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Note 11 - Income Taxes
 3 Months Ended
Mar. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 11.

Income Taxes

 

The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.

 

The Company's quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company does business, tax law developments and possible outcomes of audits. The Company's estimated effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to non-deductible stock-based compensation expense, state taxes, the benefit of U.S. federal income tax credits and the foreign-derived intangible income deduction.

 

The Company recorded an income tax provision of $7.9 million and an income tax benefit of $2.4 million for the three months ended March 31, 2022 and 2021, respectively, resulting in an effective tax rate of 23.8% and 110.3%, respectively. The increase in income tax provision for the three months ended March 31, 2022 compared to the three months ended  March 31, 2021 was primarily due to the effects of a tax law change related to mandatory capitalization of research and development expenses starting January 1, 2022 and a decrease in stock-based compensation expense due to the accelerated vesting of Mr. Courtot's equity awards in the three months ended March 31, 2021.

 

As of March 31, 2022, the Company had unrecognized tax benefits of $9.9 million, of which $5.1 million, if recognized, would favorably impact the Company's effective tax rate. As of December 31, 2021, the Company had unrecognized tax benefits of $9.7 million, of which $4.9 million, if recognized, would favorably impact the Company's effective tax rate. The Company does not anticipate a material change in its unrecognized tax benefits in the next 12 months.

 

On June 29, 2020, the California governor signed into law the 2020 Budget Act, which temporarily suspends the utilization of net operating losses and limits the utilization of the research credit to $5 million annually for 2020, 2021 and 2022. The Company does not expect a material impact to the condensed consolidated financial statements as a result of the 2020 Budget Act.