Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10. Income Taxes

Pretax loss resulting from domestic and foreign operations is as follows:

	Year Ended December 31,
	2023			2022			2021
	(in thousands)
Domestic	$	(31,398	)	$	(17,081	)	$	(23,583	)
Foreign		12,784			(16,569	)		(9,205	)
Pretax loss from continuing operations	$	(18,614	)	$	(33,650	)	$	(32,788	)

The components of the provision (benefit) for income taxes consists of the following:

	Year Ended December 31,
	2023			2022			2021
	(in thousands)
Current income tax expense:
Federal	$	3,188		$	1,937		$	467
State and local		(1,121	)		668			(881	)
Foreign		1,691			(1,478	)		1,117
Total current income tax expense		3,758			1,127			703
Deferred income tax expense (benefit):
Federal		—			2,370			89
State and local		—			(820	)		(12	)
Foreign		(871	)		2,361			(323	)
Total deferred income tax expense (benefit)		(871	)		3,911			(246	)
Total income tax expense	$	2,887		$	5,038		$	457

AvePoint, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The reconciliation of the amounts at the U.S. federal statutory income tax rate to the company’s effective income tax rate is as follows:

	Year Ended December 31,
	2023			2022			2021
	(in thousands)
U.S. federal statutory tax rate	$	(3,909	)	$	(7,067	)	$	(6,886	)
State and local income taxes, net		(2,077	)		(292	)		(962	)
Stock-based compensation		3,117			(51	)		10,865
Executive compensation limitation		449			3,566			—
Fair value of earnout liability		2,165			(828	)		(3,946	)
GILTI inclusion, net		1,940			—			—
Foreign-derived intangible income deduction		(1,534	)		—			—
Transaction costs		—			125			(2,209	)
Change in valuation allowance		1,794			12,844			3,085
Deferred rate change		2,076			—			—
Foreign rate differential		(1,107	)		(2,066	)		440
Return-to-provision adjustments		274			(1,029	)		(196	)
Permanent differences		(343	)		29			334
Other, net		42			(193	)		(68	)
Total	$	2,887		$	5,038		$	457

The Company’s effective tax rate differed from the U.S. federal statutory rate primarily due to mix of pre-tax income (loss) results by jurisdictions taxed at different rates than 21%, a permanent item recorded for the executive compensation limitation, and changes in valuation allowance in certain foreign jurisdictions.

Deferred income taxes are provided for the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Significant components of the Company’s deferred tax assets and (liabilities) are as follows:

	December 31,			December 31,
	2023			2022
	(in thousands)
Deferred Tax Assets:
Net operating loss carryforwards	$	9,634		$	13,775
Deferred revenue		8,653			4,301
Compensation and benefits		6,996			6,567
Research and development expenses		11,086			6,169
Lease liability		2,518			3,622
Foreign tax credits		—			270
Fair value of earnout liability		305			93
Other		26			457
Total Deferred Tax Assets		39,218			35,254
Less: Valuation allowance		(22,469	)		(20,808	)
Deferred Tax Assets, net		16,749			14,446
Deferred Tax Liabilities:
Property and equipment		(178	)		(197	)
Amortization		(2,395	)		(2,595	)
Commissions		(11,543	)		(8,384	)
Prepaid subscription		(1,569	)		(836	)
Unbilled receivable		(435	)		(1,489	)
Right-of-use assets		(2,290	)		(3,402	)
Total Deferred Tax Liability		(18,410	)		(16,903	)
Net Deferred Tax Liabilities	$	(1,661	)	$	(2,457	)

AvePoint, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Deferred tax assets are included within the consolidated balance sheets as follows:

	December 31,			December 31,
	2023			2022
	(in thousands)
Deferred Tax Assets, net	$	1,738		$	488
Deferred Tax Liabilities		(3,399	)		(2,945	)
Net Deferred Tax Liabilities	$	(1,661	)	$	(2,457	)

As of December 31, 2023, the Company had net operating loss (“NOL”) carryforwards for state and local income tax of $14.5 million, which may offset future taxable income. The state NOL carryforwards begin to expire in 2026. The Company also has foreign NOL carryforwards of approximately $41.2 million, which will expire beginning 2024 and NOL carryforward periods vary from 6 years to indefinite period. 

Under the provisions of the Internal Revenue Code, the U.S. NOL carryforwards are subjected to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of a 50% cumulative change in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. The Company may have experienced an ownership change prior to December 31, 2023, however, the Company does not believe its NOL carryforwards would be limited under IRC Section 382. The Company could experience an ownership change in the future which could limit the utilization of certain NOL carryforwards.

ASC 740-10-30-5 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considered all available positive and negative evidence, including the level of historical taxable income, future reversals of existing temporary differences, tax planning strategies, and projected future taxable income. On the basis of this evaluation, a valuation allowance of $22.5 million and $20.8 million was recorded as of December 31, 2023 and 2022, respectively, against certain jurisdictions’ net deferred tax assets for which it is more likely than not that the tax benefit will not be realized.

As of December 31, 2023, the Company did not provide any foreign withholding taxes related to its foreign subsidiaries’ undistributed earnings, as such earnings have been retained and are intended to be indefinitely reinvested to fund ongoing operations of the foreign subsidiaries. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings, because such tax, if any, is dependent upon circumstances existing if and when remittance occurs.

AvePoint, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties is as follows:

	December 31,			December 31,			December 31,
	2023			2022			2021
	(in thousands)
Beginning balance	$	141		$	1,088		$	5,369
Additions based on tax positions related to the current year		—			—			—
Reduction for tax positions of prior years		—			(12	)		(4,281	)
Reduction for settlements		—			(935	)		—
Expiration of applicable statute of limitations		(7	)		—			—
Ending balance	$	134		$	141		$	1,088

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. As of  December 31, 2023 and 2022, the Company had $0.2 million and $0.2 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits. These amounts were included in other non-current liabilities in their respective years. As of December 31, 2023, and December 31, 2022, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was not material.

The Company files income tax returns in the U.S. federal jurisdiction, various state and foreign jurisdictions. The tax years 2019 through 2022 generally remain open for examination for federal, state and local tax purposes. The tax years 2013 through 2022 are open and subject to audit by foreign jurisdictions.