Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

12. Income taxes

The components of income (loss) before income taxes are as follows (in thousands):

	Year ended December 31,
	2023			2022			2021
U.S.	$	(21,803	)	$	(62,702	)	$	(27,850	)
Non-U.S.		34,422			34,489			27,562
	$	12,619		$	(28,213	)	$	(288	)

The significant components of the income tax expense are as follows (in thousands):

	Year ended December 31,
	2023			2022			2021
Current
U.S. Federal	$	—		$	—		$	—
Non-U.S.		22,746			18,759			9,781
U.S. State and Local		1,118			621			227
Total current		23,864			19,380			10,008
Deferred
U.S. Federal		35			23			26
Non-U.S.		(2,384	)		(4,206	)		(1,550	)
U.S. State and Local		30			19			22
Total deferred		(2,319	)		(4,164	)		(1,502	)
Income tax expense	$	21,545		$	15,216		$	8,506

The reconciliation of income taxes calculated at the U.S. Federal statutory income tax rate to income tax expense is as follows (in thousands):

	Year ended December 31,
	2023			2022			2021
U.S. federal statutory rate		21	%		21	%		21	%
Income taxes at U.S. federal statutory rate	$	2,650		$	(5,925	)	$	(60	)
Foreign income taxes at rates other than the federal statutory rate		1,733			2,249			2,950
U.S. state and local income taxes, net of U.S. federal tax benefit		(1,952	)		(5,976	)		(4,826	)
U.S. effect of foreign operations		(9,931	)		15,827			1,827
Change in valuation allowance		29,849			7,830			20,212
Foreign withholding taxes		7,444			6,738			(4,545	)
U.S. foreign tax credit and deduction		(17,522	)		(12,315	)		(288	)
Research and development tax credit		391			(326	)		(784	)
Stock-based compensation		1,361			8,649			(12,791	)
Other		123			1,250			753
Uncertain tax positions		6,370			472			6,058
FDII deduction		(169	)		(5,245	)		—
Mark-to-market adjustment of contingent consideration		1,198			(1,502	)		—
Repurchase of convertible senior notes		—			3,490			—
Income tax expense	$	21,545		$	15,216		$	8,506

The Tax Cuts and Jobs Act, or the Tax Act, subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The impact of GILTI resulted in no incremental tax expense for the years ended December 31, 2023, 2022 and 2021 due to a full valuation allowance on U.S. net deferred tax assets. In addition, the Company has made an accounting policy election to treat taxes due under the GILTI provision as a current period expense.

Deferred income tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statements purposes. The approximate tax effect of each type of temporary difference, and operating losses and tax credit carryforwards that give rise to a significant portion of the deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Deferred revenue	$	9,730		$	18,571
Net operating loss carryforwards		60,702			64,091
Tax credit carryforwards		48,752			24,319
Stock-based compensation		12,011			8,312
Capitalized research and development		58,946			43,860
Lease obligation		7,517			8,810
Employee benefits		6,955			5,941
Other		3,910			5,931
Total gross deferred tax assets		208,523			179,835
Less: valuation allowances		(179,766	)		(149,441	)
Net deferred tax assets (1)		28,757			30,394
Deferred tax liabilities:
Prepaid royalties		3,602			—
Property and equipment and intangibles		16,610			24,155
Deferred tax on investment in subsidiary		1,950			1,500
Lease right of use asset		7,357			8,578
Other		2,153			3,209
Total deferred tax liabilities		31,672			37,442
Total net deferred tax liabilities	$	(2,915	)	$	(7,048	)

(1)Reflects gross amount before jurisdictional netting of deferred tax assets and liabilities.

Deferred tax assets and liabilities are determined separately for each tax jurisdiction on a separate or on a consolidated tax filing basis, as applicable, in which the Company conducts its operations or otherwise incurs taxable income or losses. A valuation allowance is

recorded when it is more likely than not that some portion or all of the gross deferred tax assets will not be realized. The realization of deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:

•taxable income in prior carryback years;

•future reversals of existing taxable temporary differences;

•future taxable income exclusive of reversing temporary differences and carryforwards; and

•prudent and feasible tax planning strategies that the Company would be willing to undertake to prevent a deferred tax asset from otherwise expiring.

The assessment regarding whether a valuation allowance is required or whether a change in judgment regarding the valuation allowance has occurred also considers all available positive and negative evidence, including but not limited to:

•nature, frequency, and severity of cumulative losses in recent years;

•duration of statutory carryforward and carryback periods;

•statutory limitations against utilization of tax attribute carryforwards against taxable income;

•historical experience with tax attributes expiring unused; and

•near‑ and medium‑term financial outlook.

The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. The Company uses the actual results for the last two years and current year results as the primary measure of cumulative losses in recent years.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents the Company’s best estimate of those future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on the Company’s results of operations and financial condition.

In certain tax jurisdictions, the Company’s analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence, which is objective and verifiable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, the Company considers all other available positive and negative evidence in its analysis. Based on its analysis, the Company has recorded a valuation allowance for the portion of deferred tax assets where based on the weight of available evidence it is unlikely to realize those deferred tax assets.

Based on the evidence available including a lack of sustainable earnings, the Company in its judgment previously recorded a valuation allowance against substantially all of its net deferred tax assets in the United States. If a change in judgment regarding this valuation allowance were to occur in the future, the Company will record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period.

The Company continues to record deferred foreign taxes on gross book-tax basis differences to the extent of foreign distributable reserves and excess cash balances for its subsidiary in India. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings is not practicable.

The following table summarizes the changes to the valuation allowance balance (in thousands):

	Year ended December 31,
	2023			2022		2021
Beginning balance	$	149,441		$	119,981	$	96,831
Additions charged to expense		30,665			7,830		20,212
Deductions		(816	)		—		—
Other		476			21,630		2,938
Ending balance	$	179,766		$	149,441	$	119,981

The change in valuation allowance in Other for 2023 of $0.5 million is primarily related to currency translation. The change in the valuation allowance in Other for 2022 of $21.6 million is primarily related to a $6.8 million increase from the adoption of ASU 2020-06 for convertible debt instruments, and a $13.1 million valuation allowance recorded on deferred tax assets established during purchase accounting from the RapidMiner acquisition. The change in valuation allowance in Other for 2021 of $2.9 million is primarily related to a valuation allowance recorded on deferred tax assets established during purchase accounting from the World Programming acquisition.

The following table summarizes the amount and expiration dates of operating loss and tax credit carryforwards as of December 31, 2023 (in thousands):

	Expiration dates	Amounts
U.S. general business credits and loss carryforwards	2024-Indefinite	$	64,426
Foreign general business credits and loss carryforwards	2024-Indefinite		15,711
U.S. foreign tax credits	2027 - 2032		29,317
Total operating loss and tax credit carryforwards		$	109,454

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

	Year ended December 31,
	2023			2022			2021
Unrecognized tax benefits—January 1	$	28,977		$	16,376		$	8,310
Additions for tax positions of current period		9,435			50			1,042
Additions for tax positions of prior periods		901			13,910			8,983
Reductions for tax positions of prior periods		(500	)		(1,334	)		(1,934	)
Reductions due to statute of limitations		(594	)		(25	)		(25	)
Unrecognized tax benefits—December 31	$	38,219		$	28,977		$	16,376

As of December 31, 2023, the Company had $15.0 million of gross unrecognized tax benefits that if recognized would affect the effective tax rate. The Company expects a reduction over the next 12 months in the gross unrecognized tax benefits of approximately $0.5 million which if recognized would not impact the effective tax rate during 2024.

The Company operates globally but considers its more significant tax jurisdictions to include the United States, India, Germany, Japan, and China. India has tax years open for examination from 2011 through 2023. All other significant jurisdictions have open tax years from 2016 through 2023.

The Company records interest and penalties with respect to unrecognized tax benefits as a component of the provision for income taxes. For the years ended December 31, 2023, 2022, and 2021, accrued interest and penalties related to unrecognized tax benefits were approximately $1.2 million, $1.0 million, and $1.0 million, respectively, all of which if recognized would affect the effective tax rate.