Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

Note 18. Income Taxes

Income before income taxes is as follows:

	Year ended December 31,
	2023		2022		2021
	(in thousands)
United States	$	270,842	$	198,028	$	116,380
Foreign		7,757		6,857		4,048
Income before income taxes	$	278,599	$	204,885	$	120,428

Provision for income taxes is as follows:

	Year ended December 31,
	2023		2022		2021
	(in thousands)
Current:
United States
Federal	$	46,871	$	8,430	$	—
State		1,985		1,716		82
Foreign		3,498		3,124		1,439
Total current		52,354		13,270		1,521
Deferred:
Federal		(18,526)		9,097		20,521
State		(440)		(102)		406
Foreign		(1,052)		(459)		(670)
Total deferred		(20,018)		8,536		20,257
Income tax provision	$	32,336	$	21,806	$	21,778

Reconciliation of income taxes at the United States Federal statutory rate to the effective income tax rate of 11.6% is as follows:

	Year ended December 31,
	2023		2022		2021
	(in thousands)
Income taxes at the United States statutory rate	$	58,506	$	43,026	$	25,290
State income taxes		1,033		1,075		387
Effect of change in valuation allowance		1,978		680		(1,443)
Foreign income tax rate differentials		329		289		152
Stock-based compensation		(6,718)		(3,818)		(3,658)
Internal revenue code section 162(m) limitation		4,488		2,692		1,481
Credit expirations		784		1,181		2,342
Rate change		44		94		159
Credit generation		(6,900)		(4,764)		(3,096)
Discrete items, net		2,161		206		72
GILTI inclusion		45		69		301
Foreign-derived intangible income		(24,052)		(20,526)		—
Other, net		638		1,602		(209)
Income tax provision	$	32,336	$	21,806	$	21,778

Significant components of long-term deferred income taxes are as follows:

	Year ended December 31,
	2023		2022
	(in thousands)
Deferred tax assets:
State net operating loss carryforwards	$	96	$	291
Foreign net operating loss carryforwards		182		276
Federal tax credit carryforwards		1,999		—
State tax credit carryforwards		9,560		8,683
Property, plant and equipment		6,979		8,755
Operating lease liability		5,564		1,564
Accrued compensation		242		276
Inventories		804		1,613
Stock compensation		1,790		1,620
Warranty		3,108		1,993
Deferred revenue		6,389		4,501
Capitalized research and development costs		38,036		18,067
Gross deferred tax assets		74,749		47,639
Valuation allowance		(10,963)		(8,370)
Net deferred tax assets		63,786		39,269
Deferred tax liabilities:
Intangible assets		—		(176)
Right-of-use asset		(9,155)		(5,400)
Other		(1,203)		(1,992)
Gross deferred tax liabilities		(10,358)		(7,568)
Deferred taxes, net	$	53,428	$	31,701

Changes in tax rates and tax laws are accounted for in the period of enactment. Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled.

At December 31, 2023, we had $53.4 million of net deferred tax assets worldwide relating to capitalized R&D costs and other temporary differences, which are available to reduce income taxes in future years. The increase in our deferred tax assets from the prior year was primarily due to a $20.0 million increase relating to capitalized R&D costs. At December 31, 2023, we maintained a $11.0 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these attributes. This represents an increase of $2.6 million from the prior year.

At December 31, 2023, we had state net operating loss carryforwards of $0.1 million. State net operating losses will expire between 2024 and 2034. At December 31, 2023, we have foreign net operating loss carryforwards of $0.2 million. The majority of our foreign net operating losses have an unlimited carryforward period.

At December 31, 2023, we had research and development and other tax credit carryforwards of $15.2 million. These carry forwards are subject to an uncertain tax position reserve of $3.0 million. These credits can be used to reduce future federal and state income tax liabilities and expire principally between 2024 and 2035.

A provision of the Tax Cuts and Jobs Act (“TCJA”) took effect in 2022, creating a significant change to our treatment of research and experimental expenditures. Historically, businesses had the option of deducting R&D expenses in the year incurred or capitalizing and amortizing the costs over five years. The TCJA provision eliminates this option and requires R&D expenses associated with research conducted in the U.S. to be capitalized and amortized over a five-year period. For expenses associated with research outside of the United States, R&D expenses are capitalized and amortized over a 15-year period. The Company has included the tax impact of capitalizing and amortizing these costs over the required periods in their tax provision for the year ended December 31, 2023.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2023 to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2023, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $11.8 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2009. Our policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. We believe that we have appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

At December 31, 2023, we had unrecognized tax benefits related to uncertain tax positions of $11.9 million, $8.3 million of which is recorded as a long-term liability, and the remainder of which reduced the Company’s state deferred tax assets and the offsetting valuation allowance. We recognized $0.5 million in interest and penalty expenses for the year ended December 31, 2023 relating to these uncertain tax positions. These unrecognized tax benefits, if recognized, would reduce the effective tax rate and also reverse associated accrued interest and penalty expenses.

A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:

		Year ended December 31,
	2023		2022		2021
	(in thousands)
Balance at beginning of year	$	10,443	$	9,961	$	10,044
Decrease in unrecognized tax benefits as a result of tax positions taken during a prior period		(271)		(122)		(546)
Decreases in unrecognized tax benefits related to settlements with tax authorities		—		(708)		—
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitation		—		—		(472)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period		1,754		1,312		935
Balance at end of year	$	11,926	$	10,443	$	9,961
Recorded as other long-term liability	$	8,344	$	7,190	$	—
Recorded as a decrease in deferred tax assets		3,582		3,253		9,961
Balance at end of year	$	11,926	$	10,443	$	9,961