Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 16 – INCOME TAXES

The components of total income (loss) before taxes from continuing operations are as follows (in thousands):

	Years Ended December 31,
	2022			2021		2020
U.S.	$	110,796		$	71,485	$	222,930
Foreign		(1,024	)		1,326		1,564
Income before taxes from continuing operations	$	109,772		$	72,811	$	224,494

The provision for (benefit from) income taxes consisted of the following (in thousands):

	Years Ended December 31,
	2022			2021			2020
Current:
U.S. federal	$	(5,156	)	$	(5,578	)	$	(20,157	)
Foreign		9,937			14,045			24,107
State and local		8,636			4,201			8,083
Total current		13,417			12,668			12,033
Deferred:
U.S. federal		(36,363	)		(576	)		(25,322	)
Foreign		4,730			(4,935	)		—
State and local		(10,404	)		(2,329	)		(2,023	)
Total deferred		(42,037	)		(7,840	)		(27,345	)
Provision for (benefit from) income taxes	$	(28,620	)	$	4,828		$	(15,312	)

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

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2022			2021
Deferred tax assets
Net operating losses	$	63,702		$	74,463
Research tax credits		78,340			80,468
Foreign tax credits		29,077			69,637
Expenses not currently deductible		18,823			14,434
Fixed and intangible assets		—			207
Deferred revenue		8,428			6,385
Capitalized research expenses		38,806			34,963
Lease liability		1,598			1,715
Gross deferred tax assets		238,774			282,272
Valuation allowance		(120,508	)		(178,731	)
Net deferred tax assets		118,266			103,541
Deferred tax liabilities
Revenue recognition		(4,288	)		(1,445	)
Operating leases		(1,388	)		(1,508	)
Acquired intangible assets		(74,075	)		(101,679	)
Other		(3,237	)		(4,076	)
Net deferred tax liabilities	$	35,278		$	(5,167	)

At December 31, 2022 and 2021, the Company had a valuation allowance of $120.5 million and $178.7 million, respectively, related to federal, state, and foreign deferred tax assets that the Company believes will not be realizable on a more-likely-than-not basis. The $58.2 million decrease from the prior year is primarily comprised of federal and state valuation allowance releases.

The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In making such an assessment, significant weight is given to evidence that can be objectively verified. After considering both positive and negative evidence to assess the recoverability of the Company’s net deferred tax assets, the Company determined that the positive evidence outweighed the negative evidence primarily due to cumulative income from its IP Licensing business on a continuing operations basis and the expectation of sustained profitability in future periods and concluded that it was more-likely-than-not that it would realize its federal and certain state deferred tax assets. As a result, during the fourth quarter of 2022, the Company released the valuation allowance on all the federal deferred tax assets and state deferred tax assets, except for California and certain other states where tax attributes can only be utilized against the income of specific legal entities. The release of the valuation allowance resulted in $86.1 million of tax benefit. The Company will maintain a full valuation allowance on its foreign deferred tax asset as the expectation of future taxable income is uncertain.

As of December 31, 2022, the Company had federal net operating loss carryforwards of approximately $2.9 million and state net operating loss carryforwards of approximately $842.0 million. The state net operating loss carryforwards, if not utilized, will begin to expire on various dates beginning in 2023 and will continue to expire through 2041. The Company has research tax credit carryforwards of approximately $78.4 million for federal purposes. The federal research tax credit will start to expire in 2023 and will continue to expire through 2041. The Company also has research tax credit carryforwards of approximately $76.1 million for state purposes, which do not expire. The Company has $94.2 million of foreign tax credit carryforwards which will begin to expire in 2023 and will continue to expire through 2031. Under the provisions of the Internal Revenue Code, substantial ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually in the future to offset taxable income.

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate is as follows:

	Years Ended December 31,
	2022			2021			2020
U.S. federal statutory rate	$	23,052		$	15,291		$	47,144
State, net of federal benefit		(2,712	)		(617	)		2,094
Stock-based compensation expense		235			(129	)		1,222
Executive compensation limitation		1,236			2,430			235
Research tax credit		(2,705	)		353			694
Foreign withholding tax		5,969			1,575			1,250
Transaction costs		1,308			145			1,996
Foreign tax rate differential		4,960			(3,249	)		(288	)
Foreign tax credit		10,525			10,714			(2,603	)
Change in valuation allowance		(78,699	)		(33,526	)		(63,346	)
U.S. tax reform		541			192			89
Unrecognized tax benefits		(3,318	)		4,548			6,424
Change in estimates		(3,478	)		(85	)		(1,217	)
Foreign exchange and interest		4,516			6,956			(7,438	)
Divestitures		15,396			—			—
Foreign derived intangible income		(4,697	)		—			—
Others		(749	)		230			(1,568	)
Total	$	(28,620	)	$	4,828		$	(15,312	)

At December 31, 2022, the Company asserts that it will not permanently reinvest its foreign earnings outside the U.S. The Company anticipates that the cash from its foreign earnings may be used domestically to fund operations, settle a portion of the outstanding debt obligation, or used for other business needs. The accumulated undistributed earnings generated by its foreign subsidiaries was insignificant. Substantially all of these earnings will not be taxable upon repatriation to the United States since under the Tax Cuts and Jobs Act they will be treated as previously taxed income from the one-time transition tax, Global Intangible Low-Taxed Income or dividends-received deduction.

During the fourth quarter of 2019, the Company filed a refund claim for foreign taxes previously withheld from licensees in South Korea based on court rulings in South Korea and other business factors. These previously withheld foreign taxes were claimed as a foreign tax credit in the U.S. As a result of the filed and planned refund claims, the Company recorded a total of $113.7 million and $118.1 million as a noncurrent income tax receivable at December 31, 2022 and 2021, respectively, $63.6 million and $63.1 million as a noncurrent income tax payable at December 31, 2022 and 2021, respectively, and $42.2 million and $39.9 million as a reduction in deferred tax assets at December 31, 2022 and 2021, respectively. Although the refund claim is subject to judicial review, the Company anticipates it will receive refunds in the amount recorded in the receivable.

As of December 31, 2022, unrecognized tax benefits were $229.5 million, of which $194.3 million would affect the effective tax rate if recognized. As of December 31, 2021, unrecognized tax benefits were $230.1 million, of which $97.3 million would affect the effective tax rate if recognized. The Company believes that its unrecognized tax benefits as of December 31, 2022 will decrease by approximately $8.5 million within the next twelve months due to expiring statutes of limitation.

The reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands):

	Years Ended December 31,
	2022			2021			2020
Total unrecognized tax benefits at January 1	$	230,076		$	225,279		$	100,037
Increases due to the Mergers		—			—			102,582
Increases for tax positions related to the current year		3,872			6,876			21,199
Increases for tax positions related to prior years		229			5,195			3,245
Decreases for tax positions related to prior years		(4,685	)		(7,274	)		(1,784	)
Total unrecognized tax benefits at December 31	$	229,492		$	230,076		$	225,279

It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. For the year ended December 31, 2022, the Company did not recognize any significant interest or penalties. For the years ended December 31, 2021, the Company recognized $0.2 million of interest and penalties, and for the year ended 2020, an insignificant amount of interest and penalties related to unrecognized tax benefits. Accrued interest and penalties were $2.8 million and $2.8 million as of December 31, 2022 and 2021, respectively.

At December 31, 2022, the Company’s 2018 through 2022 tax years are generally open and subject to potential examination in one or more jurisdictions. In the U.S., any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination. Earlier tax years for the Company and its subsidiaries are also open in certain jurisdictions and are currently subject to examination. The Company has no significant income tax audits at this time.