Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

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

	Years ended December 31,
	2021		2020		2019
Domestic	$	(13,202)	$	(33,991)	$	(40,963)
Foreign	4,641		3,218		(20,051)
(Loss) Income before income taxes	$	(8,561)	$	(30,773)	$	(61,014)

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

	Years ended December 31,
	2021		2020		2019
Current:
Federal	$	211	$	(3,557)	$	3,215
State	114		169		400
Foreign	6,372		(2,032)		3,809
Current income tax expense (benefit)	6,697		(5,420)		7,424
Deferred:
Federal	15,464		(2,886)		(7,630)
State	6,418		(2,937)		(1,667)
Foreign	2,824		(20,159)		3,006
Deferred income tax expense (benefit)	24,706		(25,982)		(6,291)
Income tax expense (benefit)	$	31,403	$	(31,402)	$	1,133

During fiscal year 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 of such assumptions, estimates or actual results

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,
	2021		2020		2019
Tax expense at statutory rate	$	(1,798)	$	(6,462)	$	(12,812)
State income taxes, net of federal benefit	106		(1,400)		(1,564)
Foreign tax rate difference	303		1,999		(1,954)
Change in valuation allowance	26,475		(3,736)		8,485
Impact of intra-entity IP transfers	231		(19,227)		—
Prepaid tax on intercompany profit	3,390		—		—
Impact of permanent differences of non-deductible cost	1,658		(602)		1,550
Withholding/other foreign taxes	838		—		—
Research and development credit	(737)		(662)		(753)
Global intangible low-taxed income (“GILTI”)	763		—		1,795
Foreign currency gain/loss	594		—		—
Provision to return adjustments & deferred adjustments	313		(572)		356
Change in enacted tax rates	(306)		(1,138)		359
Equity based compensation	(245)		(42)		(25)
Uncertain tax positions	(185)		—		—
Intangible & goodwill impairment	—		—		4,999
Other	3		440		697
Income tax expense (benefit)	$	31,403	$	(31,402)	$	1,133

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

	As of December 31,
	2021		2020
Net deferred income tax asset - Non-current
Warranty cost	$	305	$	310
Inventory reserve	2,287		5,234
Unearned service revenue	9,913		11,607
Employee stock options	3,282		3,271
Tax credits	3,688		2,828
Loss carryforwards	18,487		8,530
Depreciation	1,295		1,419
Other, net	1,402		735
Intangibles & goodwill	14,400		19,295
Lease liability	4,749		6,986
Total deferred tax assets	59,808		60,215
Valuation allowance	(35,148)		(6,916)
Total deferred tax assets net of valuation allowance	24,660		53,299
Net deferred income tax liability - Non-current
Operating lease right-of-use asset	(4,441)		(6,636)
Total deferred tax liabilities	(4,441)		(6,636)
Net deferred tax assets	$	20,219	$	46,663

Our domestic entities had a net deferred tax liability in the amount of $0.4 million, and a deferred tax asset of $21.4 million as of December 31, 2021 and December 31, 2020, respectively. Our foreign entities had net deferred tax assets in the amount of $20.6 million and $25.3 million as of December 31, 2021, and December 31, 2020, respectively. At December 31, 2021 we had U.S. federal and state net operating loss carryforwards of $34.4 million and $67.6 million, respectively. $31.0 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 2035 and 2029, respectively. We also had federal and state R&D credit carryforwards of $3.2 million and $0.4 million, respectively. The federal credits will begin to expire in 2039 and our state credits carryforward indefinitely. Foreign net operating losses are $40.5 million, the majority of which can be carried forward indefinitely.

At December 31, 2021, our foreign subsidiaries had deferred tax assets primarily relating to Intangibles of $17.3 million and net operating losses of $7.8 million, the majority of which can be carried forward 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.

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 $35.1 million and $6.9 million for the years December 31, 2021 and 2020, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2021, 2020 and 2019 was a $26.5 million increase, $3.7 million decrease and $8.5 million increase, respectively. The increase in the valuation allowance for the year ended December 31, 2021 primarily relates to recording valuation allowance 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. At December 31, 2021, we have not provided for approximately $0.9 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, 2021, 2020 and 2019, our unrecognized tax benefits totaled $1.7 million, $1.9 million and $1.9 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,
	2021		2020		2019
Balance at January 1	$	1,873	$	1,924	$	324
Additions based on tax positions related to the current year	53		273		314
Additions for tax positions of prior years	—		—		1,675
Lapse of statute of limitations	(262)		(324)		(389)
Balance at December 31	$	1,664	$	1,873	$	1,924

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, 2021.

Jurisdiction	Open Years	Examination in Process
United States - Federal Income Tax	2018-2021	N/A
United States - various states	2017-2021	N/A
Germany	2013-2021	2013-2014
Switzerland	2019-2021	N/A
Singapore	2017-2021	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 $1.6 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.