Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

(13) Income Taxes

The components of loss before income taxes are as follows (in thousands):

	Year Ended December 31,
	2022			2021			2020
Domestic	$	(30,297	)	$	(90,584	)	$	(72,164	)
Foreign		(33,275	)		(16,791	)		(23,499	)
Total	$	(63,572	)	$	(107,375	)	$	(95,663	)

For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s provision (benefit) for income taxes at the effective tax rate, a notional 21% tax rate was applied as follows (in thousands):

	Year Ended December 31,
	2022			2021			2020
Income tax at federal statutory rate	$	(13,350	)	$	(22,549	)	$	(20,089	)
Increase (decrease) in tax resulting from:
State income tax expense, net of federal tax effect		658			(5,018	)		(3,763	)
Nondeductible permanent items		1,169			(87	)		1,659
Executive compensation		746			4,885			6,020
Global Intangible Low-Taxed Income		3,055			—			—
Foreign rate differential		(638	)		(1,060	)		(156	)
Gain on extinguishment of debt		—			(2,123	)		—
Adoption of ASU 2020-06		(70,503	)		—			—
Tax rate change		(3	)		(1,039	)		—
Adjustment to deferred taxes		1,980			817			(3,190	)
Change in valuation allowance		67,450			23,262			25,339
Uncertain tax positions		(423	)		165			151
Nonqualified stock option and performance award shortfall (windfall) upon exercise		7,745			(9,352	)		(8,608	)
Other		(284	)		(480	)		370
Total	$	(2,398	)	$	(12,579	)	$	(2,267	)

The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2022, 2021 and 2020 is primarily attributable to the effect of state income taxes, difference between the U.S. and foreign tax rates, non-deductible officer compensation, share-based compensation, true up of deferred taxes, other non-deductible permanent items, and change in valuation allowance. In addition, the Company’s foreign subsidiaries are subject to varied applicable statutory income tax rates for the periods presented.

The provision for (benefit from) income taxes is as follows (in thousands):

	Year Ended December 31,
	2022			2021			2020
Current:
Federal	$	129		$	67		$	353
State		395			49			94
Foreign		2,151			212			492
		2,675			328			939
Deferred:
Federal		(48,545	)		(20,181	)		(15,835	)
State		(17,404	)		(7,634	)		(6,115	)
Foreign		(6,574	)		(8,354	)		(6,595	)
		(72,523	)		(36,169	)		(28,545	)
Change in valuation allowance		67,450			23,262			25,339
Total	$	(2,398	)	$	(12,579	)	$	(2,267	)

The net deferred tax assets (liabilities) are comprised of the following (in thousands):

	As of December 31,
	2022			2021
Deferred tax assets
Lease liability	$	6,094		$	5,945
Tax credits		185			195
Accrued expenses		3,222			3,632
Deferred revenue		1,800			2,882
Net operating loss carryforward		94,817			114,625
Other assets		7,119			10,247
Property and equipment		—			106
Intangible assets		22,843			2,662
Valuation allowance		(85,392	)		(56,252	)
Total net deferred tax assets		50,688			84,042
Deferred tax liabilities
Deferred commissions		(7,193	)		(6,234	)
Intangible assets		(44,568	)		(50,443	)
Property and equipment		(550	)		—
Debt discount		—			(38,156	)
Right-of-use asset		(4,609	)		(5,160	)
Other		(4	)		(131	)
Total deferred tax liabilities		(56,924	)		(100,124	)
Total deferred income tax liabilities	$	(6,236	)	$	(16,082	)

A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, at December 31, 2022 and 2021, a valuation allowance of $85.4 million and $56.3 million, respectively, has been recorded.

As of December 31, 2022, the Company has accumulated federal and state net operating loss (“NOL”) carryforwards of $282.6 million and $238.1 million, respectively. Of the $282.6 million of federal NOL carryforwards, $40.6 million was generated before January 1, 2018 and is subject to the 20-year carryforward period (“pre-Tax Act losses”). The remaining $242.1 million (“post-Tax Act losses”) can be carried forward indefinitely but is subject to the 80% taxable income limitation. Of the $238.1 million of state NOL carryforwards, $23.4 million can be carried forward indefinitely. The pre-Tax Act U.S. federal and state net operating loss carryforwards will expire in varying amounts through 2042. The Company completed a Section 382 study for the period through November 7, 2022 and determined that a Section 382 ownership change occurred on December 31, 2017 subjecting all pre-Tax Act losses to a utilization limitation; however, such limitation is not expected to result in NOLs expiring unused. Any future annual limitation may result in the expiration of NOLs before utilization. Included in the Company’s NOLs are federal and state NOLs of $46.8 million and $34.4 million, respectively, from various acquisitions which are subject to limitations under Section 382. The Company also completed a Section 382 study for xMatters, Inc., a wholly owned subsidiary of the Company. As a result of the study, the Company determined that out of total federal NOLs of $64.0 million, $0.9 million of federal NOLs generated by xMatters, Inc. prior to May 7, 2021 would not be available for utilization due to ownership changes experienced by xMatters, Inc.

As of December 31, 2022 and 2021, the Company had combined foreign net operating loss carry-forwards available to reduce future taxable income of approximately $85.3 million and $75.9 million, respectively. As of December 31, 2022 and 2021, valuation allowances of $82.5 million and $74.1 million, respectively, had been recorded against the related deferred tax assets for those loss carry-forwards that are not more likely than not to be fully utilized in reducing future taxable income.

The following changes occurred in the amount of unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2022			2021		2020
Beginning balance of unrecognized tax benefits	$	1,490		$	748	$	597
Increases for current year tax positions		127			138		131
Increases (decreases) for prior year tax positions		(577	)		577		—
Ending balance (excluding interest and penalties)		1,040			1,463		728
Interest and penalties		27			27		20
Total	$	1,067		$	1,490	$	748

For the year ended December 31, 2022, 2021 and 2020, the Company has recorded income tax (benefit) expense of ($423,000), $165,000 and $151,000, respectively, related to uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits associated with uncertain tax positions, if any, in the income tax provision. At December 31, 2022, 2021 and 2020, the Company had accrued $27,000, $27,000 and $20,000, respectively, in interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the United States and various states along with other foreign countries. The Company has not been notified that it is under audit by the IRS or any state, however, due to the presence of NOL carryforwards, all the income tax years remain open for examination in each of these jurisdictions. The Company has been notified of an income tax examination by the Chinese tax authorities during the first quarter of 2022. There are no other audits in any other foreign jurisdictions. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s intent to reinvest such earnings indefinitely in active foreign operations. At December 31, 2022, the Company had $18.3 million in unremitted earnings that were permanently reinvested related to its consolidated foreign subsidiaries.