PROVISION (BENEFIT) FOR INCOME TAXES

12 Months Ended

Dec. 31, 2023

PROVISION (BENEFIT) FOR INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

11. PROVISION (BENEFIT) FOR INCOME TAXES:

Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

U.S. and foreign components of income before income taxes were:

	Year Ended December 31,
(In thousands)	2023		2022		2021
U.S. operations	$	2,995	$	17,250	$	241
Foreign operations		42,912		166,176		175,894
Total income before income taxes	$	45,907	$	183,426	$	176,135

The components of the provision (benefit) for income taxes are as follows:

	Year Ended December 31,
(In thousands)	2023		2022		2021
Current provision (benefit):
Federal	$	(1,193)	$	19,740	$	23,648
State		3		2		2
Foreign		1,331		1,079		1,608
		141		20,821		25,258
Deferred provision (benefit):
Federal		(9,178)		(7,962)		(11,449)
State		—		—		—
Foreign		(791)		(284)		(2,087)
		(9,969)		(8,246)		(13,536)
Total	$	(9,828)	$	12,575	$	11,722

The provision (benefit) for income taxes differs from the amount that would result by applying the applicable federal income tax rate to income before income taxes, as follows:

	Year Ended December 31,
	2023		2022		2021
Provision (benefit) computed at Federal statutory rate	21.0	%	21.0	%	21.0	%
Business tax credits	(12.2)		(3.7)		(3.6)
Stock-based compensation	(0.1)		(1.6)		(0.6)
Foreign income taxed at different rate	(17.6)		(18.5)		(23.8)
GILTI inclusion	4.1		8.5		13.1
Uncertain tax positions	(18.6)		(0.1)		(0.6)
Valuation allowance	4.3		1.3		1.3
Other	(2.3)		—		(0.1)
Total	(21.4)	%	6.9	%	6.7	%

The Company’s effective tax rate is impacted by the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments. In 2023, the rate was further favorably impacted by release of  $7.6 million of reserves related to federal uncertain tax positions as the statute of limitations for review of these positions expired. These benefits were partially offset by foreign income subject to U.S. tax, known as global intangible low-taxed income. The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.

The components of the net deferred income tax assets (liabilities) were as follows:

	December 31,
(In thousands)	2023		2022
Deferred tax assets:
Capitalized R&D costs	$	30,886	$	20,666
Other reserves and accruals		861		2,516
Tax credit carry-forwards		28,223		26,154
Stock compensation		1,543		1,559
Capital losses		141		150
Net operating loss		2,269		2,217
Other		465		439
Valuation allowance		(31,031)		(29,036)
		33,357		24,665
Deferred tax liabilities:
Depreciation		(5,040)		(5,596)
		(5,040)		(5,596)
Net deferred tax assets	$	28,317	$	19,069

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income. In the event that the Company determines, based on available evidence and management judgment, that all or part of the net deferred tax assets will not be realized in the future, the Company would record a valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position.

As of December 31, 2023, the Company continues to maintain a valuation allowance primarily as a result of its California, New Jersey and Canada deferred tax assets as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized.

As of December 31, 2023, the Company had utilized all of its federal research and development tax credit carryforwards. As of December 31, 2023, the Company had California research and development tax credit carryforwards of approximately $40.7 million (there is no expiration of research and development tax credit carryforwards for the state of California) and California net operating losses of $44.2 million which will begin to expire in 2032. As of December 31, 2023, the Company had Canadian scientific research and experimental development tax credit carryforwards of approximately $3.8 million and New Jersey research and experimental development tax credit carryforwards of approximately $0.8 million, which will start to expire in 2030 and 2029, respectively.

The Tax Act signed into law on December 22, 2017, generally allows companies to repatriate accumulated foreign earnings without incurring additional U.S. federal taxes beginning after December 31, 2017. Local foreign and U.S. states taxes may still be incurred upon repatriation. The Company has not provided for U.S. taxes on its undistributed earnings of foreign subsidiaries. The determination of the future tax consequences of the remittance of these earnings is not practicable.

Unrecognized Tax Benefits

The Company applies the provisions of ASC 740-10, relating to accounting for uncertain income taxes. Reconciliation of the beginning and ending amount of unrecognized tax benefits:

	Unrecognized
(In thousands)	Tax Benefits
Unrecognized tax benefits balance at January 1, 2021	$	21,051
Gross increase for tax positions of current year		2,068
Gross decrease for tax positions of prior years		—
Statute of limitation release for tax positions of prior years		(1,756)
Unrecognized tax benefits balance at December 31, 2021		21,363
Gross increase for tax positions of current year		2,188
Gross decrease for tax positions of prior years		—
Statute of limitation release for tax positions of prior years		(165)
Unrecognized tax benefits balance at December 31, 2022		23,386
Gross increase for tax positions of current year		605
Gross decrease for tax positions of prior years		—
Statute of limitation release for tax positions of prior years		(7,602)
Unrecognized tax benefits balance at December 31, 2023	$	16,389

The Company’s total unrecognized tax benefits as of December 31, 2023, 2022 and 2021, were $16.4 million, $23.4 million and $21.4 million, respectively. An income tax benefit of $4.5 million, net of valuation allowance adjustments, would be recorded if fiscal year 2023 unrecognized tax benefits are recognized. The Company cannot reasonably estimate the amount of the unrecognized tax benefit that could be adjusted in the next twelve months.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had accrued interest and penalties of $0.3 million and $1.2 million as of December 31, 2023 and 2022, respectively, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.

As of December 31, 2023, the Company has concluded all U.S. federal income tax matters for the years through 2019. However, due to tax attributes, the IRS may calculate tax adjustments for the 2017 transition tax calculation for positions taken prior to 2017 since it has an extended statute of limitations period totaling six years. The California Franchise Tax Board has started an audit for the Company’s tax years 2018 and 2019, it is currently ongoing.