Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 - INCOME TAXES

The domestic and foreign components of income before provision for income taxes are as follows for the years ended December 31:

	2023		2022		2021
Domestic	$	83,742	$	80,372	$	97,884
Foreign		12,805		3,608		2,206
Income before income taxes	$	96,547	$	83,980	$	100,090

Income tax expense consisted of the following for the years ended December 31:

	2023			2022			2021
Current:
Federal	$	28,108		$	8,413		$	15,961
State		10,380			2,686			3,494
Foreign		2,247			1,661			687
Total current		40,735			12,760			20,142
Deferred:
Federal		(20,279	)		4,264			4,724
State		(6,915	)		3,607			4,395
Foreign		394			(894	)		(303	)
Total deferred		(26,800	)		6,977			8,816
Income tax expense	$	13,935		$	19,737		$	28,958

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes.

Deferred tax assets (liabilities) consisted of the following at December 31:

	2023			2022
Deferred Tax Assets
Allowance for expected credit losses	$	1,213		$	1,404
Accrued paid time off		3,039			2,801
Foreign net operating loss carryforward		—			229
State net operating loss carryforward		500			502
Stock-based compensation		5,523			1,586
Deferred compensation		5,765			4,692
Foreign tax credits		8,035			7,236
Federal and state tax credits		686			384
Foreign exchange		3,591			4,532
Foreign deferred		441			875
Accrued bonus		5,830			5,696
Capital loss		1,054			—
Facilities impairment		3,092			2,650
Capitalized research expenses		47,019			990
Accrued liabilities and other		2,682			5,523
Lease liabilities		58,538			56,695
		147,008			95,795
Less: Valuation Allowance		(9,021	)		(7,607	)
Total Deferred Tax Assets		137,987			88,188
Deferred Tax Liabilities
Retention		—			(407	)
Prepaid expenses		—			(366	)
Payroll taxes		(725	)		(697	)
Unbilled revenue		(284	)		(409	)
Depreciation		(2,128	)		(270	)
Amortization		(107,201	)		(99,045	)
Deferred gain and other		(2,202	)		(2,561	)
Lease assets - Right-of-Use		(51,622	)		(52,471	)
Total Deferred Tax Liabilities		(164,162	)		(156,226	)
Total Net Deferred Tax Liability	$	(26,175	)	$	(68,038	)

The Company measures certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 27.0%.

On December 20, 2017, the U.S. Congress passed the Tax Cuts and Job Act of 2017 (the “TCJA”) which was signed into law on December 22, 2017, and was generally effective beginning January 1, 2018. The TCJA changed the provision for deduction of allowable research and development costs under the Internal Revenue Code (the “IRC”). Effective for tax years beginning after January 1, 2022, research and development costs are required to be capitalized and amortized over a period of five years for domestic and fifteen years for foreign research and development for income tax purposes. As a result of the capitalization, the Company recognized an increase of $28.1 million in deferred tax asset for the year ended December 31, 2023.

As of December 31, 2023, the cumulative foreign tax credit carryforward balance increased by approximately $0.8 million and the valuation allowance required increased by approximately $0.8 million. No additional income taxes have been provided for on any remaining undistributed foreign earnings not subject to the transition tax. No additional deferred income taxes have been provided for the $4.9 million of additional unfavorable outside basis differences inherent in these foreign entities as of December 31, 2023 because these amounts continue to be permanently reinvested in foreign operations.

As of December 31, 2023, the Company has net operating loss (“NOL”) carryforwards for state income tax purposes of approximately $6.5 million, which expire in 2034. The Company acquired these NOLs as a result of its purchase of a business in November 2014. IRC Section 382 imposes an annual limitation on the use of a corporation’s NOLs, tax credits and other carryovers after an “ownership change” occurs. Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs and credits. In general, the annual limitation is determined by multiplying the value of the corporation’s stock immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Any unused portion of the annual limitation is available for use in future years until such NOLs are scheduled to expire (in general, NOLs may be carried forward 15 to 20 years). The Company established a valuation allowance of approximately $0.5 million against the portion of the deferred tax asset which it is more-likely-than-not that it will not be recoverable (e.g. expiration of the statute of limitations, etc.)

As of December 31, 2023, the Company had gross federal and state income tax credit carryforwards of approximately $0.7 million, which expire between 2024 and 2034. A deferred tax asset of approximately $0.7 million, net of federal benefit, has been established related to these state income tax credit carryforwards as of December 31, 2023.

The need to establish valuation allowances for deferred assets is based on a more-likely-than-not threshold that the benefit of such assets will be realized in future periods. Appropriate consideration has been given to all available evidence, including historical operating results, projections of taxable income, and tax planning alternatives. The Company concluded that a valuation allowance of $0.5 million was required for tax attributes related to specified state jurisdictions and an additional $8.0 million valuation allowance is required against our U.S. foreign tax credit carryforwards.

The total amount of unrecognized tax benefits as of December 31, 2023 and 2022 was $24.1 million and $0.1 million, respectively, which includes $9.0 million and $0.1 million, respectively, of tax positions that, if recognized, would impact the effective rate. The unrecognized tax benefits and the related accrued interest are part of other long-term liabilities on the Company’s consolidated balance sheets.

The components of unrecognized tax benefits, excluding penalty and interest, are as follows at December 31:

	2023		2022
U.S. transfer pricing	$	145	$	145
India transfer pricing		164		—
Section 41 tax credit		8,736		—
Section 174 expense capitalization		15,086
Total	$	24,131	$	145

The unrecognized tax benefit reconciliation, excluding penalty and interest, is as follows:

Unrecognized tax benefits at January 1, 2021	$	811
Decrease attributable to tax positions taken during the current period		(361	)
Unrecognized tax benefits at December 31, 2021		450
Decrease attributable to tax positions taken during the current period		(305	)
Unrecognized tax benefits at December 31, 2022		145
Increase attributable to tax positions taken during a prior period		19,845
Increase attributable to tax positions taken during the current period		4,141
Unrecognized tax benefits at December 31, 2023		24,131

The Company’s 2020 through 2022 tax years remain subject to examination by the Internal Revenue Service for federal tax purposes. Certain significant state and foreign tax jurisdictions are also either currently under examination or remain open under the statutes of limitation and subject to examination for the tax years from 2019 to 2022.

Although the Company believes it has adequately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater than the Company’s accrued position. Accordingly, additional provisions on federal, state, and foreign income tax related matters could be recorded in the future as revised estimates are made or the underlying matters are effectively settled or otherwise resolved. Conversely, the Company could settle positions with the tax authorities for amounts lower than have been accrued. The Company believes it is reasonably possible that, during the next 12 months, the Company’s liability for uncertain tax positions may not change.

The Company’s provision for income taxes differs from the federal statutory rate. The differences between the statutory rate and the Company’s provision are as follows for the years ended December 31:

	2023			2022			2021
Taxes at statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		6.0	%		5.8	%		5.6	%
Foreign tax rate differential		(0.2	)%		0.1	%		0.1	%
Executive compensation		1.7	%		2.2	%		2.1	%
Other permanent differences		(0.3	)%		2.0	%		(0.4	)%
Global intangible low-taxed income (GILTI)		0.3	%		—			—
Prior year tax adjustments		(6.4	)%		(1.1	)%		1.5	%
Deferred impact of state rate change		0.5	%		0.6	%		—
Worthless stock deduction		(5.1	)%		(4.6	)%		—
Unrecognized tax benefits		9.0	%		(0.4	)%		(0.5	)%
Capital loss		(3.8	)%		—			—
Valuation allowance		2.0	%		0.7	%		1.3	%
Equity-based compensation		(1.1	)%		(1.3	)%		(1.0	)%
Tax credits		(9.2	)%		(1.5	)%		(0.8	)%
Taxes at effective rate		14.4	%		23.5	%		28.9	%

During 2023, the Company restructured the ownership of its Canadian entities for tax purposes resulting in a 3.8% decrease in the Company’s effective income tax rate for the year ended December 31, 2023.

During 2023, the Company liquidated one of its U.K. subsidiaries as part of the wind-down of its commercial marketing business resulting in a reduction in the Company’s effective income tax rate of 5.1% for the year ended December 31, 2023.

During 2023, the Company completed its annual true-up of the prior year income tax provision in connection with the filing of its U.S. federal & state income tax returns. As a result of that process, the Company recorded a change in the estimate of certain tax credits it is eligible to claim with its income tax return filings that resulted in a 7.0% decrease in the Company’s effective income tax rate for the year ended December 31, 2023.