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Income Taxes
12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
12. Income Taxes
We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, the U.K., Australia, Ireland and Costa Rica. We are generally subject to U.S. federal income tax examination for calendar tax years 2020 through 2023 as well as state and foreign income tax examinations for various years depending on statutes of limitations of those jurisdictions.
The following summarizes the components of income tax expense (benefit):
Years ended December 31,
(dollars in thousands)2023 2022 2021 
Current taxes:
U.S. Federal$18,879 $3,485 $(2,499)
U.S. State and local12,331 5,708 (257)
International8,982 7,283 6,570 
Total current taxes40,192 16,476 3,814 
Deferred taxes:
U.S. Federal(18,303)(16,880)(4,615)
U.S. State and local(5,895)(9,319)222 
International(170)(445)1,964 
Total deferred taxes(24,368)(26,644)(2,429)
Total income tax provision (benefit)$15,824 $(10,168)$1,385 
The following summarizes the components of income (loss) before provision for income taxes:
Years ended December 31,
(dollars in thousands)2023 2022 2021 
U.S.$(22,074)$(91,493)$(23,180)
International39,718 35,918 30,263 
Income (loss) before provision for income taxes$17,644 $(55,575)$7,083 
A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate our income tax provision is as follows:
Years ended December 31,
2023 2022 2021 
Federal statutory rate21.0 %21.0 %21.0 %
Effect of:
State income taxes, net of federal benefit20.0 1.5 4.4 
Change in foreign income tax rate applied to deferred tax balances— 0.1 42.6 
Change in state income tax rate applied to deferred tax balances7.1 1.8 2.3 
Nondeductible security incident-related fines or penalties
35.7 (8.7)— 
Section 162(m) limitation30.1 (6.4)75.0 
Stock-based compensation13.4 (6.3)(36.2)
Change in valuation reserve (primarily state credit reserves)10.8 (5.4)26.1 
GILTI inclusion9.3 (2.6)— 
Foreign tax rate6.1 1.0 (6.0)
Nondeductible meals, entertainment and transportation4.4 (0.7)1.1 
Unrecognized tax benefit0.7 0.5 (32.7)
Acquisition costs— — 8.7 
Return to accrual adjustment(8.3)1.4 (4.2)
State credits, net of federal benefit(9.1)7.2 (32.6)
FDII benefit(10.2)2.3 — 
Federal credits generated(42.3)11.5 (54.5)
Other1.0 0.1 4.6 
Income tax provision effective rate89.7 %18.3 %19.6 %
The increase in our effective income tax rate for year ended December 31, 2023, when compared to the same period in 2022, was primarily attributable to higher 2023 non-deductible accruals for loss contingencies related to the Security Incident and other non-deductible expenses and tax rate changes, partially offset by increased tax credits. Furthermore, our 2023 effective tax rate was negatively impacted by higher tax rates in foreign jurisdictions in which we operate which were predominantly due to UK tax rate increases. The year-on-year comparison is further impacted by 2023 pre-tax income versus prior year pre-tax loss.
The significant components of our deferred tax assets and liabilities were as follows:
December 31,
(dollars in thousands)2023 2022 
Deferred tax assets relating to:
Capitalized R&D and software costs
$47,351 $12,166 
Federal, state and foreign tax credits39,260 50,194 
Stock-based compensation24,717 21,166 
Operating leases12,867 14,024 
Federal and state and foreign net operating loss carryforwards7,061 10,369 
Deferred revenue5,992 1,820 
Allowance for credit losses1,702 1,803 
Intangible assets1,050 561 
Accrued bonuses314 455 
Other2,982 6,293 
Total deferred tax assets143,296 118,851 
Deferred tax liabilities relating to:
Intangible assets(160,172)(161,836)
Costs of obtaining contracts(13,870)(16,287)
Operating leases(9,865)(11,721)
Fixed assets(5,833)(9,827)
Other(8,342)(9,016)
Total deferred tax liabilities(198,082)(208,687)
Valuation allowance(37,862)(34,769)
Net deferred tax liability$(92,648)$(124,605)
As of December 31, 2023, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $14.9 million, $3.8 million and $50.8 million, respectively. Of our federal net operating loss carryforwards, $12.4 million are subject to expiration beginning in 2024 while the remainder have an unlimited carryforward period. The state net operating loss carryforwards are subject to various applicable state tax laws. If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2024. Our foreign net operating loss carryforwards have an unlimited carryforward period. Our state tax credit carryforwards for income tax purposes were approximately $40.9 million, net of federal benefit. If not utilized, the state tax credit carryforwards will begin to expire in 2024. A portion of the foreign and state net operating loss carryforwards and state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards.
The following table illustrates the change in our deferred tax asset valuation allowance:
Years ended December 31,
(dollars in thousands)
Balance
at beginning
of year
Acquisition-
related
change
Charges to
expense
Balance at
end of
year
2023$34,769 $— $3,093 $37,862 
202231,974 — 2,795 34,769 
202129,184 893 1,897 31,974 
The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2023, 2022 and 2021:
Years ended December 31,
(dollars in thousands)2023 2022 2021 
Balance at beginning of year$3,083 $3,651 $4,625 
Increases from current period positions762 629 1,751 
Increases from prior period positions101 89 
Decreases in prior year positions(118)(908)(57)
Settlements (payments)(160)— (1,192)
Lapse of statute of limitations(428)(378)(1,482)
Balance at end of year$3,240 $3,083 $3,651 
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $3.2 million at December 31, 2023. Certain prior period amounts relating to our 2014 acquisitions were covered under indemnification agreements and, therefore, had a corresponding indemnification asset. Due to lapse of statute of limitations, the indemnified unrecognized tax benefit was released in 2022 resulting in income tax benefit with offsetting expense included in pretax income from corresponding release of indemnification asset. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2023 and December 31, 2022 was insignificant. The total amount of interest and penalties included in the consolidated statements of comprehensive income as an increase or decrease in income tax expense for 2023, 2022 and 2021 was insignificant.
We have taken federal and state tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of statutes of limitations. The reasonably possible decrease at December 31, 2023 was insignificant.
For our undistributed earnings of foreign subsidiaries, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States except to the extent that said earnings are of previously taxed income. Accordingly, we have not provided for U.S. income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries.