Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

Components of the Company’s income (loss) before income taxes for the periods indicated are as follows (in thousands):

	Year Ended December 31,
	2024			2023			2022
Income (loss) before income taxes:
Canada	$	(7,425	)	$	(6,490	)	$	(4,946	)
U.S.		11,829			38,992			28,365
Other		74,662			51,246			63,740
Total	$	79,066		$	83,748		$	87,159

Components of the Company’s income tax provision (benefit) for the periods indicated are as follows (in thousands):

	Year Ended December 31,
	2024			2023			2022
Current
Canada	$	43		$	59		$	65
U.S.		11,198			14,424			17,205
Other		19,647			11,113			14,492
		30,888			25,596			31,762
Deferred
Canada		—			—			—
U.S.		(12,612	)		(12,224	)		(15,370	)
Other		(3,297	)		(2,502	)		(3,284	)
		(15,909	)		(14,726	)		(18,654	)
Total	$	14,979		$	10,870		$	13,108

The Company is incorporated in Canada and therefore uses the Canadian statutory rate for income tax disclosure. The reconciliation of the statutory Canadian tax rate to the effective tax rate related to income before income taxes for the periods indicated is as follows (in thousands, except percentage data):

	Year Ended December 31,
	2024			2023			2022
Statutory Canadian tax rate		29.00	%		29.00	%		29.00	%
Expected income tax provision at Canadian statutory tax rate	$	22,929		$	24,287		$	25,276
U.S. state income taxes, net		(168	)		860			3
U.K. patent box		(3,982	)		(4,247	)		(3,135	)
Foreign-derived intangible income		(3,015	)		(4,500	)		(4,467	)
International tax rate differences		(2,622	)		(4,804	)		(6,289	)
Tax credits		(2,590	)		(3,602	)		(2,256	)
Change in valuation allowance		1,930			2,068			2,048
Disallowed compensation		1,678			2,571			2,138
Withholding and other taxes		854			300			789
Windfall benefit from share-based compensation		(844	)		(1,685	)		(254	)
Transaction costs and permanent differences		360			423			140
Uncertain tax positions		244			90			(168	)
Provision to return differences		231			(1,056	)		(19	)
Acquisition contingent consideration adjustments		(81	)		—			(698	)
Statutory tax rate changes		55			165			—
Reported income tax provision	$	14,979		$	10,870		$	13,108
Effective tax rate		18.9	%		13.0	%		15.0	%

Deferred income taxes result principally from temporary differences in the recognition of certain revenue and expense items and operating loss and tax credit carryforwards for financial and tax reporting purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and December 31, 2023 are as follows (in thousands):

	December 31,
	2024			2023
Deferred tax assets:
Capitalized R&D	$	34,777		$	25,238
Inventories		15,451			12,497
Losses		12,606			11,274
Compensation related deductions		9,323			8,457
Operating lease liabilities		9,120			10,194
Tax credits		3,260			3,222
Business interest expense		1,483			-
Other		974			724
Warranty		913			964
Total deferred tax assets		87,907			72,570
Valuation allowance on deferred tax assets		(18,594	)		(16,674	)
Net deferred tax assets	$	69,313		$	55,896
Deferred tax liabilities:
Amortization	$	(39,061	)	$	(24,436	)
Operating lease right-of-use assets		(8,110	)		(9,198	)
Depreciation		(6,307	)		(5,389	)
Deferred revenue		(6,041	)		(5,316	)
Total deferred tax liabilities	$	(59,519	)	$	(44,339	)
Net deferred tax assets (liabilities)	$	9,794		$	11,557

In determining its income tax provisions, the Company calculated deferred tax assets and liabilities for each separate jurisdiction. The Company then considered a number of factors, including positive and negative evidence related to the realization of its deferred tax assets, to determine whether a valuation allowance should be recognized with respect to its deferred tax assets.

The Company began to capitalize research and development (“R&D”) expenditures in 2022 in accordance with the Tax Cuts and Jobs Act of 2017 (“TCJA”) which requires that R&D expenditures be capitalized and amortized for income tax purposes over five years for domestic research and fifteen years for foreign research, rather than being deducted as incurred. This has the effect of increasing the Company’s cash taxes and deferred tax assets. For the year ended December 31, 2024, the Company’s deferred tax assets related to capitalized R&D expenditures increased $9.5 million, which also created an effective tax rate benefit of 2.0% by increasing the Company's Foreign Derived Intangible Income deduction.

During the years ended December 31, 2024, and December 31, 2023, the Company recorded an additional valuation allowance of $1.9 million, and $2.1 million, respectively.

As of December 31, 2024, the Company had valuation allowances on Canada net operating and capital loss carryforwards, U.K. capital loss carryforwards, certain U.S. state net operating losses, and state and foreign tax credits that the Company has determined that they are not more likely than not to be realized. In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of releasing the valuation allowance currently in place on its deferred tax assets.

As of December 31, 2024, the Company had net operating loss carry forwards of $6.8 million (tax effected). Of this amount, approximately $6.5 million relates to Canada and begins to expire starting in 2033 and had a full valuation allowance. The remainder $0.3 million relates to various U.S. jurisdictions, of which $0.1 million can be carried forward indefinitely and the remaining $0.2 million will begin to expire in 2025 through 2036, on which the Company records a valuation allowance of $0.1 million. In addition, the Company had capital loss carryforwards of $5.8 million, which can be carried forward indefinitely and had

a full valuation allowance. Of this amount, $4.9 million, $0.8 million and $0.1 million relates to Canada, the U.K and other foreign jurisdictions, respectively.

As of December 31, 2023, the Company had net operating loss carryforwards of $5.7 million (tax effected). Of this amount, approximately $5.2 million relates to Canada and begins to expire starting in 2033 and had a full valuation allowance. The remaining $0.5 million relates to various U.S jurisdictions, which will expire between 2024 and 2043. In addition, the Company had capital loss carryforwards of $5.6 million, which can be carried forward indefinitely and had a full valuation allowance. Of this amount, $4.9 million related to Canada and the remaining $0.7 million related to the U.K.

As of December 31, 2024, the Company had tax credit carryforwards of approximately $3.8 million, before accounting for $0.6 million of uncertain tax positions recorded against the credit carryforward. Approximately $2.6 million relates to U.S. state credits and will expire through 2039, and on which the Company maintains a full valuation allowance, $0.5 million relates to the U.S. federal foreign tax credits which will expire through 2034. The remaining $0.7 million relates to Canada and can be carried forward indefinitely. The U.S. federal and Canadian tax credit carryforwards also have a full valuation allowance recorded against them.

As of December 31, 2023, the Company had tax credit carryforwards of approximately $3.7 million. Approximately $3.0 million relates to the U.S. and other immaterial foreign jurisdictions and will expire through 2039, and $0.7 million relates to Canada and can be carried forward indefinitely. The Company had a $2.9 million valuation allowance on these tax credit carryforwards.

As of December 31, 2024, the Company had disallowed business interest expense carryforwards of $1.5 million under Section 163(j) of the Internal Revenue Code. These carryforwards have no expiration date and can be utilized indefinitely to offset future taxable income, subject to the limitations of Section 163(j). No business interest expense carryforward existed as of December 31, 2023.

Income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in nature. This amount becomes taxable upon the repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary. The amount of undistributed earnings of foreign subsidiaries totaled $494.9 million as of December 31, 2024. The estimated unrecognized income tax and foreign withholding tax liability on these undistributed earnings is approximately $7.3 million.

As of December 31, 2024, the Company’s total amount of gross unrecognized tax benefits was $4.8 million, of which $4.1 million would favorably affect the effective tax rate if benefited. Over the next twelve months, the Company may need to recognize up to $0.8 million of previously recorded unrecognized tax benefits due to statute of limitations closures. Furthermore, the Company believes there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to its results of operations, financial position or cash flows. Furthermore, the Company believes that it has adequately provided for all significant income tax uncertainties.

The reconciliation of the total amounts of unrecognized tax benefits is as follows (in thousands):

Balance at December 31, 2021	$	4,797
Additions based on tax positions related to the current year		553
Additions for tax positions of prior years		34
Reductions to tax positions of prior years		(563	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(572	)
Settlements with tax authorities		—
Balance at December 31, 2022		4,249
Additions based on tax positions related to the current year		561
Additions for tax positions of prior years		47
Reductions to tax positions of prior years		(22	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(492	)
Settlements with tax authorities		—
Balance at December 31, 2023		4,343
Additions based on tax positions related to the current year		949
Additions for tax positions of prior years		204
Reductions to tax positions of prior years		(42	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(615	)
Settlements with tax authorities		—
Balance at December 31, 2024	$	4,839

The Company recognizes interest and penalties related to uncertain tax positions in income tax provision. As of December 31, 2024 and 2023, the Company had approximately $0.8 million and $0.7 million, respectively, of accrued interest and penalties related to uncertain tax positions. During the years ended December 31, 2024, December 31, 2023 and December 31, 2022, the Company recognized $0.1 million, $0.1 million and $0.1 million, respectively, of expense for an increase in interest and penalties related to uncertain tax positions.

The Company files income tax returns in Canada, the U.S., and various foreign jurisdictions. Generally, the Company is no longer subject to U.S. or foreign income tax examinations, including transfer pricing tax audits, by tax authorities for the years before 2014.

The Company’s income tax returns may be reviewed by tax authorities in the following countries for the following periods under the appropriate statute of limitations:

United States	2019 - Present
Canada	2017 - Present
United Kingdom	2023 - Present
Germany	2017 - Present
Czech Republic	2022 - Present
China	2014 - Present
Japan	2019 - Present