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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 8. Income Taxes

Prior to the Silver Lake Transaction, the Company was not a taxable entity. However, the Company’s wholly owned C-corporation subsidiaries were taxable entities. In connection with the Silver Lake Transaction, the Company became a U.S. domiciled corporation for tax purposes. The Company’s income tax expense and balance sheet accounts reflect the results of the Company and its subsidiaries.

The domestic and foreign components of income (loss) before provision for income taxes for the year ended December 31, 2021 (Successor), for the period from February 1, 2020 through December 31, 2020 (Successor), the period from January 1, 2020 through January 31, 2020 (Predecessor), and for the year ended December 31, 2019 (Predecessor), respectively, were as follows (in thousands):

 

 

Successor

 

 

 

Predecessor

 

 

 

Year Ended
December 31, 2021

 

 

Period from
February 1, 2020
through
December 31, 2020

 

 

 

Period from
January 1, 2020
through
January 31, 2020

 

 

Year Ended
December 31, 2019

 

(Loss) income before provision for income taxes from United States operations

 

$

(7,791

)

 

$

(68,008

)

 

 

$

(38,181

)

 

$

29,196

 

Income before provision for income taxes from foreign operations

 

 

32,704

 

 

 

9,161

 

 

 

 

780

 

 

 

11,952

 

Net income (loss) before provision for income
taxes

 

$

24,913

 

 

$

(58,847

)

 

 

$

(37,401

)

 

$

41,148

 

The domestic and foreign components of the provision for income taxes for the year ended December 31, 2021 (Successor), for the period from February 1, 2020 through December 31, 2020 (Successor), the period from January 1, 2020 through January 31, 2020 (Predecessor), and for the year ended December 31, 2019 (Predecessor), respectively, were as follows (in thousands):

 

 

Successor

 

 

 

Predecessor

 

 

 

Year Ended
December 31, 2021

 

 

Period from
February 1, 2020
through
December 31, 2020

 

 

 

Period from
January 1, 2020
through
January 31, 2020

 

 

Year Ended
December 31, 2019

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

58

 

 

$

51

 

 

 

$

(2

)

 

$

(96

)

State

 

 

4,003

 

 

 

1,994

 

 

 

 

(79

)

 

 

784

 

Foreign

 

 

7,618

 

 

 

3,818

 

 

 

 

128

 

 

 

4,161

 

Total Current

 

$

11,679

 

 

$

5,863

 

 

 

$

47

 

 

$

4,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

549

 

 

$

(16,144

)

 

 

$

(701

)

 

$

1,778

 

State

 

 

(4,495

)

 

 

(784

)

 

 

 

(149

)

 

 

389

 

Foreign

 

 

1,129

 

 

 

(290

)

 

 

 

(68

)

 

 

(118

)

Total Deferred

 

$

(2,817

)

 

$

(17,218

)

 

 

$

(918

)

 

$

2,049

 

Total

 

$

8,862

 

 

$

(11,355

)

 

 

$

(871

)

 

$

6,898

 

In the Predecessor periods, our effective tax rate was significantly impacted by the recognition of a valuation allowance against certain deferred tax assets, primarily in the United States. In the Successor period, based upon the weight of all available evidence, the Company no longer maintains a valuation allowance against its deferred tax assets in the United States.

The following table reconciles the U.S. statutory federal tax rate of 21% to the Company’s effective income tax rate of 35.57%, 19.29%, 2.33%, and 16.71%, for the year ended December 31, 2021 (Successor), for the period from February 1, 2020 through December 31, 2020 (Successor), the period from January 1, 2020 through January 31, 2020 (Predecessor), and for the year ended December 31, 2019 (Predecessor), respectively:

 

 

Successor

 

 

 

Predecessor

 

 

 

Year Ended
December 31, 2021

 

 

Period from
February 1, 2020
through
December 31, 2020

 

 

 

Period from
January 1, 2020
through
January 31, 2020

 

 

Year Ended
December 31, 2019

 

U.S. federal statutory rate

 

 

21.00

%

 

 

21.00

%

 

 

 

21.00

%

 

 

21.00

%

State and local income taxes – net of federal tax benefits

 

 

(5.32

)

 

 

(1.50

)

 

 

 

(0.99

)

 

 

4.84

 

Foreign rate difference

 

 

3.25

 

 

 

(0.14

)

 

 

 

0.06

 

 

 

1.28

 

Change in valuation allowance

 

 

(2.72

)

 

 

0.00

 

 

 

 

(12.37

)

 

 

(13.81

)

GILTI inclusion

 

 

7.92

 

 

 

2.71

 

 

 

 

(0.34

)

 

 

3.41

 

Transaction cost

 

 

5.21

 

 

 

(1.09

)

 

 

 

(3.14

)

 

 

—

 

Share-based compensation

 

 

5.82

 

 

 

(0.40

)

 

 

 

(2.23

)

 

 

0.47

 

Rate change impact

 

 

2.23

 

 

 

—

 

 

 

 

—

 

 

 

1.37

 

US research and development credit

 

 

(7.15

)

 

 

0.85

 

 

 

 

0.35

 

 

 

(2.03

)

Withholding tax

 

 

5.34

 

 

 

(1.90

)

 

 

 

—

 

 

 

0.78

 

Other

 

 

(0.01

)

 

 

(0.24

)

 

 

 

(0.01

)

 

 

(0.60

)

Effective rate

 

 

35.57

%

 

 

19.29

%

 

 

 

2.33

%

 

 

16.71

%

On March 18, 2020, the Families First Coronavirus Response Act, and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act were each enacted in response to the COVID-19 pandemic. Some of the key tax-related provisions benefiting the Company include favorable modifications to the limitation on the deductibility of business interest and payroll tax deferral. As a result of the adjustment to the business interest limitations, the Company was eligible to increase its deductible interest expense for the period from February 1, 2020 through December 31, 2020 (Successor), the period from January 1, 2020 through January 31, 2020 (Predecessor), and for the year ended December 31, 2019 (Predecessor).

On March 11, 2021, the American Rescue Plan Act of 2021 (the “Rescue Plan Act”) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. As of December 31, 2021 (Successor), the Company has determined that the Rescue Plan Act had no significant impact on the Company.

As of December 31, 2021 (Successor), the Company had approximately $55.6 million of accumulated unremitted earnings generated by its foreign subsidiaries. Under the U.S. Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”), a portion of these earnings was subject to U.S. federal taxation with the one-time transition tax. With the exception of certain unremitted earnings in India and China, the Company asserted indefinite reinvestment on its unremitted earnings as well as any other additional outside basis differences of its foreign subsidiaries at December 31, 2021. Any future reversals could be subject to additional foreign withholding taxes, U.S. state taxes, and certain tax impacts relating to foreign currency exchange effects on any future repatriations of the unremitted earnings.

 

The primary components of temporary differences that give rise to the Company’s net deferred tax liability as of December 31, 2021 and 2020 (Successor) consist of the following (in thousands):

 

 

Successor

 

 

Successor

 

 

 

December 31,
2021

 

 

December 31,
2020

 

Deferred tax assets:

 

 

 

 

 

 

Federal net operating loss carryforwards

 

$

25,227

 

 

$

41,498

 

State net operating loss carryforwards

 

 

8,172

 

 

 

9,200

 

Foreign net operating loss carryforwards

 

 

5,556

 

 

 

8,808

 

Deferred revenue

 

 

172

 

 

 

109

 

Bad debt reserves

 

 

203

 

 

 

277

 

Employee benefits

 

 

3,118

 

 

 

2,211

 

Share-based compensation

 

 

586

 

 

 

195

 

Accrued expenses and loss reserves

 

 

2,346

 

 

 

3,997

 

Other deferred tax assets

 

 

9,382

 

 

 

8,679

 

Less: Valuation allowance

 

 

(2,367

)

 

 

(4,560

)

Total deferred tax asset

 

$

52,395

 

 

$

70,414

 

Deferred tax liabilities:

 

 

 

 

 

 

Trade name

 

$

(19,809

)

 

$

(22,124

)

Goodwill

 

 

(7,340

)

 

 

(3,600

)

Depreciable and other amortizable assets

 

 

(107,080

)

 

 

(130,523

)

Other deferred liabilities

 

 

(1,406

)

 

 

(130

)

Total deferred tax liability

 

$

(135,635

)

 

$

(156,377

)

Net deferred tax liability

 

$

(83,240

)

 

$

(85,963

)

As of December 31, 2021 and 2020 (Successor), the Company believes that federal, state, and foreign net operating loss carryforwards will be available to reduce future taxable income after taking into account various federal and foreign limitations on the utilization of such net operating loss carryforwards. The net operating loss carryforward balances as of December 31, 2021 and 2020 (Successor), are as follows (in thousands):

 

 

Successor

 

 

Successor

 

 

 

December 31,
2021

 

 

December 31,
2020

 

Federal

 

$

120,130

 

 

$

197,607

 

State

 

 

147,539

 

 

 

166,196

 

Foreign

 

 

25,063

 

 

 

35,992

 

 

 

$

292,732

 

 

$

399,795

 

The Company has approximately $5.0 million and $2.7 million of research and development credit carryforwards as of December 31, 2021 and 2020 (Successor), respectively, that will expire beginning in 2034. The Company believes that the research and development credit carryforwards will be utilized to reduce future tax liability before they expire.

After consideration of all of the evidence, the Company has determined that a valuation allowance of approximately $2.4 million and $4.6 million is necessary on December 31, 2021 and 2020 (Successor), respectively. The decrease in the valuation allowance is primarily due to the Dutch tax law change on corporate net operating loss carryforward periods from six years to an unlimited period of time as well as the reversal of Dutch net operating losses expiring during the year ended December 31, 2021.

The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2012, and state, local, and non-U.S. income tax examinations by tax authorities before 2005.

The aggregate changes in the balance of our gross unrecognized tax benefits, excluding accrued interest, for the year ended December 31, 2021 (Successor), for the period from February 1, 2020 through December 31, 2020 (Successor), for the period from January 1, 2020 through January 31, 2020 (Predecessor), and for the year ended December 31, 2019 (Predecessor), were as follows (in thousands):

 

 

Successor

 

 

 

Predecessor

 

 

 

Year Ended
December 31, 2021

 

 

Period from
February 1, 2020
through
December 31, 2020

 

 

 

Period from
January 1, 2020
through
January 31, 2020

 

 

Year Ended
December 31, 2019

 

Balance, beginning of period

 

$

1,341

 

 

$

1,290

 

 

 

$

1,296

 

 

$

1,384

 

Increases for tax positions related to prior years

 

 

58

 

 

 

51

 

 

 

 

4

 

 

 

48

 

Decreases for tax positions related to prior years

 

 

—

 

 

 

—

 

 

 

 

(10

)

 

 

(136

)

Balance, end of period

 

$

1,399

 

 

$

1,341

 

 

 

$

1,290

 

 

$

1,296

 

An income tax benefit of approximately $1.4 million would be recorded if these unrecognized tax benefits are recognized. The Company believes it is reasonably possible that its liability for unrecognized tax benefits will significantly decrease in the next twelve months. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and penalties in income tax expense.