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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
8. | Income Taxes
The components of income before income taxes are as follows:
|  | For the Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | (Amounts in thousands) |
Domestic |  | $ | (5,432 | ) |  | $ | (73 | ) |  | $ | (6,709 | )
Foreign |  |  | 31,583 |  |  |  | 21,509 |  |  |  | 13,957 |
Income before income taxes |  | $ | 26,151 |  |  | $ | 21,436 |  |  | $ | 7,248 |
The components of the income tax provision (benefit) are as follows:
|  | For the Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | (Amounts in thousands) |
Components of the income tax provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 8,290 |  |  | $ | 4,354 |  |  | $ | 3,624 |
Deferred |  |  | (5,287 | ) |  |  | 465 |  |  |  | (24,729 | )
Equity |  |  | 1,737 |  |  |  | — |  |  |  | — |
Total |  | $ | 4,740 |  |  | $ | 4,819 |  |  | $ | (21,105 | )
Jurisdictional components of the income tax provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (965 | ) |  | $ | (393 | ) |  | $ | (24,012 | )
State |  |  | (1,764 | ) |  |  | 718 |  |  |  | (438 | )
Foreign |  |  | 7,469 |  |  |  | 4,494 |  |  |  | 3,345 |
Total |  | $ | 4,740 |  |  | $ | 4,819 |  |  | $ | (21,105 | )
During 2019 , the Company generated $0.1 million in foreign net operating losses and $0.2 million in state net operating losses. During 2018, the Company utilized its remaining U.S. net operating loss carryforwards of $ 19.5 million. At December 31, 201 9 , the Company had federal business tax credit carryforwards of $1.2 million and state business tax credit carryforwards of $ 0.9 million available to reduce future domestic income taxes. The business tax credits carryforwards will expire at various dates through December 2039. The business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders. The components of deferred income taxes are as follows:
|  | December 31, |
|  | 2019 |  |  | 2018 |
|  | (Amounts in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Temporary timing differences: |  |  |  |  |  |  |  |
Stock-based compensation expense |  | $ | 2,922 |  |  | $ | 2,874 |
Contingent consideration |  |  | 2,206 |  |  |  | 2,263 |
Operating leases |  |  | 7,295 |  |  |  | — |
Accrued bonus |  |  | 1,379 |  |  |  | 3 |
Other |  |  | 4,994 |  |  |  | 3,585 |
Total temporary timing differences |  |  | 18,796 |  |  |  | 8,725 |
Net operating loss carryforwards |  |  | 221 |  |  |  | — |
Tax business credits carryforwards |  |  | 924 |  |  |  | 2,004 |
Total deferred tax assets |  |  | 19,941 |  |  |  | 10,729 |
Less: valuation allowance |  |  | (6 | ) |  |  | (131 | )
Net deferred tax assets |  |  | 19,935 |  |  |  | 10,598 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill |  |  | (1,288 | ) |  |  | (1,076 | )
Fixed assets |  |  | (1,650 | ) |  |  | (956 | )
Acquired intangible assets |  |  | (26,811 | ) |  |  | (26,903 | )
Operating lease right of use assets |  |  | (6,144 | ) |  |  | — |
Conversion option on convertible notes |  |  | (11,066 | ) |  |  | (2,394 | )
Total deferred tax liabilities |  |  | (46,959 | ) |  |  | (31,329 | )
Total net deferred tax liabilities |  | $ | (27,024 | ) |  | $ | (20,731 | )
The net change in the total valuation allowance for the year ended December 31, 2019 and 2018 was a decrease of $0.1 million and an increase of $0.1 million, respectively. The reconciliation of the federal statutory rate to the effective income tax rate for the years ended December 31, 2019, 2018 and 2017 is as follows:
|  | For the Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Amount |  |  | % |  |  | Amount |  |  | % |  |  | Amount |  |  | % |
|  | (Amounts in thousands, except percentages) |
Income before income taxes |  | $ | 26,151 |  |  |  |  |  |  | $ | 21,436 |  |  |  |  |  |  | $ | 7,248 |  |  |  |  |
Expected tax at statutory rate |  |  | 5,492 |  |  |  | 21.0 | % |  |  | 4,502 |  |  |  | 21.0 | % |  |  | 2,537 |  |  |  | 35.0 | %
Adjustments due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Difference between U.S. and foreign tax |  |  | 436 |  |  |  | 1.7 | % |  |  | 345 |  |  |  | 1.6 | % |  |  | (1,797 | ) |  |  | (24.8 | %)
State income and franchise tax |  |  | (179 | ) |  |  | (0.7 | %) |  |  | 91 |  |  |  | 0.4 | % |  |  | (307 | ) |  |  | (4.2 | %)
Business tax credits |  |  | (2,746 | ) |  |  | (10.5 | %) |  |  | (1,760 | ) |  |  | (8.2 | %) |  |  | (708 | ) |  |  | (9.8 | %)
Permanent differences: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation expense |  |  | (1,877 | ) |  |  | (7.2 | %) |  |  | (1,213 | ) |  |  | (5.7 | %) |  |  | (946 | ) |  |  | (13.1 | %)
Transaction costs |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | % |  |  | 1,232 |  |  |  | 17.0 | %
U.S. taxation of foreign earnings |  |  | 2,227 |  |  |  | 8.5 | % |  |  | 2,190 |  |  |  | 10.2 | % |  |  | — |  |  |  | 0.0 | %
Executive compensation |  |  | 841 |  |  |  | 3.2 | % |  |  | 367 |  |  |  | 1.7 | % |  |  | 265 |  |  |  | 3.7 | %
Other |  |  | 92 |  |  |  | 0.4 | % |  |  | 97 |  |  |  | 0.5 | % |  |  | 205 |  |  |  | 2.8 | %
Change in U.S. federal tax rates |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | % |  |  | (12,839 | ) |  |  | (177.1 | %)
Change in U.S. state tax rates |  |  | — |  |  |  | 0.0 | % |  |  | 748 |  |  |  | 3.5 | % |  |  | (151 | ) |  |  | (2.1 | %)
Change in Netherlands tax rate |  |  | (193 | ) |  |  | (0.7 | % ) |  |  | (388 | ) |  |  | (1.8 | %) |  |  | — |  |  |  | 0.0 | %
Transition tax |  |  | — |  |  |  | 0.0 | % |  |  | (1,338 | ) |  |  | (6.2 | %) |  |  | 3,266 |  |  |  | 45.1 | %
Uncertain tax provisions |  |  | 1,069 |  |  |  | 4.1 | % |  |  | 1,021 |  |  |  | 4.8 | % |  |  | 241 |  |  |  | 3.3 | %
Change in valuation allowance |  |  | (125 | ) |  |  | (0.5 | % ) |  |  | 125 |  |  |  | 0.6 | % |  |  | (12,164 | ) |  |  | (167.8 | %)
Return to provision adjustments |  |  | (79 | ) |  |  | (0.3 | % ) |  |  | 33 |  |  |  | 0.2 | % |  |  | (161 | ) |  |  | (2.2 | %)
Other |  |  | (218 | ) |  |  | (0.8 | % ) |  |  | (1 | ) |  |  | (0.1 | %) |  |  | 222 |  |  |  | 3.0 | %
Income tax provision (benefit) |  | $ | 4,740 |  |  |  | 18.1 | % |  | $ | 4,819 |  |  |  | 22.5 | % |  | $ | (21,105 | ) |  |  | (291.2 | %)
The Company’s tax returns are subject to examination by federal, state and international taxing authorities for the following periods:
Jurisdiction |  | Fiscal Years Subject to Examination |
United States – federal and state |  |  | 2016 - 2019 |
Sweden |  |  | 2012 - 2019 |
Germany |  |  | 2017 - 2019 |
Netherlands |  |  | 2013 - 2019 |
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
|  | For the Years Ended December 31, |
|  | 2019 |  |  | 2018 |
|  | (Amounts in thousands) |
Balance of gross unrecognized tax benefits, beginning of period |  | $ | 2,852 |  |  | $ | 1,806 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period |  |  | 602 |  |  |  | 1,062 |
Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken in the prior period |  |  | (16 | ) |  |  | — |
Gross amounts of decrease due to release |  |  | (16 | ) |  |  | (16 | )
Balance of gross unrecognized tax benefits, end of period |  | $ | 3,422 |  |  | $ | 2,852 |
Included in the balance of unrecognized tax benefits as of December 31, 2019 are $ 3.4 million of tax benefits that, if recognized, would affect the effective tax rate. The Company classifies interest and penalties related to income taxes as components of its income tax provision. The amount of interest and penalties recorded in the accompanying consolidated statements of comprehensive income was approximately $5,000 for the year ended December 31, 2019 and approximately $1,000 for the years ended December 31, 2018 and 2017, respectively. The amount of interest and penalties recorded in the accompanying consolidated balance sheets was approximately $41,000 and $46,000 as of December 31, 2019 and 2018, respectively. The Company does not anticipate the amount of unrecognized tax benefits to change over the next twelve months. As of December 31, 201 9 , the Company has accumulated undistributed earnings generated by its foreign subsidiaries of approximately $ 93.5 million. Because $ 58.0 million of such earnings have previously been subject to the one-time transition tax on foreign earnings required by the 2017 Tax Act, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign and state taxes. At December 31, 2019, the Company has not provided for taxes on outside basis differences of its foreign subsidiaries, as the Company has the ability and intent to indefinitely reinvest the undistributed earnings of its foreign subsidiaries, and there are no needs for such earnings in the United States that would contradict its plan to indefinitely reinvest. ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized when the intra-entity transfer occurs rather than deferring recognition of income tax consequences until the transfer was made with an outside party. The Company adopted the provisions of this ASU in the first quarter of 2018. The adoption resulted in a decrease of $ 5.7 million to other assets, a decrease of $ 5.0 million to deferred tax liabilities and a decrease of $ 0.7 million to accumulated deficit at January 1, 2018. On December 22, 2017, President Trump signed into law H.R. 1/Public Law No. 115-97, the tax legislation commonly known as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The Act made significant changes to federal tax law, including, but not limited to, a reduction in the federal income tax rate from 35% to 21%, taxation of certain global intangible low-taxed income, allowing for immediate expensing of qualified assets, stricter limits on deductions for interest and certain executive compensation, and a one-time transition tax on previously deferred earnings of certain foreign subsidiaries. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of H.R.1. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. During 2018, final adjustments noted below have been made to the provisional amounts recorded during 2017, and the Company has now completed its accounting for various tax impacts of the Act. The Act lowered the Company’s U.S. statutory federal tax rate from 35 % to 21% effective January 1, 2018. The Company recorded a tax benefit of $ 12.8 million in the year ended December 31, 2017 for the reduction in its US deferred tax assets and liabilities resulting from the rate change. The accounting for this item is complete and no adjustments were made to this amount during 2018. The Act included a one-time deemed repatriation transition tax whereby entities that are shareholders of a specified foreign corporation must include in gross income the undistributed and previously untaxed post-1986 earnings and profits of the specified foreign corporation. The Company’s provisional amount recorded at December 31, 2017 increased its tax provision by $ 3.3 million. As of December 31, 2018, the accounting for this item was complete. The Company is subject to a territorial tax system under the Act, in which the Company is required to provide for tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company has adopted an accounting policy to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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