Income Taxes

12 Months Ended

Dec. 31, 2021

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,
	2021			2020			2019
Domestic	$	(90,584	)	$	(72,164	)	$	(47,218	)
Foreign		(16,791	)		(23,499	)		(4,607	)
Total	$	(107,375	)	$	(95,663	)	$	(51,825	)

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,
	2021			2020			2019
Income tax at federal statutory rate	$	(22,549	)	$	(20,089	)	$	(10,883	)
Increase (decrease) in tax resulting from:
State income tax expense, net of federal tax effect		(5,018	)		(3,763	)		(3,657	)
Nondeductible permanent items		(87	)		1,659			3,522
Executive compensation		4,885			6,020			—
Foreign rate differential		(1,060	)		(156	)		(367	)
Gain on extinguishment of debt		(2,123	)		—			—
Tax rate change		(1,039	)		—			—
Adjustment to deferred taxes		817			(3,190	)		(1,904	)
Change in valuation allowance		23,262			25,339			22,481
Uncertain tax positions		165			151			128
Nonqualified stock option and performance award windfall    upon exercise		(9,352	)		(8,608	)		(9,128	)
Other		(480	)		370			233
Total	$	(12,579	)	$	(2,267	)	$	425

The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2021, 2020 and 2019 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,
	2021			2020			2019
Current:
Federal	$	67		$	353		$	—
State		49			94			139
Foreign		212			492			116
		328			939			255
Deferred:
Federal		(20,181	)		(15,835	)		(16,460	)
State		(7,634	)		(6,115	)		(5,100	)
Foreign		(8,354	)		(6,595	)		(751	)
		(36,169	)		(28,545	)		(22,311	)
Change in valuation allowance		23,262			25,339			22,481
Total	$	(12,579	)	$	(2,267	)	$	425

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

	As of December 31,
	2021			2020
Deferred tax assets
Lease liability	$	5,945		$	4,447
Tax credits		195			9
Accrued expenses		3,632			3,066
Deferred revenue		2,882			555
Net operating loss carryforward		114,625			73,752
Other assets		10,247			7,483
Property and equipment		106			—
Intangible assets		2,662			2,448
Valuation allowance		(56,252	)		(52,320	)
Total net deferred tax assets		84,042			39,440
Deferred tax liabilities
Deferred commissions		(6,234	)		(5,996	)
Intangible assets		(50,443	)		(18,199	)
Property and equipment		—			(685	)
Debt discount		(38,156	)		(20,370	)
Right-of-use asset		(5,160	)		(4,029	)
Other		(131	)		(134	)
Total deferred tax liabilities		(100,124	)		(49,413	)
Total deferred income tax liabilities	$	(16,082	)	$	(9,973	)

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, 2021. 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, 2021 and 2020, a valuation allowance of $56.3 million and $52.3 million, respectively, has been recorded.

As of December 31, 2021, the Company has accumulated federal and state net operating loss (“NOL”) carryforwards of $368.0 million and $307.2 million, respectively. Of the $368.0 million of federal NOL carryforwards, $122.3 million was generated before January 1, 2018 and is subject to the 20-year carryforward period (“pre-Tax Act losses”). The remaining $245.7 million (“post-Tax Act losses”) can be carried forward indefinitely but is subject to the 80% taxable income limitation. Of the $307.2 million of state NOL carryforwards, $36.2 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 2041. The Company completed a Section 382 study for the period through March 31, 2019 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 $83.0 million and $38.7 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 net operating losses 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, 2021 and 2020, the Company had combined foreign net operating loss carry-forwards available to reduce future taxable income of approximately $75.9 million and $48.4 million, respectively. As of December 31, 2021 and 2020, valuation allowances of $74.1 million and $29.9 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,
	2021		2020		2019
Beginning balance of unrecognized tax benefits	$	748	$	597	$	469
Additions for current year tax positions		138		131		106
Additions for prior year tax positions		577		—		—
Ending balance (excluding interest and penalties)		1,463		728		575
Interest and penalties		27		20		22
Total	$	1,490	$	748	$	597

For the year ended December 31, 2021, 2020 and 2019, the Company has recorded income tax expense of $165,000, $151,000 and $128,000, 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, 2021, 2020 and 2019, the Company had accrued $27,000, $20,000 and $22,000, 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, 2021, the Company had $18.9 million in unremitted earnings that were permanently reinvested related to its consolidated foreign subsidiaries.