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Income Taxes | 12 Months Ended
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Dec. 31, 2024
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 2021 through 2024 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 (benefit) expense:
| Years ended December 31,
(dollars in thousands) | 2024 |  | 2023 |  | 2022 |
Current taxes: |  |  |
U.S. Federal | $ | 36,367 |  | $ | 18,879 |  | $ | 3,485 |
U.S. State and local | 8,433 |  | 12,331 |  | 5,708 |
International | 11,792 |  | 8,982 |  | 7,283 |
Total current taxes | 56,592 |  | 40,192 |  | 16,476 |
Deferred taxes: |  |  |
U.S. Federal | (65,559) |  | (18,303) |  | (16,880) |
U.S. State and local | (18,472) |  | (5,895) |  | (9,319) |
International | (980) |  | (170) |  | (445) |
Total deferred taxes | (85,011) |  | (24,368) |  | (26,644) |
Total income tax (benefit) provision | $ | (28,419) |  | $ | 15,824 |  | $ | (10,168) |
The following summarizes the components of (loss) income before provision for income taxes:
| Years ended December 31,
(dollars in thousands) | 2024 |  | 2023 |  | 2022 |
U.S. | $ | (365,356) |  | $ | (22,074) |  | $ | (91,493) |
International | 53,765 |  | 39,718 |  | 35,918 |
(Loss) income before provision for income taxes | $ | (311,591) |  | $ | 17,644 |  | $ | (55,575) |
A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate our income tax provision is as follows:
| Years ended December 31,
| 2024 |  | 2023 |  | 2022 |
Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | %
Effect of: |  |  |
State income taxes, net of federal benefit | 2.2 |  | 20.0 |  | 1.5 |
Change in foreign income tax rate applied to deferred tax balances | — |  | — |  | 0.1 |
Change in state income tax rate applied to deferred tax balances | (0.1) |  | 7.1 |  | 1.8 |
Federal credits generated | 1.9 |  | (42.3) |  | 11.5 |
Stock-based compensation | 1.3 |  | 13.4 |  | (6.3) |
Sale of subsidiary | 1.0 |  | — |  | — |
FDII benefit | 0.6 |  | (10.2) |  | 2.3 |
State credits, net of federal benefit | 0.5 |  | (9.1) |  | 7.2 |
Return to accrual adjustment | (0.1) |  | (8.3) |  | 1.4 |
Nondeductible meals, entertainment and transportation | (0.2) |  | 4.4 |  | (0.7) |
GILTI inclusion | (0.4) |  | 9.3 |  | (2.6) |
Nondeductible security incident-related fines or penalties | (0.5) |  | 35.7 |  | (8.7) |
Foreign tax rate | (0.5) |  | 6.1 |  | 1.0 |
Unrecognized tax benefit | (0.7) |  | 0.7 |  | 0.5 |
Section 162(m) limitation | (1.7) |  | 30.1 |  | (6.4) |
Change in valuation reserve | (15.1) |  | 10.8 |  | (5.4) |
Other | (0.1) |  | 1.0 |  | 0.1 |
Income tax provision effective rate | 9.1 | % | 89.7 | % | 18.3 | %
The decrease in our effective income tax rate for year ended December 31, 2024, when compared to the same period in 2023, was primarily attributable to the valuation allowance recorded in the current period. As of December 31, 2024, we recorded a valuation allowance against all of our U.S. deferred tax assets in excess of deferred tax liabilities due to the combination of our cumulative pretax loss position and net deferred tax asset position resulting from our divestiture of EVERFI. We intend to continue maintaining a full valuation allowance on our U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Furthermore, the effect of our various rate drivers is reversed by the Company’s 2024 loss position versus income in 2023. The significant components of our deferred tax assets and liabilities were as follows:
| December 31,
(dollars in thousands) | 2024 |  | 2023 |
Deferred tax assets relating to: |  |
Capitalized R&D and software costs | $ | 78,809 |  | $ | 47,351 |
Federal, state and foreign tax credits | 31,495 |  | 39,260 |
Stock-based compensation | 17,176 |  | 24,717 |
Operating leases | 10,751 |  | 12,867 |
Deferred revenue | 7,633 |  | 5,992 |
Capital loss carryforward | 7,282 |  | — |
Federal and state and foreign net operating loss carryforwards | 4,825 |  | 7,061 |
Allowance for credit losses | 1,441 |  | 1,702 |
Intangible assets | 969 |  | 1,050 |
Accrued bonuses | 316 |  | 314 |
Other | 1,615 |  | 2,982 |
Total deferred tax assets | 162,312 |  | 143,296 |
Deferred tax liabilities relating to: |  |
Intangible assets | (50,530) |  | (160,172) |
Costs of obtaining contracts | (13,136) |  | (13,870) |
Operating leases | (7,338) |  | (9,865) |
Fixed assets | (4,716) |  | (5,833) |
Other | (9,010) |  | (8,342) |
Total deferred tax liabilities | (84,730) |  | (198,082) |
Valuation allowance | (86,672) |  | (37,862) |
Net deferred tax liability | $ | (9,090) |  | $ | (92,648) |
As of December 31, 2024, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $11.8 million, $0.7 million and $42.7 million, respectively. Of our federal net operating loss carryforwards, $9.4 million are subject to expiration beginning in 2025 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 2025. Our foreign net operating loss carryforwards have an unlimited carryforward period. Our state tax credit carryforwards for income tax purposes were approximately $31.3 million, net of federal benefit. If not utilized, the state tax credit carryforwards will begin to expire in 2025. We also have federal and state capital loss carryforwards of $30.2 million expiring in 2029. The foreign and state net operating loss carryforwards, capital loss carryforward and state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards. 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 |  | Charges to expense | Balance at end of year
2024 | $ | 37,862 |  |  | $ | 48,810 |  | $ | 86,672 |
2023 | 34,769 |  |  | 3,093 |  | 37,862 |
2022 | 31,974 |  |  | 2,795 |  | 34,769 |
The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2024, 2023 and 2022:
| Years ended December 31,
(dollars in thousands) | 2024 |  | 2023 |  | 2022 |
Balance at beginning of year | $ | 3,240 |  | $ | 3,083 |  | $ | 3,651 |
Increases from prior period positions | 1,249 |  | 101 |  | 89 |
Increases from current period positions | 706 |  | 762 |  | 629 |
Decreases in prior year positions | — |  | (118) |  | (908) |
Settlements (payments) | — |  | (160) |  | — |
Lapse of statute of limitations | — |  | (428) |  | (378) |
Balance at end of year | $ | 5,195 |  | $ | 3,240 |  | $ | 3,083 |
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $5.2 million at December 31, 2024. 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, 2024 and December 31, 2023 was $0.9 million and insignificant, respectively. The total amount of interest and penalties included in the consolidated statements of comprehensive loss as an increase or decrease in income tax expense for 2024 was $0.8 million and for 2023 and 2022 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, 2024 was insignificant. For our undistributed earnings of foreign subsidiaries, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States except to the extent that said earnings are of previously taxed income. Accordingly, we have not provided for U.S. income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries.

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