Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income (loss) before income tax (benefit) expense consists of the following:

	Years ended December 31,
	2023		2022		2021
Domestic	$	(67,914)	$	(37,875)	$	(13,202)
Foreign	13,852		16,224		4,641
(Loss) Income before income taxes	$	(54,062)	$	(21,651)	$	(8,561)

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

	Years ended December 31,
	2023		2022		2021
Current:
Federal	$	(515)	$	(1,329)	$	211
State	179		162		114
Foreign	2,269		3,860		6,372
Current income tax expense	1,933		2,693		6,697
Deferred:
Federal	—		2		15,464
State	10		(32)		6,418
Foreign	572		2,442		2,824
Deferred income tax expense	582		2,412		24,706
Income tax expense (benefit)	$	2,515	$	5,105	$	31,403

Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to our actual income tax expense (benefit) are summarized below:

	Years ended December 31,
	2023		2022		2021
Tax expense at statutory rate	$	(11,353)	$	(4,548)	$	(1,798)
State income taxes, net of federal benefit	(3,030)		(864)		106
Foreign tax rate difference	390		314		303
Change in valuation allowance	9,150		2,534		26,475
Impact of intra-entity IP transfers	—		—		231
Prepaid tax on intercompany profit	2,874		2,966		3,390
Impact of permanent differences of non-deductible cost	555		2,221		1,658
Withholding/other foreign taxes	798		165		838
Research and development credit	(608)		(273)		(737)
Global intangible low-taxed income (“GILTI”)	3,011		3,238		763
Foreign currency gain/loss	415		(468)		594
Provision to return adjustments & deferred adjustments	(1,691)		(395)		313
Change in enacted tax rates	(196)		(883)		(306)
Equity based compensation	2,089		1,144		(245)
Uncertain tax positions	109		(46)		(185)
Other	2		—		3
Income tax expense (benefit)	$	2,515	$	5,105	$	31,403

The components of our net deferred income tax assets and liabilities are as follows:

	As of December 31,
	2023		2022
Net deferred income tax asset - Non-current
Warranty cost	$	381	$	301
Inventory reserve	1,676		2,255
Unearned service revenue	8,294		8,930
Employee stock options	5,102		3,772
Tax credits	6,133		4,296
Loss carryforwards	20,965		19,197
Depreciation	773		729
Intangibles & goodwill	13,996		12,461
Lease liability	3,419		3,690
Total deferred tax assets	60,739		55,631
Valuation allowance	(46,515)		(37,295)
Total deferred tax assets net of valuation allowance	14,224		18,336
Net deferred income tax liability - Non-current
Other, net	(150)		(2,420)
Operating lease right-of-use asset	(2,433)		(3,441)
Total deferred tax liabilities	(2,583)		(5,861)
Net deferred tax assets	$	11,641	$	12,475

Our domestic entities had a net deferred tax liability in the amount of $0.5 million and $0.5 million as of December 31, 2023 and December 31, 2022, respectively. Our foreign entities had net deferred tax assets in the amount of $12.1 million and $12.9 million as of December 31, 2023 and December 31, 2022, respectively. At December 31, 2023 we had U.S. federal and state net operating loss carryforwards of $31.0 million and $140.0 million, respectively. $30.7 million of our federal net operating losses carryforward indefinitely while a portion of our federal and state net operating loss carryforwards will begin to expire in 2029. We had interest expense limitation carryforwards of $2.0 million that will carryforward indefinitely. We also had federal and state R&D credits of $4.6 million and $0.4 million, respectively. The federal credits will begin to expire in 2037 and our state credits carryforward indefinitely. We had foreign tax credits of $1.1 million that will begin to expire in 2032. Foreign net operating losses are $46.8 million, the majority of which can be carried forward indefinitely.

At December 31, 2023, our foreign subsidiaries had net deferred tax assets primarily relating to Intangibles of $8.5 million and net operating losses of $8.0 million, the majority of which can be carried forward indefinitely. At December 31, 2022, our foreign subsidiaries had net deferred tax assets primarily relating to Intangibles of $10.3 million and net operating losses of $9.0 million, the majority of which can be carried forward indefinitely.

The realization of deferred tax assets is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Management's evaluation begins with a jurisdictional review of cumulative gains or losses incurred over recent years. A significant piece of objective negative evidence exists when a jurisdiction has incurred cumulative losses over recent years. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the positive and negative evidence for recoverability, we establish a valuation allowance against the net deferred tax assets of a taxing jurisdiction in which we operate unless it is “more likely than not” that we will recover such assets through the above means. We have valuation allowances of $46.5 million and $37.3 million for the years December 31, 2023 and 2022, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2023, 2022 and 2021 was a $9.2 million increase, $2.1 million increase and $26.5 million increase, respectively. The increase in the valuation allowance for the year ended December 31, 2023 primarily relates to the recording of valuation allowances against our net U.S. and Singapore deferred tax assets.

On December 22, 2017, the United States enacted the U.S. Tax Cuts and Jobs Act, resulting in significant modifications to existing law, which included a transition tax on the mandatory deemed repatriation of foreign earnings. As a result of the U.S. Tax Cuts and Jobs Act, the Company can repatriate foreign earnings and profits to the U.S. with minimal U.S. income tax consequences, other than the transition tax and GILTI tax. The Company reinvested a large portion of its undistributed foreign earnings and profits in acquisitions and other investments and intends to bring back a portion of foreign cash in certain jurisdictions where the Company will not be subject to local withholding taxes and which were subject already to transition tax and GILTI tax.

Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.

During 2022, the United States enacted the Inflation Reduction Act of 2022 and the CHIPS and Science Act of 2022. We have performed an analysis of the applicable tax law changes and have determined any change was immaterial.

As of December 31, 2023, 2022 and 2021, our unrecognized tax benefits totaled $2.5 million, $2.4 million and $1.7 million, respectively, which are included in Income taxes payable and offsetting an associated deferred tax asset.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Years ended December 31,
	2023		2022		2021
Balance at January 1	$	2,428	$	1,664	$	1,873
Additions based on tax positions related to the current year	723		1,924		53
Reductions for tax provisions of prior years	(177)		—		—
Lapse of statute of limitations	(451)		(1,160)		(262)
Balance at December 31	$	2,523	$	2,428	$	1,664

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of December 31, 2023.

Jurisdiction	Open Years	Examination in Process
United States - Federal Income Tax	2020-2023	N/A
United States - various states	2019-2023	N/A
Germany	2013-2023	N/A
Switzerland	2021-2023	N/A
Singapore	2019-2023	N/A
India	2018-2023	2018-2022

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $2.5 million. We do not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to our financial position. We are subject to income taxes at the federal, state and foreign country level. Our tax returns are subject to examination at the U.S. state level and are subject to a three to four year statute of limitations, depending on the state.