Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

14. INCOME TAXES:

We recorded income tax expense of $590,000 in the three months ended June 30, 2021, compared to an income tax benefit of $96,000 in the three months ended June 30, 2020. We recorded income tax expense of $901,000 in the six months ended June 30, 2021, compared to income tax expense of $53,000 in the six months ended June 30, 2020. Our income tax expense in the six months ended June 30, 2021 reflected an effective tax rate of approximately 17%, compared to an effective tax rate of approximately 2% in the six months ended June 30, 2020. The increase in effective income tax rate in both the three and six months ended June 30, 2021, when compared to the three and six months ended June 30, 2020, was mainly due to a significant reduction in excess tax benefits from employee stock option exercises. Excess tax benefits in the three and six months ended June 30, 2021 were negligible, compared to excess tax benefits in the three and six months ended June 30, 2020 of $340,000 and $356,000, respectively. On a recurring basis, our effective income tax rate is favorably impacted by the U.S. federal R&D tax credit, foreign tax credit and the impact from Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI).

We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, R&D tax credit carry forwards and state net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes, when net operating loss carry forwards could be applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.   

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets was not required at June 30, 2021 or December 31, 2020.

The Inland Revenue Authority of Singapore has initiated a routine compliance review of our 2018 income tax return. We presently anticipate that the outcome of this audit will not have a significant impact on our financial position or results of operations.