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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9. 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, 2024, 2023, and 2022, respectively, were as follows (in thousands):

 

Year Ended December 31,

 

 

2024

 

 

2023

 

 

2022

 

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

 

$

(144,187

)

 

$

25,250

 

 

$

46,766

 

Income before provision for income taxes from foreign operations

 

 

29,572

 

 

 

23,226

 

 

 

38,313

 

 (Loss) income before provision for income taxes

 

$

(114,615

)

 

$

48,476

 

 

$

85,079

 

The domestic and foreign components of the provision for income taxes for the years ended December 31, 2024, 2023, and 2022, respectively, were as follows (in thousands):

 

Year Ended December 31,

 

 

2024

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

14,859

 

 

$

18,486

 

 

$

179

 

State

 

 

3,350

 

 

 

5,772

 

 

 

4,593

 

Foreign

 

 

7,385

 

 

 

6,480

 

 

 

9,817

 

Total Current

 

$

25,594

 

 

$

30,738

 

 

$

14,589

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

$

(26,129

)

 

$

(16,857

)

 

$

1,773

 

State

 

 

(2,447

)

 

 

(2,313

)

 

 

5,030

 

Foreign

 

 

(1,360

)

 

 

(385

)

 

 

(917

)

Total Deferred

 

$

(29,936

)

 

$

(19,555

)

 

$

5,886

 

Total

 

$

(4,342

)

 

$

11,183

 

 

$

20,475

 

The following table reconciles the U.S. statutory federal tax rate of 21% to the Company’s effective income tax rate of 3.79%, 23.07%, and 24.07%, for the years ended December 31, 2024, 2023, and 2022, respectively:

 

Year Ended December 31,

 

 

2024

 

 

2023

 

 

2022

 

U.S. statutory federal tax rate

 

 

21.00

%

 

 

21.00

%

 

 

21.00

%

State and local income taxes – net of federal tax benefits

 

 

1.16

 

 

 

3.89

 

 

 

2.85

 

Foreign rate difference

 

 

(0.61

)

 

 

0.59

 

 

 

0.67

 

Change in valuation allowances

 

 

(0.75

)

 

 

0.83

 

 

 

(1.06

)

GILTI inclusion

 

 

(0.25

)

 

 

—

 

 

 

1.41

 

Transaction cost

 

 

(6.26

)

 

 

0.31

 

 

 

—

 

Share-based and other compensation

 

 

(8.74

)

 

 

3.36

 

 

 

0.62

 

Rate change impact

 

 

(1.49

)

 

 

(0.66

)

 

 

(0.43

)

US research and development credit

 

 

1.22

 

 

 

(3.96

)

 

 

(1.44

)

Withholding tax

 

 

(1.02

)

 

 

0.65

 

 

 

0.38

 

Return-to-provision adjustment

 

 

0.14

 

 

 

(3.56

)

 

 

—

 

Other

 

 

(0.61

)

 

 

0.62

 

 

 

0.07

 

Effective tax rate

 

 

3.79

%

 

 

23.07

%

 

 

24.07

%

As of December 31, 2024, the Company had approximately $146.2 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 Canada, China, and 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, 2024. 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, 2024 and 2023 consist of the following (in thousands):

 

December 31,

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Federal net operating loss carryforwards

 

$

3,219

 

 

$

—

 

State net operating loss carryforwards

 

 

7,952

 

 

 

5,101

 

Foreign net operating loss carryforwards

 

 

7,613

 

 

 

5,653

 

Deferred revenues

 

 

481

 

 

 

394

 

Disallowed interest

 

 

21,815

 

 

 

—

 

Bad debt reserves

 

 

476

 

 

 

276

 

Employee benefits

 

 

5,565

 

 

 

1,237

 

Share-based compensation

 

 

3,473

 

 

 

660

 

Accrued expenses and loss reserves

 

 

5,569

 

 

 

2,460

 

Section 267 adjustment

 

 

5,272

 

 

 

3,742

 

Other deferred tax assets

 

 

895

 

 

 

653

 

Less: Valuation allowances

 

 

(5,635

)

 

 

(1,863

)

Total deferred tax asset

 

$

56,695

 

 

$

18,313

 

Deferred tax liabilities:

 

 

 

 

 

 

Customer lists

 

$

(191,705

)

 

$

(54,777

)

Trade names

 

 

(28,903

)

 

 

(16,420

)

Prepaid assets

 

 

(3,351

)

 

 

—

 

Goodwill

 

 

(17,615

)

 

 

(12,929

)

Operating lease asset

 

 

(2,823

)

 

 

—

 

Depreciable and other amortizable assets

 

 

(27,104

)

 

 

(251

)

Other deferred liabilities

 

 

(2,250

)

 

 

(2,424

)

Total deferred tax liability

 

$

(273,751

)

 

$

(86,801

)

Net deferred tax liability

 

$

(217,056

)

 

$

(68,488

)

As of December 31, 2024 and 2023, 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, 2024 and 2023, are as follows (in thousands):

 

December 31,

 

 

2024

 

 

2023

 

Federal

 

$

15,329

 

 

$

—

 

State

 

 

91,612

 

 

 

97,659

 

Foreign

 

 

32,296

 

 

 

24,980

 

 

$

139,237

 

 

$

122,639

 

At December 31, 2024, the Company has $15.3 million of U.S. federal net operating loss carryforwards (“NOLs”) acquired from the Sterling acquisition. These NOLs are subject to annual use limitations and will begin to expire in 2026. The Company has a $7.9 million deferred tax asset for U.S. state net operating loss carryforwards that, if not utilized, have various expiration periods and will begin to expire in 2025, in addition to net operating loss carryforwards that carry forward indefinitely. The Company has a $7.6 million deferred tax asset for certain foreign net operating losses that, if not utilized, will begin to expire in 2025, in addition to net operating loss carryforwards that carry forward indefinitely.

The Company has fully utilized the research and development credit carryforward as of December 31, 2023.

After consideration of all of the evidence, the Company has determined that a valuation allowance of approximately $5.6 million and $1.9 million is necessary as of December 31, 2024 and 2023, respectively, for certain federal and foreign net operating loss carryforwards and other foreign deferred tax assets. The increase in the valuation allowance in 2024 is primarily due to the acquired U.S. federal net operating loss from the Sterling acquisition that is not expected to be fully utilized before expiration due to annual use limitation and establishment of a valuation allowance in Australia and Philippines during the year.

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 2008.

The aggregate changes in the balance of our gross unrecognized tax benefits, excluding accrued interest, for the years ended December 31, 2024, 2023, and 2022, were as follows (in thousands):

 

Year Ended December 31,

 

 

2024

 

 

2023

 

 

2022

 

Balance, beginning of period

 

$

1,011

 

 

$

972

 

 

$

1,399

 

Increases for tax positions related to prior years

 

 

139

 

 

 

39

 

 

 

28

 

Decreases for tax positions related to prior years

 

 

(446

)

 

 

—

 

 

 

(455

)

Acquired tax positions related to prior years

 

 

6,259

 

 

 

—

 

 

 

—

 

Effects of foreign currency

 

 

(80

)

 

 

—

 

 

 

—

 

Balance, end of period

 

$

6,883

 

 

$

1,011

 

 

$

972

 

An income tax benefit of approximately $6.9 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 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 in the IRA included implementation of a new alternative minimum tax, an excise tax on share repurchases, and significant tax incentives for energy and climate initiatives. The Company incurred excise taxes of $0.5 million on share repurchases in 2023 as a result of the IRA. No share repurchases occurred during the year ended December 31, 2024. 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, 2024.

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. With the Sterling acquisition, the Company became subject to Pillar Two due to meeting the revenue threshold in 2024. The Company determined that it does not have a material Pillar Two Impact for the year ended December 31, 2024. The Company will continue to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries.