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

9. Income Taxes

Income Tax Provision. The components of net income before income taxes are as follows (in thousands):

 

 

2024

 

 

2023

 

 

2022

 

Domestic

 

$

89,166

 

 

$

72,769

 

 

$

53,251

 

Australia

 

 

(5,722

)

 

 

854

 

 

 

(5,851

)

India

 

 

12,537

 

 

 

10,008

 

 

 

9,517

 

Ireland

 

 

(297

)

 

 

(236

)

 

 

(3,391

)

United Kingdom

 

 

7,105

 

 

 

2,029

 

 

 

2,533

 

Foreign other

 

 

9,483

 

 

 

6,927

 

 

 

4,722

 

Total

 

$

112,272

 

 

$

92,351

 

 

$

60,781

 

 

The income tax provision consists of the following (in thousands):

 

 

2024

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

28,602

 

 

$

34,438

 

 

$

30,012

 

State

 

 

6,483

 

 

 

8,230

 

 

 

6,517

 

Australia

 

 

(474

)

 

 

(333

)

 

 

55

 

India

 

 

2,977

 

 

 

3,601

 

 

 

4,370

 

Ireland

 

 

548

 

 

 

336

 

 

 

273

 

United Kingdom

 

 

867

 

 

 

1,002

 

 

 

349

 

Foreign other

 

 

2,920

 

 

 

2,391

 

 

 

2,772

 

 

 

 

41,923

 

 

 

49,665

 

 

 

44,348

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(2,596

)

 

 

(19,687

)

 

 

(21,962

)

State

 

 

(10,741

)

 

 

(1,982

)

 

 

(3,073

)

Australia

 

 

(1,629

)

 

 

(896

)

 

 

(890

)

India

 

 

655

 

 

 

(1,231

)

 

 

(1,388

)

Ireland

 

 

(223

)

 

 

(205

)

 

 

(341

)

United Kingdom

 

 

(2,774

)

 

 

(233

)

 

 

469

 

Foreign other

 

 

805

 

 

 

674

 

 

 

(442

)

 

 

 

(16,503

)

 

 

(23,560

)

 

 

(27,627

)

Total income tax provision

 

$

25,420

 

 

$

26,105

 

 

$

16,721

 

The effective tax rates in the various foreign jurisdictions differ from the statutory rates due primarily to changes in valuation allowances on deferred tax assets, withholding taxes incurred, foreign tax credit utilization, and the impact of foreign exchange recognition on certain intercompany loans.

The difference between our income tax provision computed at the statutory Federal income tax rate and our financial statement income tax provision is summarized as follows (in thousands):

 

 

2024

 

 

2023

 

 

2022

 

Provision at Federal rate of 21%

 

$

23,577

 

 

$

19,394

 

 

$

12,764

 

State income taxes, net of Federal impact

 

 

2,526

 

 

 

4,485

 

 

 

2,079

 

Research and experimentation credits

 

 

(1,601

)

 

 

(1,053

)

 

 

(1,560

)

Stock award vesting

 

 

159

 

 

 

(554

)

 

 

(1,355

)

Tax uncertainties

 

 

(323

)

 

 

(289

)

 

 

(227

)

Section 162(m) compensation limitation

 

 

2,389

 

 

 

2,955

 

 

 

2,326

 

Foreign rate differential

 

 

1,229

 

 

 

987

 

 

 

571

 

Valuation allowance for deferred tax assets

 

 

(2,599

)

 

 

(1,655

)

 

 

638

 

Withholding tax

 

 

2,701

 

 

 

2,728

 

 

 

1,948

 

FMLA Credit

 

 

(174

)

 

 

(112

)

 

 

(245

)

Foreign tax credit

 

 

(2,712

)

 

 

(36

)

 

 

-

 

Other impact of foreign operations

 

 

(131

)

 

 

256

 

 

 

422

 

Statutory rate change

 

 

(457

)

 

 

111

 

 

 

303

 

Convertible debt premium

 

 

-

 

 

 

-

 

 

 

(1,017

)

Other

 

 

836

 

 

 

(1,112

)

 

 

74

 

Total income tax provision

 

$

25,420

 

 

$

26,105

 

 

$

16,721

 

We have undistributed earnings of approximately $88 million from certain foreign subsidiaries. We intend to indefinitely reinvest these foreign earnings; therefore, a provision has not been made for foreign withholding taxes that might be payable upon remittance of such earnings. Determination of the amount of unrecognized deferred tax liability on unremitted foreign earnings is not practicable because of the complexities of the hypothetical calculation.

Deferred Income Taxes. Net deferred income tax assets as of December 31, 2024 and 2023 are as follows (in thousands):

 

 

2024

 

 

2023

 

Deferred income tax assets

 

$

125,057

 

 

$

109,536

 

Deferred income tax liabilities

 

 

(28,889

)

 

 

(25,351

)

Valuation allowance

 

 

(22,967

)

 

 

(26,453

)

Net deferred income tax assets

 

$

73,201

 

 

$

57,732

 

 

The components of our net deferred income tax assets (liabilities) as of December 31, 2024 and 2023 are as follows (in thousands):

 

 

2024

 

 

2023

 

Net deferred income tax assets (liabilities):

 

 

 

 

 

 

Accrued expenses and reserves

 

$

9,472

 

 

$

10,907

 

Stock-based compensation

 

 

6,753

 

 

 

5,643

 

Software

 

 

(509

)

 

 

80

 

Client contracts and related intangibles

 

 

(10,419

)

 

 

(7,536

)

Goodwill

 

 

(16,638

)

 

 

(14,874

)

Net operating loss carryforwards

 

 

23,668

 

 

 

25,379

 

Property and equipment

 

 

(1,323

)

 

 

(2,941

)

Deferred revenue

 

 

6,373

 

 

 

6,539

 

Debt financing

 

 

6,010

 

 

 

7,396

 

Foreign exchange gain/loss

 

 

1,512

 

 

 

2,010

 

Operating lease right-of-use assets and lease liabilities

 

 

2,763

 

 

 

3,555

 

Research and Development

 

 

66,178

 

 

 

46,817

 

Unrecognized tax benefit

 

 

413

 

 

 

326

 

Credits and incentives

 

 

1,672

 

 

 

384

 

Other

 

 

243

 

 

 

500

 

Total net deferred income tax assets

 

 

96,168

 

 

 

84,185

 

Less: valuation allowance

 

 

(22,967

)

 

 

(26,453

)

Net deferred income tax assets

 

$

73,201

 

 

$

57,732

 

Beginning January 1, 2022, certain R&D expenditures are required to be capitalized in accordance with Section 174 of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017, and amortized over a 5-year period if incurred domestically or a 15-year period if incurred outside the U.S. Of the total R&D related deferred income tax assets as of December 31, 2024, $65.7 million is attributable to capitalized R&D (net of applicable amortization) with the remaining amount attributable to foreign and state R&D credits.

We regularly assess the likelihood of the future realization of our deferred income tax assets. To the extent we believe that it is more likely than not that a deferred income tax asset will not be realized, a valuation allowance is established. As of December 31, 2024, we believe we will generate sufficient taxable income in the future such that we will realize 100% of the benefit of our U.S. Federal deferred income tax assets, thus no valuation allowance has been established. As of December 31, 2024, we have net state and foreign deferred income tax assets (net of federal benefit related to state and foreign income tax jurisdictions) of $0.3 million and $34.2 million, respectively, and have established valuation allowances against those state and foreign income tax deferred income tax assets of $0.4 million and $21.3 million, respectively.

As of December 31, 2024 and 2023, we have an acquired U.S. Federal net operating loss (“NOL”) carryforward of approximately $2.0 million and $8.0 million, respectively, which will begin to expire in 2029 and can be utilized through 2033. The acquired U.S. Federal NOL carryforward is attributable to the pre-acquisition periods of acquired businesses. The annual utilization of this U.S. Federal NOL carryforward is limited pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. In addition, as of December 31, 2024 and 2023, we have: (i) state NOL carryforwards of approximately $31.0 million and $29.0 million, respectively, which will expire beginning in 2025 with a portion of the losses available over an indefinite period of time; and (ii) foreign subsidiary NOL carryforwards of approximately $98.0 million and $102.0 million, respectively, which will expire beginning in 2031, with a portion of the losses available over an indefinite period of time.

Pillar Two. Numerous foreign jurisdictions have enacted or are in the process of enacting legislation to adopt a minimum effective tax rate. Pillar Two, which was established by the Organization for Economic Co-operation and Development (OECD), generally provides for a 15 percent minimum effective tax rate for multinational enterprises in every jurisdiction in which they operate. The U.S. has not yet adopted Pillar Two, however, various governments around the world have adopted, some of which are effective for tax periods beginning on or after December 31, 2023. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there is no material impact to our tax provision for the year ended December 31, 2024. We will continue to evaluate the impact of these tax law changes on future reporting periods.

Accounting for Uncertainty in Income Taxes. We are required to estimate our income tax liability in each jurisdiction in which we operate, including U.S. Federal, state, and foreign income tax jurisdictions. Various judgments and estimates are required in evaluating our tax positions and determining our provisions for income taxes. There are certain transactions and calculations for which the ultimate income tax determination may be uncertain. In addition, we may be subject to examination of our income tax returns by various foreign, federal, state, or local tax authorities, which could result in adverse outcomes. For these reasons, we establish a liability associated with unrecognized tax benefits based on estimates of whether additional taxes and interest may be due. This liability is adjusted based upon changing facts and circumstances, such as the closing of a tax audit, the expiration of a statute of limitations or the refinement of an estimate.

A reconciliation of the beginning and ending balances of our liability for unrecognized tax benefits is as follows (in thousands):

 

 

2024

 

 

2023

 

 

2022

 

Balance, beginning of year

 

$

1,858

 

 

$

2,562

 

 

$

2,929

 

Additions related to prior acquisitions

 

 

-

 

 

 

-

 

 

 

2

 

Lapse of statute of limitations

 

 

(692

)

 

 

(409

)

 

 

5

 

Additions for tax positions of prior years

 

 

-

 

 

 

100

 

 

 

8

 

Reductions for tax positions of prior years

 

 

(54

)

 

 

(395

)

 

 

(382

)

Balance, end of year

 

$

1,112

 

 

$

1,858

 

 

$

2,562

 

We recognize interest and penalty expense associated with our liability for unrecognized tax benefits as a component of income tax expense in our Income Statements. In addition to the $1.1 million, $1.9 million, and $2.6 million of liability for unrecognized tax benefits as of December 31, 2024, 2023, and 2022, we had $1.3 million, $0.9 million, and $0.6 million, respectively, of income tax-related accrued interest, net of any federal benefit of deduction. If recognized, the $1.1 million of unrecognized tax benefits as of December 31, 2024, would favorably impact our effective tax rate in future periods.

We file income tax returns in the U.S. Federal jurisdiction, various U.S. state and local jurisdictions, and many foreign jurisdictions. The U.S., U.K., India, and Australia are the primary taxing jurisdictions in which we operate. The years open for audit vary depending on the taxing jurisdiction. We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $0.6 million over the next twelve months due to completion of tax audits and the expiration of statute of limitations.