Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Significant components of the provision for income taxes are as follows (in millions):

	Year Ended December 31,
	2023		2022		2021
Current:
Federal	$	33.7	$	28.2	$	16.0
State	8.5		8.8		2.8
Foreign	6.3		7.5		4.3
Total current	48.5		44.5		23.1
Deferred:
Federal	(6.8)		(4.6)		(8.3)
State	(0.9)		(1.5)		(2.4)
Foreign	(3.3)		(1.8)		(2.0)
Total deferred	(11.0)		(7.9)		(12.7)
Total provision for income taxes	$	37.5	$	36.6	$	10.4

The components of pretax income for the years ended December 31, 2023, 2022 and 2021 are as follows (in millions):

	Year Ended December 31,
	2023		2022		2021
Domestic	$	120.2	$	122.5	$	56.3
Foreign	16.3		18.5		6.2
Total	$	136.5	$	141.0	$	62.5

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2023 and 2022 are as follows (in millions):

	December 31,
	2023		2022
Deferred tax assets:
Accrued liabilities	$	15.1	$	14.2
Operating lease liabilities	5.8		7.5
Allowance for doubtful accounts	0.6		1.5
Foreign exchange adjustment	0.2		4.8
Net operating losses	0.1		—
Deferred compensation liability	3.5		3.2
Capitalized research expenditures	36.1		25.2
Total deferred tax assets	61.4		56.4
Deferred tax liabilities:
Prepaid expenses	1.3		1.3
Operating lease right-of-use assets	5.4		7.0
Goodwill and intangible assets	37.2		36.0
Fixed assets	1.8		2.7
Total deferred tax liabilities	45.7		47.0
Net deferred tax asset	$	15.7	$	9.4

Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. Management believes it is more likely than not that the Company will generate sufficient taxable income in future years to realize the benefits of its deferred tax assets.

As of December 31, 2023, the Company had no U.S. federal or state tax net operating loss carry forwards and $0.1 million foreign net operating loss carry forwards. The foreign net operating loss carry forwards do not expire.

The federal corporate statutory tax rate is reconciled to the Company’s effective income tax rate as follows:

	Year Ended December 31,
	2023		2022		2021
Federal statutory rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	4.6		4.5		3.2
Effect of foreign operations	1.2		1.3		1.7
Stock compensation	1.4		0.7		(5.2)
Acquisition related	(1.0)		0.2		1.0
Research and development tax credit	(0.1)		(1.9)		(4.8)
Other	0.4		0.1		(0.3)
Effective tax rate	27.5	%	25.9	%	16.6	%

The effective income tax rate increased to 27.5% for the year ended December 31, 2023 from 25.9% for the year ended December 31, 2022 primarily due to a decrease in research credit benefit and an increase in the impact of stock compensation, partially offset by a decrease in the effect of acquisition costs compared to the prior year.

The undistributed earnings of our foreign subsidiaries are indefinitely reinvested, except in certain designated jurisdictions. We have not recognized a deferred tax liability on the undistributed earnings that are considered indefinitely reinvested. If these earnings were distributed, we would be subject to non-U.S. withholding taxes. As of December 31, 2023, undistributed earnings of approximately $19.7 million were indefinitely reinvested in foreign operations and the unrecognized deferred tax liability on these undistributed earnings was approximately $2.0 million.

As of December 31, 2023, the Company had unrecognized tax benefits of $16.8 million, which would have had a $12.0 million impact on the effective rate, if recognized. As of December 31, 2022, the Company had unrecognized tax benefits of $19.0 million, which would have a $14.3 million impact on the effective rate, if recognized.

A reconciliation of beginning and ending amounts of gross unrecognized tax benefits is as follows (in millions):

	December 31,
	2023		2022
Balance at beginning of year	$	19.0	$	17.0
Additions based on tax positions related to current year	1.8		2.5
Additions based on tax positions related to prior years	1.1		0.6
Reductions based on tax positions related to prior years	(1.5)		—
Reduction due to statute of limitations	(0.5)		(0.8)
Settlements with taxing authorities	(3.1)		(0.3)
Balance at end of year	$	16.8	$	19.0

We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax provision. For the years ended December 31, 2023 and 2022, we recognized interest expense of approximately $1.2 million and $0.8 million, respectively. As of December 31, 2023 and 2022, interest and penalties accrued were $2.2 million and $2.4 million, respectively.

The Company’s 2016-2019 U.S. income tax returns are currently under examination by the IRS. The IRS has sought to disallow research credits of $3.0 million on the Company’s 2016 and 2017 U.S. income tax returns. As of December 31, 2023, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $1.6 million over the next 12 months. The anticipated reduction relates to potential settlements with tax authorities. The total amount of research credits taken or expected to be taken in the Company’s income tax returns for 2016 through 2023 is $29.1 million.

The Company is subject to tax in the United States and various state and foreign jurisdictions. Our federal tax returns for 2016 and later remain subject to examination by the IRS. Our state tax returns for 2016 and later remain subject to examination by various state tax authorities, with certain exceptions. Our foreign income tax returns for 2018 and later remain subject to examination by various foreign tax authorities.