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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income (loss) before income taxes were as follows:
YEAR ENDED DECEMBER 31,
202420232022
(In thousands)
Domestic$(15,443)$(60,587)$9,456 
Foreign(1,741)5,444 9,299 
Total$(17,184)$(55,143)$18,755 
The components of provision for (benefit from) income taxes were as follows:
DECEMBER 31,
202420232022
(In thousands)
Current tax provision
Federal$(1,675)$3,986 $1,882 
State and local2,169 3,976 3,335 
Foreign7,068 8,775 10,318 
Total current7,562 16,737 15,535 
Deferred tax benefit
Federal(6,977)(10,957)(6,788)
State and local(2,934)(2,835)(2,190)
Foreign(2,784)(2,731)(2,533)
Total deferred(12,695)(16,523)(11,511)
Total provision (benefit) $(5,133)$214 $4,024 

The effective income tax rate was 29.87%, (0.39)% , and 21.46% for the years ended December 31, 2024, 2023 and 2022, respectively. The primary reconciling items between the statutory income tax rate of 21% and the effective income tax rate were as a result of the following:

DECEMBER 31,
202420232022
(In thousands, except for percentage)
Tax at U.S. federal statutory rate$(3,611)21.00 %$(11,580)21.00 %$3,939 21.00 %
State taxes, net of federal benefit(1,201)6.98 %136 (0.25)%967 5.16 %
Foreign rate differential4,940 (28.73)%4,552 (8.26)%3,545 18.90 %
Permanent items(1,944)11.31 %5,205 (9.44)%(1,227)(6.54)%
Equity compensation2,738 (15.91)%1,582 (2.87)%2,278 12.15 %
GIL TI inclusion1,442 (8.38)%2,374 (4.30)%451 2.41 %
Tax credits(7,969)46.34 %(10,031)18.19 %(6,427)(34.27)%
Rate change— — %(237)0.43 %(605)(3.23)%
Other adjustments2,304 (13.40)%4,148 (7.52)%(4,554)(24.28)%
Return to provision adjustments820 (4.76)%(1,288)2.34 %(405)(2.16)%
Valuation allowance(2,652)15.42 %5,353 (9.71)%6,062 32.32 %
Effective tax rate$(5,133)29.87 %$214 (0.39)%$4,024 21.46 %
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:
DECEMBER 31,
20242023
(In thousands)
Deferred tax assets
Accounts receivable$570 $341 
Accrued compensation4,191 4,033 
Accrued expenses15 27 
Deferred revenue286 2,061 
Net operating loss carryforwards12,448 17,192 
R&D credit carryforward4,171 4,172 
Foreign tax credits12,045 14,970 
Equity based compensation4,366 4,600 
Other assets1,303 — 
Interest expense1,080 195 
Lease liability3,362 2,295 
Section 17416,975 11,455 
Total gross deferred tax asset60,812 61,341 
Less: Valuation allowance(24,023)(31,500)
Net deferred tax asset36,789 29,841 
Deferred tax liabilities
Property, equipment, and other long-lived assets(146)(223)
Goodwill and intangible assets(68,314)(71,253)
Prepaid expenses(1,352)(1,715)
Interest rate hedge(567)(1,393)
Right-of-use (ROU) Asset(2,643)(1,847)
Other liabilities(226)— 
Total gross deferred tax liability(73,248)(76,431)
Net deferred tax liability$(36,459)$(46,590)
The net change in the total valuation allowance resulted in a decrease of $7,477 in 2024 compared to an increase of $5,768 in 2023. The valuation allowance is determined separately for each jurisdiction. A U.S. valuation allowance was required against the foreign tax credit carryforward. At the foreign subsidiaries, the valuation allowance was primarily related to foreign net operating losses that, in the judgment of management, are not more likely than not to be realized.
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and carryforward attributes can be utilized. Management considered the reversal of deferred tax liabilities in making this assessment. Management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of the existing valuation allowance, at December 31, 2024.
At December 31, 2024, the Company had net operating loss carryforwards for federal income tax purposes of approximately $6,154 majority of which will expire if unused in years 2035 through 2036. The Company had net operating loss carryforwards for state income tax purposes of approximately $4,852, which will expire if unused in years 2029 through 2040. The Company had foreign net operating loss carryforwards of $78,623 which will expire if unused starting in 2025.
The Company has $336 of federal research and development credits that will expire if unused in years 2027 through 2048 and $292 of foreign research and development credits that will expire if unused by 2029. The Company has foreign tax credits of $10,977 that will expire if unused in years 2027 through 2034. and also Canadian investment tax credits of $3,877 which will expire if unused in years 2032 through 2042.
The Company had net operating losses and tax credits that are subject to limitation under Internal Revenue Code Section 382 and Section 383 due to changes in ownership. The Company has analyzed the realizability of these tax attributes carried forward and has recorded deferred tax assets for the attributes that meet the more-likely-than-not realizability threshold.
Foreign undistributed earnings were considered permanently invested, therefore no provision for US income taxes was accrued as of December 31, 2024 and 2023, with the exception of the withholding tax liability of $168 on the potential repatriation from Certara Canada Corporation.
The Company assessed its uncertain tax positions and determined that a liability of $7,411 and $2,708 was required to be recorded for uncertain tax positions as of December 31, 2024 and 2023, respectively. Uncertain tax positions relate primarily to federal and state R&D credits and certain net operating losses. The Company's policy is to recognize interest and penalties as a component of the provision for income taxes. For each years ended December 31, 2024 and 2023, the Company recognized interest of $0.1 million and $0.1 million, respectively and no penalties. The Company does not anticipate any significant changes to its uncertain tax positions during the next twelve months.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:
(In thousands)
Balance at December 31, 2022$2,818 
Additions for tax positions related to the current year309 
Additions for tax positions of prior years17 
Reductions for tax positions of prior years(436)
Balance at December 31, 2023$2,708 
Additions for tax positions related to the current year509 
Additions for tax positions of prior years5,312 
Reductions for tax positions of prior years(14)
Reductions related to settlements with taxing authorities(1,104)
Balance at December 31, 2024$7,411 
The uncertain tax positions, inclusive of interest and exclusive penalties, were $7,411 and $2,708 as of December 31, 2024 and December 31, 2023, respectively, which also represents potential tax benefits that if recognized, would impact the effective tax rate.
U.S. federal income tax returns are generally subject to examination for a period of three years after the filing of the return. However, the Internal Revenue Service can audit the NOLs generated in respective years in the years that the NOLs are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective return. The state impact of any federal changes remains subject to
examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions.
The Company is subject to tax on Global Intangible Low-Taxed Income (GILTI) and has elected to account for GILTI as a current period expense.
The Organization for Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax by January 1, 2025. The Company does not expect this new rule to apply until the Company meets the minimum global revenue threshold.