Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 7. Income Taxes

Income before income taxes and the provision for income taxes consisted of the following:

	Year Ended December 31,
	2023			2022			2021
(In thousands)
United States	$	(33,944	)	$	(100,609	)	$	42,219
International		14,808			18,587			23,285
Total	$	(19,136	)	$	(82,022	)	$	65,504

	Year Ended December 31,
(In thousands)	2023		2022			2021
Current:
U.S. Federal	$	358	$	3,477		$	6,198
State		599		1,329			644
Foreign		2,423		4,236			5,000
		3,380		9,042			11,842
Deferred:
U.S. Federal		65,880		(18,761	)		4,607
State		15,629		(3,017	)		595
Foreign		742		(299	)		(927	)
		82,251		(22,077	)		4,275
Total	$	85,631	$	(13,035	)	$	16,117

Effective January 1, 2022, U.S. tax law requires the capitalization and amortization of research and experimental expenditures incurred after December 31, 2021. The impact of this change in U.S. tax law is included in the results for years ended December 31, 2023, and 2022 in the above table.

Net deferred tax assets consisted of the following:

	Year Ended December 31,
(In thousands)	2023			2022
Deferred Tax Assets:
Accruals and allowances	$	21,324		$	22,394
Net operating loss carryforwards		1,770			1,275
Stock-based compensation		2,312			3,074
Operating lease liability		7,315			8,834
Deferred revenue		2,085			1,258
Tax credit carryforwards		935			607
Acquired intangibles		18,664			21,722
Capitalized Research and Development		50,670			33,299
Depreciation and amortization		1,088			1,632
Other		4,392			4,338
Total deferred tax assets		110,555			98,433
Deferred Tax Liabilities:
Right of use asset		(6,179	)		(7,695	)
Other		(1,205	)		(984	)
Total deferred tax liabilities		(7,384	)		(8,679	)
Valuation Allowance(1)		(99,828	)		(4,050	)
Net deferred tax assets	$	3,343		$	85,704

(1)Valuation allowance is presented gross. The valuation allowance net of the federal tax effect was $95.7 million and $4.0 million for the years ended December 31, 2023 and 2022, respectively.

Management’s judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and any valuation allowance recorded against its deferred tax assets. During the year ended December 31, 2023, a valuation allowance of $99.8 million was placed against all U.S. federal and state tax attributes since it was determined that recovery of the assets is not more likely than not. For the year ended December 31, 2022, a valuation allowance of $4.1 million placed against certain investment related deferred tax assets and foreign tax credit carryforwards where utilization was considered uncertain. Accordingly, the valuation allowance increased $95.7 million during 2023. In management’s judgment it is more likely than not that foreign deferred tax assets will be realized in the future as of December 31, 2023, and as such no valuation allowance has been recorded against these deferred tax assets.

The effective tax rate differed from the applicable U.S. statutory federal income tax rate as follows:

	Year Ended December 31,
	2023			2022			2021
Tax at federal statutory rate		21.0	%		21.0	%		21.0	%
State, net of federal benefit		(3.1	)%		1.7	%		1.4	%
Impact of international operations		8.3	%		2.7	%		(1.8	)%
Stock-based compensation		(2.3	)%		(2.7	)%		2.9	%
Tax credits		5.8	%		1.7	%		(1.9	)%
Valuation allowance		(474.3	)%		(0.3	)%		0.3	%
Goodwill impairment		—	%		(9.6	)%		—	%
State Valuation Allowance Release		—	%		—	%		—	%
Base Erosion Anti-Abuse Tax		—	%		—	%		3.7	%
Transaction Costs		—	%		—	%		(0.9	)%
Recognition of previously unrecognized tax benefits		(0.3	)%		1.8	%		0.0	%
Non-deductible License fees		(1.7	)%		(0.3	)%		0.1	%
Others		(0.9	)%		(0.1	)%		(0.2	)%
Provision for income taxes		(447.5	)%		15.9	%		24.6	%

As a result of changes in fair value of available-for-sale securities and foreign currency hedging, income tax (provision) benefits of $(122,000), $147,000, and $(31,000) were recorded in comprehensive income related to the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, the Company has approximately $0.3 million of acquired federal net operating loss carryforwards as well as $0.9 million of California tax credits carryforwards. All the losses are subject to annual usage limitations under Internal Revenue Code Section 382. The federal losses expire in different years beginning in fiscal year 2035.

The Company files income tax returns in the U.S. federal jurisdiction and various state, local, and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2016. The Company is no longer subject to foreign income tax examinations before 2004. The Italian Tax Authority (ITA) has audited the Company’s 2004 through 2012 tax years. The Company is currently in litigation with the ITA with respect to these years and has a hearing scheduled for all years at the Italian Supreme Court in March 2024. The Company is currently under examination by the state of California for the years ended December 31, 2016, December 31, 2017 and December 31, 2018. The Company has limited audit activity in various other states and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next 12 months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions resulting from the expiration of statutes of limitation in multiple jurisdictions in the next 12 months is approximately $0.7 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as follows:

(In thousands)	Federal, State, and Foreign Tax
Balance as of December 31, 2020	$	9,542
Additions based on tax positions related to the current year		463
Additions for tax positions of prior years		50
Reductions due to lapse of applicable statutes		(556	)
Adjustments due to foreign exchange rate movement		(295	)
Balance as of December 31, 2021		9,204
Additions based on tax positions related to the current year		805
Additions for tax positions of prior years		8
Settlements		(1,355	)
Reductions due to lapse of applicable statutes		(554	)
Adjustments due to foreign exchange rate movement		(174	)
Balance as of December 31, 2022		7,934
Additions based on tax positions related to the current year		426
Additions for tax positions of prior years		533
Reductions due to lapse of applicable statutes		(507	)
Adjustments due to foreign exchange rate movement		232
Balance as of December 31, 2023	$	8,618

The total amount of net UTB that, if recognized would affect the effective tax rate as of December 31, 2023 is $6.2 million. The ending net UTB results from adjusting the gross balance at December 31, 2023 for items such as U.S. federal and state deferred tax, interest, and deductible taxes. The net UTB is included as a component of non-current income taxes payable within the consolidated balance sheets.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2023, 2022, and 2021, total interest and penalties expensed were $0.1 million, $0.0 million, and $0.2 million, respectively. As of December 31, 2023 and 2022, accrued interest and penalties on a gross basis were $2.6 million and $2.4 million, respectively. Included in accrued interest are amounts related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The Company has not provided deferred taxes on earnings of $8.5 million of undistributed earnings of foreign subsidiaries that are indefinitely reinvested outside of the U.S. The Company estimates that if these earnings were repatriated to the U.S., it would result in approximately $1.8 million in associated tax without consideration of foreign tax credits. Determination of foreign tax credit limitations depends on several factors which cannot be estimated.