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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense Loss before income taxes consisted of the following (in thousands):
| 2023 |  | 2022 |  | 2021
Domestic | $ | (24,658) |  |  | $ | (13,798) |  |  | $ | (10,263) |
Foreign | 3,072 |  |  | (1,186) |  |  | (4,564) |
Loss before income taxes | $ | (21,586) |  |  | $ | (14,984) |  |  | $ | (14,827) |
Income tax expense consisted of the following (in thousands):
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal | $ | 5,573 |  |  | $ | 1,606 |  |  | $ | 1,896 |
State | 1,004 |  |  | 367 |  |  | 551 |
Foreign | 3,851 |  |  | 3,120 |  |  | 3,391 |
| 10,428 |  |  | 5,093 |  |  | 5,838 |
Deferred: |  |  |  |  |
Federal | $ | 222 |  |  | $ | 236 |  |  | $ | (2,801) |
State | 157 |  |  | 234 |  |  | (307) |
Foreign | (1,703) |  |  | (1,355) |  |  | (2,723) |
| (1,324) |  |  | (885) |  |  | (5,831) |
Income tax expense | $ | 9,104 |  |  | $ | 4,208 |  |  | $ | 7 |
Our income tax expense in 2023, 2022, and 2021 included our federal, state, and foreign tax obligations. Our effective income tax rate was a tax expense of 42% and 28% for the year ended December 31, 2023 and 2022, respectively. Our effective income tax rate was break-even for the year ended December 31, 2021. Our income tax rate for the year ended December 31, 2023 was primarily affected by an increase in the valuation allowance on our deferred tax assets, nondeductible executive compensation, income taxes in certain profitable foreign jurisdictions, and additional tax expense for uncertain tax positions, partially offset by the research and development tax credit and foreign derived intangible income deduction. Our income tax rate for the year ended December 31, 2022 was primarily affected by an increase in the valuation allowance on our deferred tax assets, nondeductible executive compensation, and additional tax expense for uncertain tax positions, partially offset by the research and development tax credit. Our income tax rate for the year ended December 31, 2021 was primarily affected by an increase in the valuation allowance on our deferred tax assets, foreign expense items, nondeductible executive compensation, and additional tax expense for uncertain tax positions, partially offset by the reduction of a valuation allowance on prior year items, the research and development tax credit, and releases of uncertain tax positions. The income tax benefit amounts differ from the amounts computed by applying the US federal statutory income tax rate of 21% for the years ended December 31, 2023, 2022, and 2021 to pretax income as a result of the following (in thousands):
| 2023 |  | 2022 |  | 2021
Tax benefit at statutory rate | $ | (4,533) |  |  | $ | (3,147) |  |  | $ | (3,114) |
Increase (reduction) in income taxes resulting from: |  |  |  |  |
Valuation allowance change | 9,964 |  |  | 4,779 |  |  | 1,566 |
Foreign income taxes | 2,969 |  |  | 415 |  |  | 1,138 |
Nondeductible executive compensation | 989 |  |  | 878 |  |  | 1,075 |
Equity compensation | 872 |  |  | 472 |  |  | (477) |
Net change in uncertain tax positions | 652 |  |  | 527 |  |  | 762 |
State income taxes, net of federal benefit | 281 |  |  | 484 |  |  | 73 |
Nondeductible entertainment expenses | 262 |  |  | 117 |  |  | 65 |
Foreign interest disallowance | — |  |  | 151 |  |  | 307 |
Foreign deferred items | — |  |  | (112) |  |  | 53 |
Foreign derived intangible income deduction | (501) |  |  | (133) |  |  | (144) |
Research and development credit | (800) |  |  | (961) |  |  | (959) |
Provision to return adjustments | (937) |  |  | 336 |  |  | 63 |
Other | (114) |  |  | 402 |  |  | (401) |
Total income tax expense | $ | 9,104 |  |  | $ | 4,208 |  |  | $ | 7 |
Deferred Taxes We generate deferred tax assets primarily as a result of finance and operating leases, net operating losses, excess interest carryforward, accrued compensation, stock compensation, capitalizable research and development costs, unrealized foreign exchange losses, and capital leases. Our deferred tax liabilities are primarily comprised of intangible assets acquired in previous years, finance and operating leases, and capital leases. The tax effects of temporary differences which give rise to deferred tax assets and liabilities at December 31 were as follows (in thousands):
| 2023 |  | 2022
Deferred tax assets: |  |  |
Finance and operating leases | $ | 13,254 |  |  | $ | 12,581 |
Excess interest carryforward | 6,438 |  |  | 5,559 |
Unrealized gains and losses | 5,424 |  |  | — |
Loan revaluation | 3,859 |  |  | 2,633 |
Loss carryforwards | 3,205 |  |  | 9,660 |
Stock compensation | 2,761 |  |  | 2,463 |
Accrued expenses | 2,567 |  |  | 1,734 |
Deferred compensation | 1,790 |  |  | 1,317 |
Property | 1,786 |  |  | 1,310 |
Credit carryforwards | 336 |  |  | 503 |
Inventory and deferred preservation costs write-downs | 302 |  |  | 764 |
Other | 1,422 |  |  | 1,650 |
Less valuation allowance | (32,860) |  |  | (17,942) |
Total deferred tax assets, net | 10,284 |  |  | 22,232 |
| 2023 |  | 2022
Deferred tax liabilities: |  |  |
Unrealized gains and losses | — |  |  | (6,624) |
Prepaid items | (370) |  |  | (323) |
Debt costs | (626) |  |  | (818) |
Finance and operating leases | (12,777) |  |  | (12,217) |
Intangible assets | (16,106) |  |  | (24,601) |
Other | (1,169) |  |  | (834) |
Total deferred tax liabilities | (31,048) |  |  | (45,417) |
Total deferred tax liabilities, net | $ | (20,764) |  |  | $ | (23,185) |
We regularly assess the realizability of deferred tax assets and establish valuation allowances if it is more likely than not that some or all deferred tax assets will not be realized. A summary of valuation allowances against deferred tax assets was as follows (in thousands):
| 2023 |  | 2022 |  | 2021
Beginning balance | $ | 17,942 |  |  | $ | 13,282 |  |  | $ | 7,170 |
Additions in estimates recorded to deferred income tax expense, net | 9,809 |  |  | 4,660 |  |  | 1,505 |
Additions related to Other comprehensive income, net | 5,109 |  |  | — |  |  | 4,607 |
Ending balance | $ | 32,860 |  |  | $ | 17,942 |  |  | $ | 13,282 |
As of December 31, 2023 and 2022 we maintained a net deferred tax liability of $20.8 million and $23.2 million, respectively. As of December 31, 2023 and 2022 we maintained valuation allowances against our deferred tax assets of $32.9 million and $17.9 million, respectively, primarily related to net operating loss carryforwards and disallowed excess interest carryforwards. As of December 31, 2023 we had approximately $1.3 million of federal net operating loss carryforwards related to the acquisitions of Cardiogenesis and Hemosphere for which we have a full valuation allowance against, approximately $1.5 million of state net operating loss carryforwards that will continue to expire in 2024, approximately $443,000 of foreign net operating loss carryforwards that will begin to expire in 2025, and approximately $293,000 in research and development tax credit carryforwards that will begin to expire in 2030, and approximately $81,000 in credits from other jurisdictions that mostly expire in 2027. As of December 31, 2023 we had a deferred tax asset of $6.4 million of disallowed interest expense deduction carryforwards as a result of the interest deductibility rule imposed by the “Tax Cuts and Jobs Act” of 2017 (“Tax Act”), and later modified by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). This deferred tax asset can be carried forward indefinitely. This rule disallows interest expense to the extent it exceeds 30% of adjusted taxable income. For the years ended December 31, 2023 and 2022 our interest deduction was limited to $20.4 million and $8.1 million, respectively. We believe that the realizability of our acquired net operating loss carryforwards will be limited in future periods due to a change in control of our former subsidiaries Hemosphere, Inc. (“Hemosphere”) and Cardiogenesis Corporation (“Cardiogenesis”), as mandated by Section 382 of the Internal Revenue Code of 1986, as amended. We believe that our acquisitions of these companies each constituted a change in control as defined in Section 382 and that, prior to our acquisition, Hemosphere had experienced other equity ownership changes that should be considered such a change in control. The deferred tax assets recorded on our Consolidated Balance Sheets exclude amounts that we expect will not be realizable due to changes in control. A portion of the acquired net operating loss carryforwards is related to state income taxes for which we believe it is more likely than not that some will not be realized. Therefore, we recorded a valuation allowance against these state net operating loss carryforwards. In addition, during the year, the realizability of a portion of our net operating loss carryforwards and other deferred tax assets was limited. We recorded a valuation allowance against these deferred tax assets. Reinvestment of Unremitted Earnings We intend to reinvest substantially all of the unremitted earnings of our non-US subsidiaries to fund working capital, strategic investments, and debt repayment and postpone their remittance indefinitely. Accordingly, no provision for state and local taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company is permanently reinvested with respect to the outside basis differences in its significant non-US subsidiaries. As of December 31, 2023 we had a deferred tax liability of $119,000 for the tax effects of this outside basis difference in the Consolidated Statements of Operations and Comprehensive Loss. Uncertain Tax Positions A reconciliation of the beginning and ending balances of our uncertain tax position liability, excluding interest and penalties, was as follows (in thousands):
| 2023 |  | 2022 |  | 2021
Beginning balance | $ | 4,508 |  |  | $ | 4,089 |  |  | $ | 2,574 |
Increase related to current year tax positions | 2,728 |  |  | 847 |  |  | 1,661 |
Increase (decrease) for foreign exchange differences | 116 |  |  | (145) |  |  | (121) |
Increase related to prior year tax positions | 26 |  |  | 20 |  |  | 386 |
Decrease due to the lapsing of statutes of limitations | (158) |  |  | (200) |  |  | (241) |
Decrease related to prior year tax positions | (508) |  |  | (103) |  |  | (170) |
Decrease due to settlements of prior year tax positions | (1,880) |  |  | — |  |  | — |
Ending balance | $ | 4,832 |  |  | $ | 4,508 |  |  | $ | 4,089 |
We recorded non-current liabilities of $372,000 and $358,000 related to interest and penalties on uncertain tax positions on our Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively. We included expense of $6,500 for December 31, 2023, expense of $145,000 for December 31, 2022, and income of $35,000 for December 31, 2021, respectively, for interest and penalties related to unrecognized tax benefits in our Consolidated Statements of Operations and Comprehensive Loss. As of December 31, 2023 our uncertain tax liability of $5.2 million, including interest and penalties, was recorded as a reduction to deferred tax assets of $100,000, and a non-current liability of $5.1 million on our Consolidated Balance Sheets. The amount of uncertain tax liabilities that are expected to affect our tax rate if recognized were $4.4 million, $3.6 million, and $3.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2022 our total uncertain tax liability, including interest and penalties of $4.9 million, was recorded as a reduction to deferred tax assets of $100,000 and as a non-current liability of $4.8 million on our Consolidated Balance Sheets. We believe it is reasonably possible that approximately $100,000 of our uncertain tax liability will be recognized in 2024 due to the lapsing of various federal and state and foreign statutes of limitations, of which substantially all would affect the tax rate. Other Our tax years 2020 and forward generally remain open to examination by the major taxing jurisdictions to which we are subject. However, certain returns from years prior to 2020, in which net operating losses and tax credits have arisen, are still open for examination by the tax authorities.

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