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INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of the Company's loss before taxes consisted of the following (in thousands):
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Domestic | $ | (3,399) |  |  | $ | (39,680) |  |  | $ | (21,614) |
Foreign | 1,007 |  |  | 1,204 |  |  | 971 |
Total loss before taxes | $ | (2,392) |  |  | $ | (38,476) |  |  | $ | (20,643) |
The components of the Company’s provision for income taxes are as follows (in thousands):
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Current: |  |  |  |  |
Federal | $ | (4,849) |  |  | $ | (624) |  |  | $ | (4,052) |
State | (688) |  |  | (254) |  |  | (659) |
Foreign | (2,168) |  |  | (2,214) |  |  | (1,626) |
| (7,705) |  |  | (3,092) |  |  | (6,337) |
Deferred: |  |  |  |  |
Foreign | 42 |  |  | 112 |  |  | (29) |
| 42 |  |  | 112 |  |  | (29) |
Total provision for income taxes | $ | (7,663) |  |  | $ | (2,980) |  |  | $ | (6,366) |
A reconciliation of the U.S. statutory federal income tax rate to the Company's effective income tax rate is as follows:
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State tax | (22.9) |  |  | 0.9 |  |  | (2.8) |
Research and development credit | 48.5 |  |  | 1.4 |  |  | 1.2 |
GILTI | (33.4) |  |  | (2.2) |  |  | (4.2) |
Foreign tax credit | 33.2 |  |  | 1.4 |  |  | 4.2 |
Rate differentials for controlled foreign corporations and charitable organizations | (14.3) |  |  | (1.3) |  |  | 1.9 |
Permanent items and others | 1.6 |  |  | (0.1) |  |  | 0.7 |
Stock-based compensation | (235.6) |  |  | (16.1) |  |  | (25.3) |
Change in valuation allowance | (55.4) |  |  | (9.7) |  |  | (13.4) |
162(m) limitation | (63.1) |  |  | (3.0) |  |  | (14.1) |
Effective income tax rate | (320.4) | % |  | (7.7) | % |  | (30.8) | %
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
| As December 31,
| 2024 |  | 2023
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 107 |  |  | $ | 88 |
Tax credit carryforwards | 134 |  |  | 413 |
Accruals and reserves | 490 |  |  | 785 |
Stock-based compensation | 2,436 |  |  | 2,639 |
Interest expense limitation | — |  |  | 118 |
Lease liabilities | 1,611 |  |  | 1,742 |
Charitable contributions | 39 |  |  | 101 |
Property and equipment | 770 |  |  | 654 |
Capitalized research and development | 10,295 |  |  | 7,677 |
Total deferred tax assets | 15,882 |  |  | 14,217 |
Less: valuation allowance | (9,872) |  |  | (8,971) |
Deferred tax assets net of valuation allowance | 6,010 |  |  | 5,246 |
Deferred tax liabilities: |  |  |
Capitalized software development costs | (3,969) |  |  | (3,080) |
Operating lease right-of-use assets | (1,356) |  |  | (1,625) |
Capitalized commissions | (186) |  |  | (84) |
Total deferred tax liabilities | (5,511) |  |  | (4,789) |
Deferred tax assets, net | $ | 499 |  |  | $ | 457 |
The TCJA requires taxpayers to capitalize and amortize research and experimental ("R&D") expenditures under Internal Revenue Code Section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of R&D costs of $17.7 million and $21.3 million during the years ended December 31, 2024 and 2023, respectively, and are offset by a valuation allowance as of December 31, 2024 and 2023. The Company will amortize these costs for tax purposes over five years for R&D performed in the U.S. and over 15 years for R&D performed outside of the U.S. Under the provisions of ASC 740, Income Taxes, the Company assessed its ability to realize the benefits of its deferred tax assets by evaluating all available positive and negative evidence, objective and subjective in nature, including cumulative results of operations in recent years, sources of recent pre-tax income, projected reversals of existing taxable temporary differences, and estimates of future taxable income. As of December 31, 2024, the Company concluded it is more likely than not that the Company will not have the ability to realize the benefits of its domestic deferred tax assets in excess of existing taxable temporary differences and therefore recorded a valuation allowance on the remaining domestic deferred tax assets. As of December 31, 2024 and 2023, the Company had $1.5 million and $1.3 million available NOL carryforwards for state tax purposes, respectively, which expire in 2043. As of December 31, 2024 and 2023, the Company had state research and development tax credit carryforwards of $0.8 million and $1.1 million, respectively. The state tax credits do not expire and will carry forward indefinitely until utilized. The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. As of December 31, 2024 and 2023, the Company recorded an uncertain tax position liability of $1.5 million, within Other liabilities on the Consolidated Balance Sheets. Approximately $1.5 million of the unrecognized tax benefits for the years ended December 31, 2024 and 2023, if recognized, would affect the effective tax rate. A reconciliation of the amount of unrecognized tax benefits is as follows (in thousands):
| Year ended December 31,
| 2024 |  | 2023 |  | 2022
Balance as of January 1 | $ | 2,050 |  |  | $ | 1,812 |  |  | $ | 1,656 |
Additions based on tax positions related to current year | 300 |  |  | 247 |  |  | 126 |
Additions based on tax positions of prior year | 242 |  |  | 14 |  |  | 30 |
Reductions based on tax positions of prior year | (72) |  |  | (23) |  |  | — |
Expiration of the statute of limitations | (578) |  |  | — |  |  | — |
Balance as of December 31 | $ | 1,942 |  |  | $ | 2,050 |  |  | $ | 1,812 |
The Company recognizes penalties and interest expense related to income taxes as a component of tax expense. There are immaterial amounts of interest and penalties recorded in the Consolidated Statements of Operations for each of the years ended December 31, 2024, 2023 and 2022 and in the Consolidated Balance Sheets as of December 31, 2024 and 2023. The Company anticipates that it is reasonably possible its unrecognized benefits will decrease by $0.2 million, exclusive of interest and penalties, within 2025 mainly due to the expiration of the statute of limitations. The Company's federal and state returns for the tax years ended from December 2018 to December 2024 remain open to examination. An examination of the Company's 2021 federal tax return by the Internal Revenue Service ("IRS") commenced in Q4 2024.

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