Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

10.Income taxes

The Company’s income tax expense and effective tax rate for the three months ended March 31, 2023 and 2022, were as follows (in thousands, except percentages):

	Three Months Ended March 31,
	2023			2022
Income tax expense	$	9,232		$	6,530
Effective tax rate		127	%		36	%

The tax rate is affected by the Company being a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized due to a valuation allowance. The increase in the effective tax rate for the three months ended March 31, 2023 is primarily due to a change to Internal Revenue Code (“IRC”) Section 174 which became effective for tax years beginning on or after January 1, 2022. Under the new rules, the Company is required to capitalize and amortize research and development expenses over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside of the U.S. for U.S. tax purposes. The capitalization of research and development expenses resulted in an increase to the Company’s taxable income and foreign derived intangible income (“FDII”), resulting in a corresponding increase in the Company’s FDII deduction. However, no tax benefit is recognized for the deferred tax asset established for these capitalized research and development expenses due to the Company’s valuation allowance position in the U.S. The Company’s effective tax rate for the three months ended March 31, 2023 and 2022, also includes net discrete expense of $5.7 million and $1.8 million, respectively, primarily related to changes in tax laws, withholding taxes on royalties, changes in reserves, changes in accruals for unremitted earnings and other adjustments.