Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

Note 15 — Income Taxes

The amounts of income (loss) before income taxes attributable to domestic and foreign operations were as follows:

	Year ended December 31,
	2023		2022		2021
	(in thousands)
Domestic	$	(33,383)	$	47,368	$	23,561
Foreign		5,045		3,617		2,119
Total	$	(28,338)	$	50,985	$	25,680

Significant components of the expense (benefit) for income taxes consisted of the following:

	Year ended December 31,
	2023		2022		2021
	(in thousands)
Current:
Federal	$	3,299	$	—	$	—
Foreign		1,136		1,506		183
State and local		(194)		577		110
Total current expense (benefit) for income taxes		4,241		2,083		293
Deferred:
Federal		(3,026)		(96,811)		119
Foreign		512		(484)		(507)
State and local		303		(20,745)		(263)
Total deferred expense (benefit) for income taxes		(2,211)		(118,040)		(651)
Total expense (benefit) for income taxes	$	2,030	$	(115,957)	$	(358)

The income tax expense (benefit) was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:

	Year ended December 31,
	2023		2022		2021
	(in thousands)
Income tax expense (benefit) at U.S. statutory rates	$	(5,951)	$	10,706	$	5,393
State taxes, net of U.S. federal impact		1,073		1,101		(607)
Effect of international operations		(7,668)		(11,149)		609
Research and development tax credit		(7,287)		(6,470)		(3,964)
Net change in valuation allowance		662		(104,972)		(2,389)
Change in accrual for unrecognized tax benefits		(369)		3,349		398
Share-based compensation		2,084		606		1,208
Extinguishment of debt		19,289		—		(1,090)
Adoption of new accounting standard		—		(9,295)		—
Other		197		167		84
Total expense (benefit) for income taxes	$	2,030	$	(115,957)	$	(358)

Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences were as follows:

	December 31,
	2023		2022
	(in thousands)
Deferred tax assets:
Inventory valuation	$	12,682	$	11,931
Net operating losses		5,841		5,647
Credit carry forwards		49,086		59,988
Warranty and installation accruals		1,766		1,862
Share-based compensation		4,637		5,267
Contract liabilities		19,785		24,504
Operating leases		8,034		8,349
Research and experimental ("R&E") capitalization		34,504		19,071
Other		4,885		6,553
Total deferred tax assets		141,220		143,172
Valuation allowance		(11,745)		(11,083)
Net deferred tax assets		129,475		132,089
Deferred tax liabilities:
Purchased intangible assets		14,166		8,724
Convertible Senior Notes		—		(39)
Operating leases		5,548		5,994
Depreciation		(1,588)		2,346
Total deferred tax liabilities		18,126		17,025
Net deferred taxes	$	111,349	$	115,064

The Company does not permanently reinvest its earnings from certain foreign jurisdictions and has accrued for foreign tax withholdings of $1.0 million on its unremitted earnings as of December 31, 2023.

During the year ended December 31, 2023, income tax expense of $2.0 million was primarily comprised of 1) a $16.2 million income tax expense on pre-tax income from operations; 2) a $2.0 million income tax expense for share based compensation, partially offset by 3) a $7.5 million tax benefit related to Foreign-Derived Intangible Income; 4) a $7.7 million tax benefit associated with research and development tax credits; and 5) a $1.0 million tax benefit associated with the loss on extinguishment of convertible notes under Section 249 of the Internal Revenue Code of 1986, as amended (Section 249).

At December 31, 2023, the Company had U.S. federal research and development credits of $34.9 million that will expire between 2030 and 2043. Additionally, the Company has state and local NOL carryforwards of approximately $56.8 million (a net deferred tax asset of $4.0 million, net of federal tax benefits and before the valuation allowance) that will expire between 2024 and 2042. Finally, the Company has state credits of $33.6 million, some of which are indefinite and others that will expire between 2024 and 2038.

A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state, and foreign tax jurisdictions was as follows:

	December 31,
	2023		2022		2021
	(in thousands)
Balance at beginning of year	$	16,110	$	12,761	$	12,363
Additions for tax positions related to current year		2,596		4,180		2,642
Additions for tax positions related to prior years		83		—		50
Reductions for tax positions related to prior years		(3,048)		(731)		(1,196)
Settlements		—		(100)		(1,098)
Balance at end of year	$	15,741	$	16,110	$	12,761

If the amount of unrecognized tax benefits at December 31, 2023 were recognized, the Company’s income tax provision would decrease by $13.9 million. The gross amount of interest and penalties accrued in income tax payable in the Consolidated Balance Sheets was approximately $0.6 million and $0.5 million at December 31, 2023 and 2022, respectively.

The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions. All material consolidated federal income tax matters have been concluded for years through 2017 subject to subsequent utilization of NOLs generated in such years. All material state and local income tax matters have been reviewed through 2012. The majority of the Company’s foreign jurisdictions have been reviewed through 2015. The Company’s major foreign jurisdictions’ statutes of limitation remain open with respect to the tax years 2016 through 2022 for Germany, 2017 through 2022 for China, 2022 for Taiwan, and 2020 through 2022 for Singapore. The Company does not anticipate that its uncertain tax position will change significantly within the next twelve months subject to the completion of the ongoing tax audits and any resultant settlement.