Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

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

	Years ended December 31,
	2020		2019		2018
Domestic	$	(33,991)	$	(40,963)	$	(1,723)
Foreign	3,218		(20,051)		6,281
(Loss) Income before income taxes	$	(30,773)	$	(61,014)	$	4,558

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

	Years ended December 31,
	2020		2019		2018
Current:
Federal	$	(3,557)	$	3,215	$	(1,694)
State	169		400		120
Foreign	(2,032)		3,809		1,394
Current income tax (benefit) expense	(5,420)		7,424		(180)
Deferred:
Federal	(2,886)		(7,630)		(486)
State	(2,937)		(1,667)		(153)
Foreign	(20,159)		3,006		447
Deferred income tax benefit	(25,982)		(6,291)		(192)
Income tax (benefit) expense	$	(31,402)	$	1,133	$	(372)

During fiscal 2020, we completed intra-entity transfers of certain intellectual property rights (“IP Rights”) which resulted in the Company establishing deferred tax assets and related tax benefits of $19.2 million, based on fair value of the IP rights transferred in December 2020. The determination of the fair value involves significant judgment on future revenue growth, operating profit and discount rates. Unforeseen events and circumstances may occur that could affect either the accuracy or validity or such assumptions, estimates or actual results. The sustainability of our future tax benefits may be dependent upon the acceptance of the valuation estimates and assumptions by the taxing authorities in those jurisdictions impacted by the intra-entity transfers of IP rights.

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

	Years ended December 31,
	2020		2019		2018
Tax expense at statutory rate	$	(6,462)	$	(12,812)	$	956
State income taxes, net of federal benefit	(1,400)		(1,564)		(13)
Foreign tax rate difference	1,999		(1,954)		(1,003)
Research and development credit	(662)		(753)		(919)
Change in valuation allowance	(3,736)		8,485		464
Equity based compensation	(42)		(25)		(390)
Impact of permanent differences of non-deductible cost	(602)		1,550		727
Provision to return adjustments & deferred adjustments	(572)		356		(654)
Change in enacted tax rates	(1,138)		359		58
Global intangible low-taxed income (“GILTI”)	—		1,795		402
Intangible & goodwill impairment	—		4,999		—
Other	440		697		—
Impact of intra-entity IP transfers	(19,227)		—		—
Income tax (benefit) expense	$	(31,402)	$	1,133	$	(372)

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

	As of December 31,
	2020		2019
Net deferred income tax asset - Non-current
Warranty cost	$	310	$	616
Inventory reserve	5,234		4,820
Unearned service revenue	11,607		11,616
Employee stock options	3,271		4,157
Tax credits	2,828		1,207
Loss carryforwards	8,530		7,481
Depreciation	1,419		345
Other, net	735		1,760
Intangibles & goodwill	19,295		—
Lease liability	6,986		4,591
Total deferred tax assets	60,215		36,593
Valuation allowance	(6,916)		(10,419)
Total deferred tax assets net of valuation allowance	53,299		26,174
Net deferred income tax liability - Non-current
Intangibles & goodwill	—		(3,174)
Right of use asset	(6,636)		(4,591)
Total deferred tax liabilities	(6,636)		(7,765)
Net deferred tax assets	$	46,663	$	18,409

Our domestic entities had deferred income tax assets in the amount of $21.4 million and $15.3 million as of December 31, 2020 and December 31, 2019, respectively. At December 31, 2020 we had U.S. federal and state net operating loss carryforwards of $1.3 million and $28.4 million, respectively. Federal and state net operating loss carryforwards will begin to expire in 2035 and 2029, respectively. We also had federal and state R&D credits of $2.3 million and $0.4 million, respectively. The federal credits will begin to expire in 2039 and our state credits carryforward indefinitely. At December 31, 2020, our foreign subsidiaries had deferred tax assets primarily relating to Intangibles of $19.4 million and net operating losses of $7.1 million, the majority of which can be carried forward indefinitely. At December 31, 2019, our foreign subsidiaries had deferred tax assets primarily relating to net operating losses of $7.2 million. The valuation allowance for deferred tax assets as of December 31, 2020 and 2019 was $6.9 million and $10.4 million, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2020, 2019 and 2018 was a $3.7 million decrease, an $8.5 million increase and a $0.5 million increase, respectively.

The valuation allowance as of December 31, 2020 and 2019 was primarily related to foreign net operating loss carryforwards that, in the judgment of management, were not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment.

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. At December 31, 2020, we have not provided for approximately $0.4 million of withholding tax on foreign earnings and profits in certain jurisdictions that we intend to invest these earnings indefinitely.

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.

As of December 31, 2020, 2019 and 2018, our unrecognized tax benefits totaled $1.9 million, $1.9 million and $0.3 million, respectively, which are included in Income taxes payable - less current portion in our consolidated balance sheet.

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

	Years ended December 31,
	2020		2019		2018
Balance at January 1	$	1,924	$	324	$	324
Additions based on tax positions related to the current year	273		314		—
Additions for tax positions of prior years	—		1,675		—
Lapse of statute of limitations	(324)		(389)		—
Balance at December 31	$	1,873	$	1,924	$	324

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, 2020

Jurisdiction	Open Years	Examination in Process
United States - Federal Income Tax	2016-2020	2016
United States - various states	2016-2020	N/A
Germany	2013-2020	2013-2014
Switzerland	2018-2020	N/A
Singapore	2016-2020	N/A

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 $1.9 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 are subject to a three to four year statute of limitations, depending on the state.