XML 42 R27.htm IDEA: XBRL DOCUMENT v3.22.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the benefit from for income taxes for the year ended December 31, 2021.
The following are the domestic and foreign components of our (loss) income before income taxes (in thousands):
Year Ended December 31,
202120202019
Domestic
$(119,195)$25,272 $19,778 
Foreign
(420)(12,947)(9,174)
Total (loss) income before income taxes
$(119,615)$12,325 $10,604 
The total income before income taxes above includes (loss) income from our equity method investment of $0.3 million for 2019. There was no (loss) income from equity method investments for 2021 and 2020, respectively.
The details for the (benefit from) provision for income taxes by jurisdiction are as follows (in thousands):
Year Ended December 31,
202120202019
Current
Federal
$(194)$846 $277 
State
760 243 700 
Foreign
78 15 255 
Total current provision
644 1,104 1,232 
Deferred
Federal
(9,605)2,322 2,944 
State
(1,990)(997)(1,015)
Foreign
— — — 
Total deferred provision
(11,595)1,325 1,929 
Total (benefit from) provision for income tax
$(10,951)$2,429 $3,161 
The (benefit from) provision for income taxes for December 31, 2021, 2020 and 2019 differed from the amounts computed by applying the U.S. Federal income tax rate of 21% to (loss) income before income taxes as a result of the following (in thousands):
Year Ended December 31,
202120202019
(Benefit from) provision for income taxes at statutory rate
$(25,120)$2,588 $2,227 
State income taxes, net of federal benefit
(2,309)(891)284 
Rate differential on foreign earnings
(68)(1,217)1,818 
Research and development credits
(887)(1,340)(600)
Change in valuation allowance
809 5,011 117 
Stock-based compensation
(3,065)(2,162)(2,014)
Nondeductible stock-based compensation 18,267 — — 
Unrecognized tax benefits
703 978 563 
Non-deductible expenses
287 (52)820 
Other$432 $(486)$(54)
Total (benefit from) provision for income taxes
$(10,951)$2,429 $3,161 
The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and liabilities consisted of the following as of December 31, 2021 and 2020, (in thousands):
As of December 31,
20212020
Deferred tax assets
Deferred revenue
$697 $694 
Accrued expenses
5,321 3,746 
Stock-based compensation
7,631 3,314 
Impairment on investment
1,445 1,445 
Net operating loss carryforwards
17,206 12,857 
Tax credit carryforwards
12,112 10,462 
Interest expense carryforward
10,851 7,679 
Capital loss carryforwards452 — 
Derivatives and hedging
— 4,400 
Total deferred tax assets
55,715 44,597 
Valuation allowance
(14,170)(12,950)
Net deferred tax assets
41,545 31,647 
Deferred tax liabilities
Depreciation and amortization
(10,865)(6,024)
State taxes
(3,026)(2,816)
Net deferred tax liabilities
(13,891)(8,840)
Net deferred tax assets and liabilities
$27,654 $22,807 
We evaluated the realizability of net deferred tax assets and determined it is more likely than not that separate state net operating losses, net operating losses from the acquisition of Legalinc, capital loss carryovers from the acquisition of Earth Class Mail, the deferred tax assets for Pulse IP, LLC and Pulse Business, LLC, and foreign deferred tax assets will not be realized based on the available objective evidence and have recorded a valuation allowance on such deferred tax assets.
The following table summarizes the valuation allowance:
 
Year Ended December 31,
 202120202019
Beginning balance
$12,950 $7,816 $7,707 
Net increase in current year1,312 4,646 769 
Net (decrease) increase in valuation prior period(14)528 (87)
Net decrease in valuation allowance from acquisitions(78)(40)(573)
Ending balance
$14,170 $12,950 $7,816 
Net changes in the valuation allowance in the years ended December 31, 2021, 2020, and 2019 include changes recorded through earnings relating to losses primarily from foreign operations and to a lesser extent valuation allowances established relating to acquired businesses.
At December 31, 2021 and 2020, we had federal net operating loss, or NOL, carryforwards of $29.8 million and $11.7 million, respectively, which will begin to expire in 2032. At December 31, 2021, and 2020, we had state NOL carryforwards of $58.8 million and $49.8 million, respectively, which will begin to expire in 2032. At December 31, 2021 and 2020, we had foreign NOL carryforwards of $31.8 million and $32.4 million, respectively, which can be carried forward indefinitely and are not subject to expiration. At December 31, 2021 and 2020, we had federal tax credit carryforwards of $7.6 million and $6.2 million, respectively, which will begin to expire in 2034. At December 31, 2021 and 2020, we had state tax credit carryforwards of $9.6 million and $8.8 million, respectively, which carry forward indefinitely. Our domestic entities may be subject to an annual limitation on the utilization of NOL and credit carryforwards based on changes in ownership as defined by Section 382 of the Internal Revenue Code of 1986. In 2018, we acquired Legalinc and in 2021 we acquired Earth Class Mail. Both were structured as stock acquisitions. Since there was a change in ownership, the acquired NOL carryforwards are subject to an annual Section 382 limitation on the utilization of the NOL carryforwards.
We have had foreign operations since 2013. We have not provided for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the U.S. At December 31, 2021, 2020 and 2019, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes are not material to our consolidated financial statements.
The following table summarizes the changes in unrecognized tax benefits for the years ended December 31, 2021 and 2020 (in thousands):
Gross
Unrealized Tax
Benefits
Balance at Balance at December 31, 2018$6,498 
Additions for tax positions related to the current year
671 
Reductions for tax positions related to prior years
(913)
Balance at December 31, 2019$6,256 
Additions for tax positions related to the current year916 
Additions for tax positions related to prior years59 
Balance at December 31, 2020$7,231 
Additions for tax positions related to the current year887 
Reductions for tax positions related to prior years(245)
Balance at December 31, 2021$7,873 
If recognized, $7.9 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the ultimate resolution of uncertain positions may result in liabilities that could be materially different from these estimates. In such an event, we will record additional tax expense or benefit in the period in which resolution occurs. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2021 and 2020, accrued interest and penalties related to income tax positions were not material to our consolidated financial statements. We do not anticipate that unrecognized tax benefits will materially change within the next twelve months.
We are subject to taxation and file income tax returns in the U.S. federal, state, and foreign jurisdictions. The federal income tax return for the years 2018 through 2020 and state income tax returns for the tax years 2008 through 2020 remain open to examination. We are under examination in one state which is not expected to have an impact on our results of operations, cash flows and financial condition.