Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

6.INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The $2.2 trillion economic stimulus bill contains numerous tax law changes. We evaluated the tax changes to determine what provisions would apply to us. As permitted by the CARES Act, we have deferred payment of the employer’s portion of social security payroll tax payments and made a payment equal to one half of the deferred amount during the year ended December 31, 2021.

For the years ended December 31, 2021, 2020 and 2019, income (loss) before income taxes is broken out between U.S. and foreign-sourced operations and consisted of the following (in thousands):

	2021		2020		2019
Domestic	$	21,328	$	(32,216)	$	(37,277)
Foreign		32,589		18,985		39,470
Total	$	53,917	$	(13,231)	$	2,193

The components of the provision for income taxes for the years ended December 31, 2021, 2020 and 2019, consisted of the following (in thousands):

	2021		2020		2019
Current expense (benefit):
Federal	$	808	$	(937)	$	479
State		806		437		662
Foreign		8,480		8,407		8,037
Total current expense (benefit)		10,094		7,907		9,178
Deferred expense (benefit):
Federal		(468)		(2,688)		(8,111)
State		(1,845)		(4,524)		(3,523)
Foreign		(2,318)		(4,083)		(802)
Total deferred expense (benefit)		(4,631)		(11,295)		(12,436)
Total income tax expense (benefit)	$	5,463	$	(3,388)	$	(3,258)

The difference between the income tax expense (benefit) reported and amounts computed by applying the statutory federal rate of 21.0% to pretax income (loss) for the years ended December 31, 2021, 2020 and 2019, consisted of the following (in thousands):

	2021		2020 (1)		2019 (1)
Computed federal income tax expense (benefit) at applicable statutory rate of 21%	$	11,323	$	(2,778)	$	461
State income tax benefit		(283)		(1,448)		(2,241)
Tax credits		(2,507)		(2,391)		(1,064)
Tax effect of international items		(281)		4,705		1,325
Uncertain tax positions		401		(455)		(574)
Deferred compensation insurance assets		(413)		(290)		(493)
Stock-based compensation		(5,571)		(1,822)		(1,659)
Valuation allowance		—		1,257		—
DOJ settlement		—		1,890		—
Remeasurement of state deferred taxes		(526)		(1,765)		—
Non-deductible expenses		2,455		1,077		1,320
Remeasurement of contingent consideration liabilities		733		(1,185)		(87)
Other — including the effect of graduated rates		132		(183)		(246)
Total income tax expense (benefit)	$	5,463	$	(3,388)	$	(3,258)

(1) Amounts for the years ended December 31, 2020 and 2019 in the table above have been updated for presentation and comparative purposes

Deferred income tax assets and liabilities at December 31, 2021 and 2020, consisted of the following temporary differences and carry-forward items (in thousands):

	2021		2020 (1)
Deferred income tax assets:
Allowance for credit losses on trade receivables	$	1,494	$	1,198
Accrued compensation expense		11,063		9,694
Inventory differences		4,887		3,161
Net operating loss carryforwards		14,833		18,622
Stock-based compensation expense		6,388		7,360
Operating lease assets		13,431		15,182
Federal R&D tax credit		5,003		3,607
UT R&D Credit		4,126		3,484
Other		9,939		11,126
Total deferred income tax assets		71,164		73,434
Deferred income tax liabilities:
Prepaid expenses		(1,047)		(1,078)
Property and equipment		(20,797)		(20,671)
Intangible assets		(42,888)		(47,178)
Foreign withholding tax		(5,575)		(5,358)
Operating lease liabilities		(11,938)		(13,855)
Other		(3,556)		(3,796)
Total deferred income tax liabilities		(85,801)		(91,936)
Valuation allowance		(10,786)		(10,213)
Net deferred income tax liabilities	$	(25,423)	$	(28,715)
Reported as:
Deferred income tax assets	$	6,080	$	4,597
Deferred income tax liabilities		(31,503)		(33,312)
Net deferred income tax liabilities	$	(25,423)	$	(28,715)

(1) Amounts for the year ended December 31, 2020 in the table above have been updated for presentation and comparative purposes

Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. Deferred income tax balances reflect the temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The valuation allowance is primarily related to state credit carryforwards, non-US net operating loss carryforwards, and capital loss carryforwards for which we believe it is more likely than not that the deferred tax assets will not be realized. The valuation allowance increased by $573,000 during the year ended December 31, 2021, increased by $5.6 million during the year ended December 31, 2020, and decreased by $345,000 during the year ended December 31, 2019.

As of December 31, 2021, we had U.S federal net operating loss carryforwards of $45.6 million, which were generated by Cianna Medical, Vascular Access Technologies, Inc., DFINE Inc., Biosphere Medical, Inc., and Brightwater prior to our acquisition of these companies. These net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section 382. If unused $34.5 million of the NOLs will expire between 2025 and 2037. Of the NOLs incurred post-2017, $11.1 million can be carried forward indefinitely. We anticipate that we will utilize all current net operating loss carryforwards prior to their expiration dates over the next 14 years.  We utilized a total of $21.3 million in U.S. federal net operating loss carryforwards during the year ended December 31, 2021.

As of December 31, 2021, we had $22.8 million of non-U.S. net operating loss carryforwards, of which $21.9 million have no expiration date and $879,000 expire at various dates through 2030. Non-U.S. net operating loss carryforwards utilized during the year ended December 31, 2021 were not material.

We do not consider our foreign earnings to be permanently reinvested. Consequently, we have recorded tax expense of $288,000, $228,000 and $638,000 for foreign withholding taxes on unremitted foreign earnings during the years ended December 31, 2021, 2020 and 2019, respectively.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. In our opinion, we have made adequate provisions for income taxes for all years subject to audit. We are no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2018. In foreign jurisdictions, we are no longer subject to income tax examinations for years before 2015.

Although we believe our estimates are reasonable, the final outcomes of these matters may be different from those which we have reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and operating results in the period in which we make such determination.

The total liability for unrecognized tax benefits at December 31, 2021, including interest and penalties, was $2.0 million, of which $2.0 million would favorably impact our effective tax rate if recognized. At December 31, 2021, $1.0 million of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet. The total liability for unrecognized tax benefits at December 31, 2020, including interest and penalties, was $2.0 million, of which $1.6 million would favorably impact our effective tax rate if recognized. At December 31,2020, $627,000 of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet. As of December 31, 2021 and 2020, we had accrued $322,000 and $276,000 respectively, in total interest and penalties related to unrecognized tax benefits. We account for interest and penalties for unrecognized tax benefits as part of our income tax provision. During the years ended December 31, 2021, 2020 and 2019, our liability for unrecognized tax benefit was increased (decreased) for interest and penalties by $46,000, ($90,000), and ($7,000), respectively. It is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may change, net of potential decreases due to the expiration of statutes of limitation, up to $86,000.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits for the years ended December 31, 2021, 2020 and 2019, consisted of the following (in thousands):

	2021		2020		2019
Unrecognized tax benefits, opening balance	$	1,674	$	2,161	$	2,947
Gross increases (decreases) in tax positions taken in a prior year		82		115		(244)
Gross increases in tax positions taken in the current year		316		283		229
Lapse of applicable statute of limitations		(437)		(885)		(771)
Unrecognized tax benefits, ending balance	$	1,635	$	1,674	$	2,161

The tabular roll-forward ending balance does not include interest and penalties related to unrecognized tax benefits.