Foreign earnings at different rates | 0.1 | % | (0.5) | % | |||||||
| Tax credits | 1.3 | % | (0.9) | % | |||||||
| Permanent differences | (5.7) | % | (4.6) | % | |||||||
| Prior year true-up | (0.2) | % | 0.6 | % | |||||||
| Change in valuation allowance | (16.8) | % | (16.4) | % | |||||||
| Other rate impacts | (0.5) | % | — | % | |||||||
| Effective tax rate | (0.9) | % | (0.9) | % | |||||||
Deferred income taxes arise from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes, as well as operating losses and tax credit carryforwards. Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 65,515 | $ | 57,420 | |||||||
| Tax credit carryforwards | 7,331 | 6,493 | |||||||||
| Accruals and reserves | 1,993 | 2,287 | |||||||||
| Depreciation | 303 | 243 | |||||||||
| Intangible assets | 3,527 | 4,049 | |||||||||
| Right of use liability | 4,568 | 920 | |||||||||
| Capitalized research costs | 7,754 | 5,749 | |||||||||
| Other | 4,467 | 3,371 | |||||||||
| Total deferred tax assets | 95,458 | 80,532 | |||||||||
| Less: valuation allowance | (90,598) | (79,362) | |||||||||
| Total deferred tax assets, net of valuation allowance | $ | 4,860 | $ | 1,170 | |||||||
| Deferred tax liabilities: | |||||||||||
| Right of use asset | $ | (4,358) | $ | (739) | |||||||
| Goodwill | (589) | (545) | |||||||||
| Total deferred tax liabilities | $ | (4,947) | $ | (1,284) | |||||||
| Net deferred tax liabilities | $ | (87) | $ | (114) | |||||||
The Company has established a full valuation allowance against its U.S. net deferred tax assets due to the uncertainty surrounding the realization of such assets. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the U.S. net deferred tax assets have been fully offset by a valuation allowance of $90.6 million as of December 31, 2024. The valuation allowance increased by $11.2 million and $10.9 million for the years ended December 31, 2024 and December 31, 2023, respectively.
As of December 31, 2024, the Company had a total net operating loss carryforwards for federal income tax purposes of approximately $280.4 million. For net operating loss carryforwards generated prior to 2018, if not utilized, these net federal operating loss carryforwards will begin to expire in 2025. The Company also had a state and city net operating loss carryforward of approximately $179.0 million which will begin to expire in 2025.
For tax years beginning on January 1, 2018 onwards, any federal net operating losses generated will be allowable for carry forward indefinitely, as opposed to the original expiration of 20 years. As of December 31, 2024, the Company had $210.0 million of federal net operating losses that can be carryforward indefinitely.
The Company also had federal and state research and development (“R&D”) tax credit carryforwards of approximately $4.4 million and $5.3 million, respectively. The federal tax R&D credit carryforwards will expire beginning in the year 2025 while the state tax credit carryforwards have no expiration date.
Utilization of the net operating loss carryforwards and R&D tax credit carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code, as defined in Section 382, and other similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company completed a section 382 study for the year ended December 31, 2022 for which the Company had no change in ownership. Additionally, based on the Company’s analysis, no further material net operating losses or credits have expired unused due to the section 382 limitations as of December 31, 2024.
Annually, the Company determines whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities in considering whether any tax benefit can be recorded in the consolidated financial statements. As of December 31, 2024, the Company had unrecognized tax benefits of approximately $8.9 million, none of which will affect the effective tax rate if recognized. It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next 12 months.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):
| Balance at December 31, 2022 | $ | 8,642 | |||
| Additions for tax positions related to prior year | 144 | ||||
| Decreases for tax positions related to prior year | (162) | ||||
| Additions for tax positions related to current year | 38 | ||||
| Balance at December 31, 2023 | $ | 8,662 | |||
| Additions for tax positions related to prior year | 170 | ||||
| Additions for tax positions related to current year | 40 | ||||
| Balance at December 31, 2024 | $ | 8,872 | |||
It is the Company's policy to include penalties and interest expense related to income taxes as a component of other income (expense), net and interest expense, respectively, as necessary.
The Company’s major tax jurisdictions are the United States and California, and Switzerland and Neuchâtel. The Company’s tax years will remain open for examination by the federal and state tax authorities from 2005 for federal and 1999 for states because of the net operating losses and R&D credit carryover. The Company does not have any tax audits or other issues pending.
As currently enacted, the Tax Cuts and Jobs Act (the "Tax Act") requires taxpayers to capitalize research and development expenses with amortization periods over five and fifteen years, which is expected to decrease the amount of the Company's generated net operating losses during the year.
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.