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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes |
12. Income Taxes
We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, the U.K., Australia, Ireland and Costa Rica. We are generally subject to U.S. federal income tax examination for calendar tax years 2019 through 2022 as well as state and foreign income tax examinations for various years depending on statutes of limitations of those jurisdictions. The following summarizes the components of income tax expense (benefit):
| Years ended December 31,
(dollars in thousands) | 2022 |  | 2021 |  | 2020 |
Current taxes: |  |  |
U.S. Federal | $ | 3,485 |  | $ | (2,499) |  | $ | (407) |
U.S. State and local | 5,708 |  | (257) |  | 1,563 |
International | 7,283 |  | 6,570 |  | 3,904 |
Total current taxes | 16,476 |  | 3,814 |  | 5,060 |
Deferred taxes: |  |  |
U.S. Federal | (16,880) |  | (4,615) |  | (1,064) |
U.S. State and local | (9,319) |  | 222 |  | 7,725 |
International | (445) |  | 1,964 |  | 2,176 |
Total deferred taxes | (26,644) |  | (2,429) |  | 8,837 |
Total income tax (benefit) provision | $ | (10,168) |  | $ | 1,385 |  | $ | 13,897 |
The following summarizes the components of income before provision for income taxes:
| Years ended December 31,
(dollars in thousands) | 2022 |  | 2021 |  | 2020 |
U.S. | $ | (91,493) |  | $ | (23,180) |  | $ | (4,112) |
International | 35,918 |  | 30,263 |  | 25,726 |
Income before provision for income taxes | $ | (55,575) |  | $ | 7,083 |  | $ | 21,614 |
A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate our income tax provision (benefit) is as follows:
| Years ended December 31,
| 2022 |  | 2021 |  | 2020 |
Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | %
Effect of: |  |  |
State income taxes, net of federal benefit | 1.5 |  | 4.4 |  | 5.9 |
Change in foreign income tax rate applied to deferred tax balances | 0.1 |  | 42.6 |  | 4.0 |
Change in state income tax rate applied to deferred tax balances | 1.8 |  | 2.3 |  | 0.1 |
Nondeductible security incident-related fines or penalties | (8.7) |  | — |  | — |
Section 162(m) limitation | (6.4) |  | 75.0 |  | 17.5 |
Stock-based compensation | (6.3) |  | (36.2) |  | (1.2) |
Change in valuation reserve (primarily state credit reserves) | (5.4) |  | 26.1 |  | 38.2 |
GILTI inclusion | (2.6) |  | — |  | 1.3 |
Nondeductible meals, entertainment and transportation | (0.7) |  | 1.1 |  | 3.3 |
Acquisition costs | — |  | 8.7 |  | — |
DTA Adjustment – NOLs | — |  | — |  | (3.3) |
Unrecognized tax benefit | 0.5 |  | (32.7) |  | 1.3 |
Foreign tax rate | 1.0 |  | (6.0) |  | (1.7) |
Return to accrual adjustment | 1.4 |  | (4.2) |  | (4.1) |
FDII benefit | 2.3 |  | — |  | — |
State credits, net of federal benefit | 7.2 |  | (32.6) |  | (2.3) |
Federal credits generated | 11.5 |  | (54.5) |  | (17.4) |
Other | 0.1 |  | 4.6 |  | 1.7 |
Income tax provision effective rate | 18.3 | % | 19.6 | % | 64.3 | %
The decrease in our effective income tax rate for year ended December 31, 2022, when compared to the same period in 2021, was primarily attributable to current-year non-deductible accruals for loss contingencies related to the Security Incident, stock-based compensation shortfall partially offset by increased tax credits and impact of tax rate decreases. The 2021 effective income tax rate was positively impacted by benefit attributable to stock-based compensation windfall net of tax expense resulting from impact of UK corporate rate increase. The year-on-year comparison is further impacted by 2022 pre-tax loss versus income in prior periods. The significant components of our deferred tax assets and liabilities were as follows:
| December 31,
(dollars in thousands) | 2022 |  | 2021 |
Deferred tax assets relating to: |  |
Federal and state and foreign net operating loss carryforwards | $ | 10,369 |  | $ | 21,456 |
Federal, state and foreign tax credits | 50,194 |  | 52,283 |
Stock-based compensation | 21,166 |  | 21,432 |
Operating leases | 14,024 |  | 23,795 |
Allowance for credit losses | 1,803 |  | 2,524 |
Intangible assets | 561 |  | 1,070 |
Deferred revenue | 1,820 |  | 1,057 |
Accrued bonuses | 455 |  | 218 |
Capitalized R&D and software costs | 12,166 |  | — |
Other | 6,293 |  | 13,515 |
Total deferred tax assets | 118,851 |  | 137,350 |
Deferred tax liabilities relating to: |  |
Intangible assets | (161,836) |  | (168,392) |
Capitalized software and content development costs | — |  | (31,326) |
Costs of obtaining contracts | (16,287) |  | (18,046) |
Operating leases | (11,721) |  | (23,582) |
Fixed assets | (9,827) |  | (8,483) |
Other | (9,016) |  | (2,515) |
Total deferred tax liabilities | (208,687) |  | (252,344) |
Valuation allowance | (34,769) |  | (31,974) |
Net deferred tax liability | $ | (124,605) |  | $ | (146,968) |
As of December 31, 2022, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $31.1 million, $5.3 million and $38.3 million, respectively. Of our federal net operating loss carryforwards, $13.8 million are subject to expiration beginning in 2023 while the remainder have an unlimited carryforward period. The state net operating loss carryforwards are subject to various applicable state tax laws. If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2023. Of our foreign net operating loss carryforwards, $62 thousand expires in 2024 with the remainder having an unlimited carryforward period. Our federal tax credit carryforwards for income tax purposes were approximately $16.9 million. Our state tax credit carryforwards for income tax purposes were approximately $36.1 million, net of federal benefit. If not utilized, the federal tax credit carryforwards will begin to expire in 2039 and the state tax credit carryforwards will begin to expire in 2023. A portion of the foreign and state net operating loss carryforwards and state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards. The Tax Cuts and Jobs Act requires taxpayers to capitalize and amortize research and experimental expenditures under Section 174 of the Internal Revenue Code for tax years beginning after December 31, 2021. Accordingly, our historic deferred tax liability attributable to capitalized software has become a deferred tax asset as a result of capitalization for tax purposes. The following table illustrates the change in our deferred tax asset valuation allowance:
Years ended December 31, (dollars in thousands) | Balance at beginning of year | Acquisition- related change | Charges to expense | Balance at end of year
2022 | $ | 31,974 |  | $ | — |  | $ | 2,795 |  | $ | 34,769 |
2021 | 29,184 |  | 893 |  | 1,897 |  | 31,974 |
2020 | 6,453 |  | — |  | 22,731 |  | 29,184 |
The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2022, 2021 and 2020:
| Years ended December 31,
(dollars in thousands) | 2022 |  | 2021 |  | 2020 |
Balance at beginning of year | $ | 3,651 |  | $ | 4,625 |  | $ | 4,346 |
Increases from prior period positions | 89 |  | 6 |  | 414 |
Decreases in prior year positions | (908) |  | (57) |  | (614) |
Increases from current period positions | 629 |  | 1,751 |  | 491 |
Settlements (payments) | — |  | (1,192) |  | — |
Lapse of statute of limitations | (378) |  | (1,482) |  | (12) |
Balance at end of year | $ | 3,083 |  | $ | 3,651 |  | $ | 4,625 |
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $3.1 million at December 31, 2022. Certain prior period amounts relating to our 2014 acquisitions were covered under indemnification agreements and, therefore, had a corresponding indemnification asset. Due to lapse of statute of limitations, the indemnified unrecognized tax benefit was released in 2022 resulting in income tax benefit with offsetting expense included in pretax income from corresponding release of indemnification asset. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2022 and December 31, 2021 was insignificant. The total amount of interest and penalties included in the consolidated statements of comprehensive income as an increase or decrease in income tax expense for 2022, 2021 and 2020 was insignificant. We have taken federal and state tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of statutes of limitations. The reasonably possible decrease at December 31, 2022 was insignificant. For our undistributed earnings of foreign subsidiaries, which we do not consider to be significant, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States. Accordingly, we have not provided for U.S. state income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries. If some or all of such earnings were to be remitted, the amount of taxes payable would be insignificant.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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