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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The amounts of (loss) income from continuing operations before income taxes was as follows (in thousands):
20212020
United States$(132,910)$(52,224)
Foreign832 2,505 
Total
$(132,078)$(49,719)
The income tax expense from continuing operations for 2021 and 2020 consisted of the following (in thousands):
20212020
Current:
Federal$— $— 
State25 87 
Foreign2,467 1,090 
Total current income tax expense2,492 1,177 
Deferred:
Federal— — 
State— 62 
Foreign(58)603 
Total deferred income tax (benefit) expense(58)665 
Income tax expense$2,434 $1,842 
The effective tax rates for 2021 and 2020 were (1.8)% and (3.8)%, respectively. An income tax reconciliation between the U.S. Federal statutory tax rate of 21% for each of 2021 and 2020 and the effective tax rate is as follows (in thousands):
20212020
Income tax at U.S. Federal statutory income tax rate$(27,736)21.0 %$(10,441)21.0 %
State and local taxes, net of Federal income tax benefit(1,744)1.3 %(1,371)2.8 %
Valuation allowance13,905 (10.5)%11,028 (22.2)%
Change in fair value of embedded derivative liability16,484 (12.4)%— 0.0 %
Nondeductible expenses730 (0.5)%940 (2.0)%
Taxes of foreign operations at rates different than U.S. Federal statutory income tax rate1,932 (1.4)%1,435 (2.9)%
Other(1,137)0.7 %251 (0.5)%
Total$2,434 (1.8)%$1,842 (3.8)%
The effective tax rate for 2021 differs from the U.S. Federal income tax rate of 21% primarily due to changes in the valuation allowance, the change in the fair value of our embedded derivative liability that is not tax deductible, state taxes, and foreign withholding taxes. The effective tax rate for 2020 differs from the U.S. Federal income tax rate of 21% primarily due to changes in the valuation allowance, state taxes, and foreign taxes.
The Tax Act, which was signed into law on December 22, 2017, contained many significant changes to the U.S. federal income tax laws. Among other things, the Tax Act reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, limited the tax deductibility of interest expense, accelerated expensing of certain business assets and transitioned the U.S. international taxation from a worldwide tax system to a territorial tax system by imposing a one-time mandatory repatriation of undistributed foreign earnings. Also included in the Tax Act was the implementation of a minimum tax on foreign earnings.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among other things, addressing the carryback of NOLs for specific periods and temporary modifications to the limitation placed on the tax deductibility of interest expense.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consists of the following (in thousands):
20212020
Deferred tax assets:
Net operating loss carryforward$43,652 $60,280 
Accrued expenses1,270 2,449 
Allowance for doubtful accounts34 127 
163(j) Interest expense limitation and carryforward— 996 
Total deferred tax assets44,956 63,852 
Deferred tax liabilities:
Property and equipment(289)(427)
Deferred revenue(1,289)(3,884)
Intangible assets(6,907)(14,099)
Deferred contract acquisition costs(2,562)(2,753)
Other— (79)
Total deferred tax liabilities(11,047)(21,242)
Valuation allowance(33,116)(41,875)
Deferred income tax asset, net$793 $735 
The Company anticipates most of its deferred tax assets will be realized within the period during which its deferred tax liabilities are expected to reverse. However, there are certain U.S. federal and foreign deferred tax assets as well as state NOLs that are not expected to be realized before expiration and as such are not more-likely-than-not realizable and we have recorded a valuation allowance against such deferred tax assets.
As of December 31, 2021, we had U.S. Federal NOL carryforwards of $179.4 million generated in tax years 2002 through 2021, of which $21.8 million will expire in 2035, $22.8 million will expire in 2036, $27.1 million will expire in 2037, and $107.7 million will carry forward indefinitely. We have state NOL carryforwards of $90.0 million generated in tax years 2007 through 2021. The state NOL carryforwards of $68.0 million will expire from 2022 to 2041 and $22.0 million will carry forward indefinitely. Additionally, we have foreign NOL carry forwards of $5.2 million generated from tax years 2006 through 2016, of which $5.2 million will carry forward indefinitely.
In addition to the NOL carryforwards discussed above, as a result of past acquisitions and the Merger, we have an additional $15.0 million of federal NOL carryforwards. Management has not concluded on the realizability of these NOLs or whether they may be limited by Internal Revenue Code Section 382. Accordingly, to reflect that a more likely than not determination has not been made, a deferred tax asset has not been recorded as of December 31, 2021.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, we considered all available positive and negative evidence, including our past operating results, forecasted earnings, frequency and severity of current and cumulative losses, duration of statutory carryforward periods, future taxable income and prudent and feasible tax planning strategies. On the basis of this evaluation, we continue to maintain a valuation allowance against a portion of the Company’s deferred tax assets. As of December 31, 2021, we have recorded a valuation allowance of $33.1 million for the portion of the deferred tax asset that did not meet the more-likely-than-not realization criteria. We decreased the valuation allowance on our net deferred taxes by $8.8 million during 2021. The reduction in the valuation allowance during 2021 was primarily due to the realization of certain deferred tax assets against the taxable gain resulting from the sale of Brainspace - see Note 5.
We are subject to taxation in the United States and various foreign jurisdictions. As of December 31, 2021, we were no longer subject to examination by the Internal Revenue Service for tax years prior to 2018 and generally not subject to examination by state tax authorities for tax years prior to 2016. With few exceptions, we are no longer subject to foreign examinations by tax authorities for tax years prior to 2018. All material withholding tax returns and income tax returns have been timely filed.
We do not have any unrecorded unrecognized tax positions (“UTPs”) as of December 31, 2021. While we currently do not have any UTPs, it is foreseeable that the calculation of our tax liabilities may involve dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. Upon identification of a UTP, we would (1) record the UTP as a liability in accordance with ASC 740 and (2) adjust these liabilities if/when management’s judgment changes as a result of the evaluation of new information not previously available. Ultimate resolution of UTPs may produce a result that is materially different from an entity’s estimate of the potential liability. In accordance with ASC 740, we would reflect these differences as increases or decreases to income tax expense in the period in which new information is available. If any, we recognize and include interest and penalties accrued on uncertain tax positions as a component of income tax expense.