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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of Income before income taxes consist of the following:
Year Ended December 31,
202320222021
Domestic$16,652 $98,188 $(14,544)
International166,875 100,087 107,873 
Income before income taxes
$183,527 $198,275 $93,329 
The Benefit (provision) for income taxes consists of the following:
Year Ended December 31,
202320222021
Current:
Federal$(12,899)$(2,307)$770 
State(2,567)(1,387)163 
Foreign(40,171)(22,715)(17,230)
(55,637)(26,409)(16,297)
Deferred:
Federal134,516 3,547 15,182 
State29,514 60 3,660 
Foreign34,848 1,519 903 
198,878 5,126 19,745 
Benefit (provision) for income taxes
$143,241 $(21,283)$3,448 
A reconciliation of the U.S. statutory federal income tax rate to the Company’s effective income tax rate is as follows:
Year Ended December 31,
202320222021
Federal statutory rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal benefit(0.3)1.0 (2.7)
Stock-based compensation(22.9)(21.4)(52.5)
Non-deductible officer compensation14.9 11.0 36.6 
Tax credits(5.8)(2.9)(6.1)
Withholding taxes4.9 2.8 5.8 
Foreign tax rate differential(3.0)(2.0)(6.9)
Net tax on foreign earnings (GILTI/FDII)4.2 0.9 — 
Transaction costs(0.1)0.5 3.9 
Tax impact of internal legal entity restructuring(93.1)— — 
Other2.2 (0.2)(2.8)
Effective income tax rate(78.0 %)10.7 %(3.7 %)
For the year ended December 31, 2023, the effective tax rate was lower as compared to the year ended December 31, 2022 primarily due to the discrete tax benefit recognized as a result of the internal legal entity restructuring described below. The benefit of the internal legal entity restructuring was partially offset by an increase in the effective tax rate impact of the GILTI inclusion due to the mandatory capitalization of research and development expenses for U.S. tax purposes and a decrease in discrete tax benefits related to stock-based compensation, net of the impact from officer compensation limitation provisions, recognized during the current year. For the years ended December 31, 2023 and 2022, the Company recorded discrete tax benefits of $14,648 and $20,501, respectively, associated with windfall tax benefits from stock‑based compensation, net of the impact from officer compensation limitation provisions.
During the fourth quarter of 2023, the Company recognized a net discrete income tax benefit of $170,784 attributable to internal legal entity restructuring and related intra-entity transactions as part of its continuing efforts to align intellectual property ownership with the Company’s business operating model. These transactions resulted in the recognition of deferred tax benefits arising from the net increase in deferred tax assets related to intangibles and goodwill of $171,622. The deferred tax assets represent the undiscounted future anticipated cash tax impacts of basis differences, which are expected to be realized through tax amortization over the next 13 years.
For the year ended December 31, 2022, the effective tax rate was higher as compared to the year ended December 31, 2021, primarily due to the 2021 effective tax rate impact, net of officer compensation limitation provisions, related to the 2021 compensation charge of $90,721 to Deferred compensation plan expenses to record reallocated deferred compensation plan liabilities at fair value (see Note 12). For the years ended December 31, 2022 and 2021, the Company recorded discrete tax benefits of $20,501 and $14,890, respectively, associated with windfall tax benefits from stock‑based compensation, net of the impact from officer compensation limitation provisions.
The U.S. Tax Cuts and Jobs Act (the “JOBS Act”) requires certain GILTI earned by a controlled foreign corporation (“CFC”) to be included in the gross income of the CFC’s U.S. shareholder. The Company has elected the “period cost method” and treats taxes due on future U.S. inclusions in taxable income related to GILTI as a current‑period expense when incurred. The JOBS Act allows a U.S. corporation a deduction equal to a certain percentage of its foreign‑derived intangible income (“FDII”).
The following is a summary of the significant components of the Company’s deferred tax assets and liabilities:
December 31,
20232022
Deferred tax assets:
Accrued compensation$38,220 $35,298 
NOL and credit carryforwards
19,677 14,960 
Intangible assets including goodwill137,576 — 
Convertible debt and 163(j) limitation14,364 13,349 
Lease liabilities7,610 8,920 
Other accruals not currently deductible502 1,122 
Allowance for doubtful accounts1,852 1,856 
Deferred revenues4,402 2,914 
Other2,852 2,383 
Total deferred tax assets227,055 80,802 
Less: Valuation allowance(2,664)(3,321)
Net deferred tax assets224,391 77,481 
Deferred tax liabilities:
Intangible assets including goodwill— (51,994)
Operating lease right-of-use assets(6,762)(8,381)
Prepaid expenses(2,746)(2,877)
Unrealized gains and losses(8,131)(9,422)
Property and equipment(3,639)(3,406)
Total deferred tax liabilities(21,278)(76,080)
Net deferred tax assets (liabilities)$203,113 $1,401 
The Company recognizes deferred income tax assets and liabilities for the expected future tax consequences of NOL carryforwards, credit carryforwards, and temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, using enacted tax rates in effect for the year in which the items are expected to reverse.
The Company had deferred tax assets for tax credits and NOLs, net of unrecognized tax positions, primarily related to:
Jurisdiction:December 31, 2023Begin to Expire
U.S. Federal NOL$3,497 2034
U.S. Federal research and development credits201 2039
U.S. Federal foreign tax credits340 2028
U.S. State NOL1,530 2036
U.S. State research and development credits667 2030
U.K. NOL6,759 Indefinite
U.K. research and development credits760 Indefinite
Canadian research and development credit1,037 2030
As of December 31, 2023 and 2022, the Company has a valuation allowance recorded against net deferred tax assets related to NOLs and tax attributes in certain jurisdictions of $2,664 and $3,321, respectively. During the year ended December 31, 2023, the Company decreased the valuation allowance by $657, which was primarily related to the partial utilization of U.S. capital loss carryforwards. A valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company assesses the available positive and negative evidence to estimate whether the existing deferred tax assets will be realized.
We have provided for any applicable income taxes associated with current year distributions, as well as any earnings that are expected to be distributed in the future, in the calculation of the income tax provision. No additional provision has been made for U.S. and non‑U.S. income taxes on the undistributed earnings of subsidiaries that are expected to be indefinitely reinvested. As of December 31, 2023, certain subsidiaries had approximately $335,988 of cumulative undistributed earnings that have been deemed permanently reinvested. A liability could arise if our intention to indefinitely reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. The potential tax implications of unremitted earnings are driven by the facts at the time of the distribution. It is not practicable to estimate the additional income taxes related to indefinitely reinvested earnings or the basis differences related to investments in subsidiaries.
The following is a reconciliation of the changes in gross unrecognized tax benefits:
Year Ended December 31,
202320222021
Gross unrecognized tax benefits, beginning of year$910 $1,331 $1,223 
Increases for tax positions of prior years12 — 160 
Decreases for tax positions of prior years(9)(121)(42)
Increases for tax positions related to the current year— — — 
Decreases relating to settlements with taxing authorities— (35)— 
Reductions as a result of lapse of the statute of limitations(447)(265)(10)
Gross unrecognized tax benefits, end of year$466 $910 $1,331 
As of December 31, 2023, 2022, and 2021, the Company had total unrecognized tax benefits including interest and penalties of $557, $1,194, and $1,704, respectively, of which $554, $1,181, and $1,273, respectively, would impact the Company’s effective tax rate if recognized. Interest expense and penalties related to unrecognized tax benefits included in the Benefit (provision) for income taxes was $194, $89, $(101) for the years ended December 31, 2023, 2022, and 2021, respectively. The cumulative accrued interest and penalties related to unrecognized tax benefits were $91, $284, and $373 as of December 31, 2023, 2022, and 2021, respectively.
The Company is subject to income tax in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax‑related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that the Company’s tax return positions are fully supportable. The tax benefit recognized is based on the largest amount that is greater than 50 percent likely of being realized upon ultimate settlement. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The Provision for income taxes in the consolidated statements of operations includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company records accrued interest and/or penalties, where applicable, related to unrecognized tax benefits as part of the Benefit (provision) for income taxes in the consolidated statements of operations. The Company records the amount of uncertain taxes expected to be paid in the next 12 months as a current liability and records the remaining amount in Other liabilities in the consolidated balance sheets.
The Company is currently under audit in the U.K. for years 2018 through 2021. The Company is also under audit in the Netherlands for years 2018 through 2021. In addition, the Company is under audit in various other foreign taxing jurisdictions that are not material to the consolidated financial statements. The Company’s U.S. consolidated federal income tax returns for years 2020 through 2023 may be subject to examination by the Internal Revenue Service. The Company also may be subject to examination by other significant jurisdictions, including the Irish Revenue Commissioners for Irish tax purposes for years 2019 through 2023 and by the Inland Revenue Department for New Zealand Tax purposes for years 2018 through 2023.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) adopted model rules to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as “Pillar 2”). The OECD has continued to issue administrative guidance and interpretations regarding the Pillar 2 rules. A number of E.U. and G20 member nations, including locations where the Company currently has operations, are at various stages in the process of enacting tax legislation to incorporate aspects of the Pillar 2 rules. For countries that have adopted the model rules, certain aspects of the Pillar 2 rules will be effective in 2024, while other aspects are expected to become effective in 2025. Due to the uncertainty regarding which countries will enact Pillar 2 legislation and in what form the legislation will be adopted, as well as uncertainty regarding the timing of individual country legislative action and the underlying complexity of the rules, we are still assessing the impact, if any, of the Pillar 2 legislation on the Company.