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Note 10 - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

10. Income Taxes:

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 21% for the years ended  December 31, 2023,  December 31, 2022 and  December 31, 2021, to income before provision for income taxes as a result of the following (Dollar amounts in thousands of U.S. dollars): 

 

  

Year ended December 31,

 
  

2023

  

2022

  

2021

 
             

Income (loss) for the year before provision for income taxes

 $(103,070) $(27,788) $7,270 

Computed federal tax expense

  (21,644)  (5,836)  1,527 
             

Increase (decrease) in income tax expense resulting from:

            

State income taxes

  (2,891)  845   314 

Foreign earnings

  5,976   386   382 

Changes in valuation allowance

  11,213   4,023   2,300 

Foreign income tax deduction

  (1,571)  -   - 

Adjustments recognized in the current period for income tax of prior periods

  1,569   250   377 

Permanent differences

  (90)  (112)  205 

Shortfall (excess) tax benefits on share-based compensation

  -   138   (1,556)

Others

  565   89   357 

Provision (recovery) for income taxes

 $(6,873) $(217) $3,906 

 

Our effective tax rate is mainly driven by changes in valuation allowance on net operating losses, interest expense limitation that we are not expected to realize in future years, and the impact of foreign earnings.

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2023, and  December 31, 2022 are presented below (Dollar amounts in thousands of U.S. dollars):

 

  

December 31, 2023

  

December 31, 2022

 

Deferred tax assets:

        

Net operating losses

 $55,574  $2,468 

Foreign tax credits

  13,040   17,554 

Deferred revenue

  5,132   5,349 

Interest expense limitation

  4,606   1,047 

Limited life intangible assets

  2,034   - 

Fixed assets

  -   379 

Accruals, including foreign exchange and other

  5,122   3,909 

Total deferred tax assets

  85,508   30,706 

Valuation allowance

  (28,767)  (17,554)

Total deferred tax assets

 $56,741  $13,152 

Deferred tax liabilities:

        

Investment in partnership

 $(32,550) $(6,727)

Prepaid registry fees and expenses

  (19,216)  (17,941)

Fixed assets

  (4,862)  - 

Indefinite life intangible assets

  (2,966)  (2,968)

Limited life intangible assets

  -   (629)

Foreign branch deferred tax liabilities

  (113)  (607)

Total deferred tax liabilities

 $(59,707) $(28,872)
         

Net deferred tax liabilities

 $(2,966) $(15,720)

 

In assessing the need for valuation allowance, historical and future levels of income, expectations and risks associated with estimates of future taxable income and tax planning strategies are considered. In 2023, we have determined that it is not more likely than not that we will ultimately be able to fully utilize the net operating losses, foreign tax credits and interest expense limitation in future years. As of December 31, 2023, a valuation allowance of $28.8 million is recorded against net deferred tax assets. The increase in the valuation allowance was primarily attributable to an increase in deferred tax assets resulting from the loss from operations and interest expense limitation. Should our operating results continue to improve and projections to show utilization of the deferred tax assets, we would take the positive evidence into consideration and reassess our valuation allowance position.

 

As of December 31, 2023, the Company had net federal and state operating loss carryforwards of approximately $230.1 million and interest expense carryforwards of $18.9 million respectively. The majority of the net operating loss and interest expense carryforwards can be carried forward indefinitely.

 

As of December 31, 2023, the Company had foreign tax credit carryforwards of $13.0 million. The foreign tax credit will expire beginning in the year ending December 31, 2027 if not utilized.

 

The Company had nil total gross unrecognized tax benefits as of both December 31, 2023 and December 31, 2022. The Company does not expect its total gross unrecognized tax benefits will change within the next 12 months.

 

The Company recognizes interest and penalties related to income tax matters within the provision for income taxes. As of December 31, 2023, the Company recorded $0.8 million of interest in income taxes, primarily due to Sec. 453A interest on deferred tax liability for U.S. tax purposes. No material interest and penalties were recognized as of December 31, 2022.