Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 13 – Income taxes

The components of income tax expense for the years ended December 31, 2021 and 2020 are presented below (in thousands):

	Year Ended December 31, 2021			Year Ended December 31, 2020
Current
Federal	$	—		$	(712	)
State		37			73
Foreign		605			729
Deferred
Federal		345			334
State		794			806
Foreign		(2,228	)		(294	)
Total income tax (benefit) provision	$	(447	)	$	936

The actual income tax expense amounts for the years ended December 31, 2021 and 2020 differed from the expected tax amounts computed by applying the U.S. federal corporate income tax rate of 21% for 2021 and 2020 to the amounts of loss before income taxes as presented below (in thousands):

	Year Ended December 31, 2021			Year Ended December 31, 2020
Pre-tax book loss	$	(60,990	)	$	(48,990	)
Tax at Federal statutory rate of 21% in 2021 and  2020		(12,808	)		(10,288	)
State taxes		831			879
Stock based compensation		(49	)		3
Foreign rate differential		(944	)		(1,223	)
Unrecognized tax benefit		-			549
Other adjustments		1,477			1,453
Valuation allowance		11,046			9,563
Total income tax (benefit) provision	$	(447	)	$	936

The domestic and foreign components of loss before income taxes from continuing operations for the years ended December 31, 2021 and 2020 are as follows (in thousands):

	Year Ended December 31, 2021			Year Ended December 31, 2020
Domestic	$	(57,135	)	$	(46,686	)
Foreign		(3,855	)		(2,304	)
Total	$	(60,990	)	$	(48,990	)

The tax effects of temporary differences at December 31, 2021 and 2020 are as follows (in thousands):

	Year Ended December 31, 2021			Year Ended December 31, 2020
Net operating losses and other carryforwards	$	43,322		$	42,859
Interest expense carryforward		40,295			30,112
Property and equipment		3,710			2,448
Accrued expenses		506			512
Payroll tax deferral		544			1,089
Allowance for doubtful accounts		2,534			1,768
Stock-based compensation		1,741			878
Other		650			540
Deferred tax asset		93,302			80,206
Valuation allowance		(80,449	)		(65,228	)
Total deferred tax assets, net of valuation allowance		12,853			14,978
Intangible assets		(18,452	)		(21,791	)
Prepaid expenses		(20	)		(107	)
Other		(482	)		(415	)
Deferred tax liability		(18,954	)		(22,313	)
Net deferred tax liability	$	(6,101	)	$	(7,335	)

At December 31, 2021 and 2020, the Company had tax effected U.S. federal net operating loss carryforwards of approximately $32.5 million and $32.1 million, respectively, of which $7.8 million tax effected, begin to expire in 2024 but approximately $16.5 million, tax effected, begin to expire in 2035 and $8.2 million, tax effected, have no expiration. At December 31, 2021 and 2020, the Company had tax effected state net operating loss carryforwards of approximately $7.2 million and $6.7 million, respectively. The majority of the state tax losses will not begin expiring until 2035 or later. At December 31, 2021 and 2020, the Company also had U.S. tax credit carryforwards of approximately $0.9 million and $0.9 million, respectively. The tax credits will expire in 2022.

The tax effected foreign net operating loss at December 31, 2021 and 2020 is approximately $2.7 million and $3.1 million, respectively, the majority of which has an unlimited carryforward period.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2017. The Company is also subject to examination in various foreign jurisdictions. In material foreign jurisdictions, the statute of limitations ranges one – four years from the filing of a tax return.

The Company has not provided for U.S. income and foreign withholding taxes on approximately $19.0 million of certain foreign subsidiaries' undistributed earnings as of December 31, 2021, because such earnings have been retained and are intended to be indefinitely reinvested outside of the U.S. These earnings could become subject to additional tax, if they were remitted as dividends, loaned to the Company, or if the Company should sell its stock in these foreign subsidiaries. However, it is not practicable to estimate the amount of taxes that would be payable for these earnings because such tax, if any, is dependent on circumstances existing if and when a taxable event occurs.

Valuation Allowance

As of December 31, 2021 and 2020, the Company had a valuation allowance of $80.4 million and $65.2 million, respectively, against certain deferred tax assets. The valuation allowance relates to the deferred tax assets of the Company’s U.S. entities, including federal and state tax attributes and timing differences, as well as the deferred tax assets of certain foreign subsidiaries. The increase in the valuation allowance during 2021 is primarily related to operating losses incurred during the year and the limitation on deductibility of interest expense. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized; the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance. It is possible that such reduction of or addition to the Company’s valuation allowance may have a material impact on the Company’s results from operations. The U.S. federal and foreign changes to valuation allowance of approximately $11.0 million is presented in the effective tax rate reconciliation as part of the valuation allowance. The U.S. state changes to valuation allowance of approximately $4.9 million is presented as part of the state taxes in the effective tax rate reconciliation. As of December 31, 2021, there is approximately ($0.3) million of valuation allowance movement that is attributable to translation adjustment and ($0.4) million of valuation allowance included in the effective tax rate reconciliation as part of the adjustments.

A summary of the deferred tax asset valuation allowance is as follows (in thousands):

	Year Ended December 31, 2021			Year Ended December 31, 2020
Beginning Balance	$	65,228		$	51,895
Additions		15,650			14,149
Reductions		(429	)		(816	)
Ending Balance	$	80,449		$	65,228

Uncertain Tax Positions

As of December 31, 2021 and 2020, the total amount of unrecognized tax benefits was $1.0 million that would favorably impact the Company’s effective income tax rate if realized. However, due to the Company’s determination that the deferred tax asset would not more-likely-than-not be realized, a full valuation allowance would be recorded if the unrecognized tax benefits were realized. The Company’s uncertain income tax position liability has been recorded to deferred income taxes to offset the tax attribute carryforward amounts. There was no change to the uncertain tax position liability during the year.