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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 8. Income Taxes

The Company is 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 before provision for income taxes for the years ended December 31, 2023, 2022, and 2021, respectively, were as follows (in thousands):

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

2021

 

Income (loss) before provision for income taxes from United States operations

 

$

25,250

 

 

$

46,766

 

 

$

(7,791

)

Income before provision for income taxes from foreign operations

 

 

23,226

 

 

 

38,313

 

 

 

32,704

 

Income before provision for income taxes

 

$

48,476

 

 

$

85,079

 

 

$

24,913

 

The domestic and foreign components of the provision for income taxes for the years ended December 31, 2023, 2022, and 2021, respectively, were as follows (in thousands):

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

2021

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

18,486

 

 

$

179

 

 

$

58

 

State

 

 

5,772

 

 

 

4,593

 

 

 

4,003

 

Foreign

 

 

6,480

 

 

 

9,817

 

 

 

7,618

 

Total Current

 

$

30,738

 

 

$

14,589

 

 

$

11,679

 

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

$

(16,857

)

 

$

1,773

 

 

$

549

 

State

 

 

(2,313

)

 

 

5,030

 

 

 

(4,495

)

Foreign

 

 

(385

)

 

 

(917

)

 

 

1,129

 

Total Deferred

 

$

(19,555

)

 

$

5,886

 

 

$

(2,817

)

Total

 

$

11,183

 

 

$

20,475

 

 

$

8,862

 

The following table reconciles the U.S. statutory federal tax rate of 21% to the Company’s effective income tax rate of 23.07%, 24.07%, and 35.57%, for the years ended December 31, 2023, 2022, and 2021, respectively:

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

2021

 

U.S. statutory federal tax rate

 

 

21.00

%

 

 

21.00

%

 

 

21.00

%

State and local income taxes – net of federal tax benefits

 

 

3.89

 

 

 

2.85

 

 

 

(5.32

)

Foreign rate difference

 

 

0.59

 

 

 

0.67

 

 

 

3.25

 

Change in valuation allowances

 

 

0.83

 

 

 

(1.06

)

 

 

(2.72

)

GILTI inclusion

 

 

—

 

 

 

1.41

 

 

 

7.92

 

Transaction cost

 

 

0.31

 

 

 

—

 

 

 

5.21

 

Share-based compensation

 

 

3.36

 

 

 

0.62

 

 

 

5.82

 

Rate change impact

 

 

(0.66

)

 

 

(0.43

)

 

 

2.23

 

US research and development credit

 

 

(3.96

)

 

 

(1.44

)

 

 

(7.15

)

Withholding tax

 

 

0.65

 

 

 

0.38

 

 

 

5.34

 

Return-to-provision adjustment

 

 

(3.56

)

 

 

—

 

 

 

—

 

Other

 

 

0.62

 

 

 

0.07

 

 

 

(0.01

)

Effective tax rate

 

 

23.07

%

 

 

24.07

%

 

 

35.57

%

As of December 31, 2023, the Company had approximately $56.2 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, 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, 2023. 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, 2023 and 2022 consist of the following (in thousands):

 

December 31,

 

 

2023

 

 

2022

 

Deferred tax assets:

 

 

 

 

 

 

Federal net operating loss carryforwards

 

$

—

 

 

$

2,304

 

State net operating loss carryforwards

 

 

5,101

 

 

 

6,782

 

Foreign net operating loss carryforwards

 

 

5,653

 

 

 

4,888

 

Deferred revenues

 

 

394

 

 

 

205

 

Bad debt reserves

 

 

276

 

 

 

297

 

Employee benefits

 

 

1,237

 

 

 

1,563

 

Share-based compensation

 

 

660

 

 

 

546

 

Accrued expenses and loss reserves

 

 

2,460

 

 

 

1,802

 

Section 267 adjustment

 

 

3,742

 

 

 

—

 

Other deferred tax assets

 

 

653

 

 

 

5,890

 

Less: Valuation allowances

 

 

(1,863

)

 

 

(1,467

)

Total deferred tax asset

 

$

18,313

 

 

$

22,810

 

Deferred tax liabilities:

 

 

 

 

 

 

Trade names

 

$

(16,420

)

 

$

(17,632

)

Goodwill

 

 

(12,929

)

 

 

(11,703

)

Depreciable and other amortizable assets

 

 

(55,028

)

 

 

(77,127

)

Other deferred liabilities

 

 

(2,424

)

 

 

(4,482

)

Total deferred tax liability

 

$

(86,801

)

 

$

(110,944

)

Net deferred tax liability

 

$

(68,488

)

 

$

(88,134

)

Based upon the weight of all available evidence, the Company does not maintain a valuation allowance against its deferred tax assets in the United States.

As of December 31, 2023 and 2022, 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, 2023 and 2022, are as follows (in thousands):

 

December 31,

 

 

2023

 

 

2022

 

Federal

 

$

—

 

 

$

10,970

 

State

 

 

97,659

 

 

 

125,989

 

Foreign

 

 

24,980

 

 

 

24,207

 

 

$

122,639

 

 

$

161,166

 

If not utilized, certain foreign net operating losses will begin to expire in 2024 and certain state net operating loss carryforwards will begin to expire in 2026.

The Company has fully utilized the research and development credit carryforward as of December 31, 2023. The Company had $4.4 million of research and development credit carryforwards as of December 31, 2022.

After consideration of all of the evidence, the Company has determined that a valuation allowance of approximately $1.9 million and $1.5 million is necessary as of December 31, 2023 and 2022, respectively, for certain foreign net operating loss carryforwards. The increase in the valuation allowance in 2023 is primarily due to the additional loss generated during the year in jurisdictions with full valuation allowance and revaluation of certain net operating loss carryforwards at December 31, 2023.

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 years ended December 31, 2023, 2022, and 2021, were as follows (in thousands):

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

2021

 

Balance, beginning of period

 

$

972

 

 

$

1,399

 

 

$

1,341

 

Increases for tax positions related to prior years

 

 

39

 

 

 

28

 

 

 

58

 

Decreases for tax positions related to prior years

 

 

—

 

 

 

(455

)

 

 

—

 

Balance, end of period

 

$

1,011

 

 

$

972

 

 

$

1,399

 

An income tax benefit of approximately $1.0 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 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.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the U.S. Some of the key provisions included in the IRA include implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. The Company incurred $0.5 million of excise tax on stock buybacks in 2023 as a result of IRA. The Company has determined that the other provisions in the IRA had no impact on the Company as of and for the year ended December 31, 2023.

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operating and Development (OECD) Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. While the Company is not currently subject to Pillar Two due to not meeting the revenue threshold, it will continue to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries.