Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

(10) Income Taxes

U.S. and international components of (loss) income before income taxes (in thousands) were comprised of the following for the periods indicated:

	Years Ended December 31,
	2021			2020			2019
U.S.	$	(854,610	)	$	(53,250	)	$	9,944
Foreign		43,221			33,297			28,319
Total	$	(811,389	)	$	(19,953	)	$	38,263

The (benefit from) provision for income taxes (in thousands) consisted of the following for the periods indicated:

	Years Ended December 31,
	2021			2020			2019
Current:
Federal	$	(4,622	)	$	1,861		$	1,256
State		2,184			1,445			143
Foreign		5,533			5,221			5,135
	$	3,095		$	8,527		$	6,534
Deferred:
Federal	$	(204,784	)	$	(15,038	)	$	(749	)
State		(74,796	)		(6,269	)		(480	)
Foreign		576			351			(1,397	)
	$	(279,004	)	$	(20,956	)	$	(2,626	)
Total (benefit) provision	$	(275,909	)	$	(12,429	)	$	3,908

The benefit from or provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to the Company’s loss or income before income taxes as follows for the periods indicated:

	Years Ended December 31,
	2021			2020			2019
Income tax expense at federal statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal tax effect		9.1	%		18.0	%		(1.7	)%
Foreign earnings taxed at different rates		0.4	%		21.7	%		(6.1	)%
Book tax difference in amortization of intangible property		0.0	%		0.0	%		(4.6	)%
Withholding tax		(0.1	)%		(12.5	)%		3.1	%
Foreign tax credit		0.4	%		3.8	%		(3.0	)%
Other international components		0.0	%		(3.5	)%		0.2	%
Change in valuation allowance		0.0	%		2.7	%		1.6	%
Deferred tax adjustments and rate changes		0.0	%		(3.4	)%		1.0	%
Meals and entertainment		0.0	%		(1.3	)%		1.3	%
Non-deductible officers compensation		(1.0	)%		(12.5	)%		1.4	%
Subpart F income		(0.1	)%		(2.0	)%		3.2	%
Research and development tax credit		0.8	%		19.9	%		(9.3	)%
Share-based compensation		4.0	%		11.8	%		1.8	%
Global Intangible Low Income, net of foreign tax credit		(0.5	)%		(1.1	)%		0.9	%
Foreign-derived intangible income		0.0	%		3.1	%		(1.9	)%
Other permanent differences		0.0	%		(3.4	)%		1.3	%
Total		34.0	%		62.3	%		10.2	%

The Company’s U.S. and foreign effective tax rates for (loss) income before income taxes were as follows for the periods indicated:

	Years Ended December 31,
	2021			2020			2019
U.S.		33.0	%		33.8	%		1.7	%
Foreign		14.1	%		16.7	%		13.2	%
Combined		34.0	%		62.3	%		10.2	%

The change in the Company’s effective tax rate in 2021, as compared to the prior year, was primarily due to certain discrete items, overall loss level, and the change in the proportion of U.S. versus foreign (loss) income.

As of December 31, 2021 and 2020, the amount of cash and cash equivalents and short-term investments held by the Company’s U.S. entities was $13.1 million and $13.7 million, respectively, and by the Company’s non-U.S. entities was $50.3 million and $46.0 million, respectively. The Company earns a significant amount of its revenues outside the United States. The Company repatriated foreign earnings and profits of $57.5 million during 2021 and $186.6 million during 2020.  The Company’s accumulated undistributed foreign earnings and profits as of December 31, 2021 and 2020 were $117.0 million and $136.3 million, respectively.  Beginning in the third quarter of 2020, the Company determined to no longer permanently reinvest its foreign earnings and profits. As of December 31, 2021, the Company recorded a deferred tax liability of $1.7 million on undistributed foreign earnings.

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities (in thousands) were as follows for the periods indicated:

	December 31,
	2021			2020
Deferred tax assets, net:
Net operating loss carryforwards	$	968		$	1,690
Tax credits		3,844			4,158
Intangible assets		20,963			1,707
Deferred revenue		13,954			408
Accrued compensation		6,290			6,527
Share-based compensation expense		15,493			11,410
Digital asset impairment losses		258,458			19,843
Disallowed interest		5,532			0
Other		1,889			3,605
Deferred tax assets before valuation allowance		327,391			49,348
Valuation allowance		(999	)		(1,259	)
Deferred tax assets, net of valuation allowance		326,392			48,089
Deferred tax liabilities:
Prepaid expenses and other		2,101			1,792
Property and equipment		2,936			4,233
Debt discount, net of issuance costs		0			41,693
Deferred tax on undistributed foreign earnings		1,682			1,741
Method change		0			338
Total deferred tax liabilities		6,719			49,797
Total net deferred tax asset (liability)	$	319,673		$	(1,708	)
Reported as:
Non-current deferred tax assets, net		319,782			6,503
Non-current deferred tax liabilities		(109	)		(8,211	)
Total net deferred tax asset (liability)	$	319,673		$	(1,708	)

As of December 31, 2021, the Company had gross unrecognized income tax benefits of $6.2 million, of which $2.1 million was recorded in “Other long-term liabilities” and $4.1 million was recorded in “Deferred tax assets, net” in the Company’s Consolidated Balance Sheets. The change in unrecognized income tax benefits (in thousands) is presented in the table below:

Unrecognized income tax benefits at January 1, 2021	$	4,293
Increase related to positions taken in prior period		1,082
Increase related to positions taken in current period		1,146
Decrease related to expiration of statute of limitations		(561	)
Unrecognized income tax benefits at December 31, 2021		5,960
Accrued interest		272
Gross unrecognized income tax benefits at December 31, 2021	$	6,232

If recognized, $5.9 million of the gross unrecognized income tax benefits would impact the Company’s effective tax rate.  Over the next 12 months, the amount of the Company’s liability for unrecognized income tax benefits shown above is not expected to change materially. The Company recognizes estimated accrued interest related to unrecognized income tax benefits in the benefit from income taxes. During the years ended December 31, 2021, 2020, and 2019, the Company released or recognized an immaterial amount of accrued interest.  The amount of accumulated accrued interest related to the above unrecognized income tax benefits was approximately $0.3 million and $0.3 million as of December 31, 2021 and 2020, respectively.

The Company files tax returns in numerous foreign countries as well as the United States and its tax returns may be subject to audit by tax authorities in all countries in which it files.  Each country has its own statute of limitations for making assessment of additional tax liabilities. In 2019, the Company settled the tax examination in Italy for tax years 2013 to 2015 without any material audit assessments. The Company’s U.S. tax returns for tax years from 2018 and forward are subject to potential examination by the Internal Revenue Service.  However, due to the Company’s use of state NOL carryovers in the United States, state tax authorities may attempt to reduce or fully offset the amount of state NOL carryovers from tax years ended 2011 and forward that the Company used in later tax years. The Company’s major foreign tax jurisdictions and the tax years that remain subject to potential examination are Italy and Poland for tax years 2017 and forward; Spain for tax years 2018 and forward, Germany for tax years 2019 and forward, and the United Kingdom for tax years 2020 and forward.  To date there have been no material audit assessments related to audits in the United States or any of the applicable foreign jurisdictions.

The Company had no U.S. NOL carryforwards as of December 31, 2021 and 2020. The Company had $4.1 million and $7.9 million of foreign NOL carryforwards as of December 31, 2021 and 2020, respectively.

The Company’s valuation allowances of $1.0 million and $1.3 million at December 31, 2021 and 2020, respectively, primarily relate to certain foreign tax credit carryforward tax assets that, in the Company’s present estimation, more likely than not will not be realized.

In determining the Company’s (benefit from) provision for income taxes, net deferred tax assets, liabilities, and valuation allowances, management is required to make estimates and judgments related to projections of domestic and foreign profitability, the timing and extent of the utilization of NOL carryforwards, applicable tax rates, transfer pricing methods, and prudent and feasible tax planning strategies. As a multinational company, the Company is required to calculate and provide for estimated income tax liabilities for each of the tax jurisdictions in which it operates. This process involves estimating current tax obligations and exposures in each jurisdiction, as well as making judgments regarding the future recoverability of deferred tax assets. Changes in the estimated level of annual pre-tax income, changes in tax laws, particularly changes related to the utilization of NOLs in various jurisdictions, and changes resulting from tax audits can all affect the overall effective income tax rate which, in turn, impacts the overall level of income tax expense or benefit and net income.

Estimates and judgments related to the Company’s projections and assumptions are inherently uncertain. Therefore, actual results could differ materially from projections. Currently, the Company expects to use its deferred tax assets, subject to Internal Revenue Code limitations, within the carryforward periods. Valuation allowances have been established where the Company has concluded that it is more likely than not that such deferred tax assets are not realizable.  If the Company is unable to regain or increase profitability in future periods, it may be required to increase the valuation allowance against the deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred.