INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The components of (loss) income before income taxes and non-controlling interests consist of the following for the years ended December 31:

(in thousands)	2022		2021
Domestic - Luxembourg	$	(47,432)	$	25,490
Foreign - U.S.	912		(9,536)
Foreign - non-U.S.	(1,047)		(669)
Total	$	(47,567)	$	15,285

The income tax provision consists of the following for the years ended December 31:

(in thousands)	2022		2021
Current:
Domestic - Luxembourg	$	(570)	$	—
Foreign - U.S. federal	547		(432)
Foreign - U.S. state	497		(308)
Foreign - non-U.S.	(4,642)		(3,197)
	$	(4,168)	$	(3,937)
Deferred:
Domestic - Luxembourg	$	—	$	(140)
Foreign - U.S. federal	(495)		519
Foreign - U.S. state	(400)		836
Foreign - non-U.S.	(203)		(510)
	$	(1,098)	$	705
Income tax provision	$	(5,266)	$	(3,232)

We operate in a Uruguay free trade zone that provides an indefinite future tax benefit. The tax holiday is conditioned upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $0.1 million ($0.01 per diluted share) and $0.1 million ($0.01 per diluted share) for the years ended December 31, 2022 and 2021, respectively.

The Company accounts for certain income and expense items differently for financial reporting purposes and income tax purposes. We recognize deferred income tax assets and liabilities for these differences between the financial reporting basis and the tax basis of our assets and liabilities as well as expected benefits of utilizing net operating loss and credit carryforwards. We measure deferred income tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences.

A summary of the tax effects of the temporary differences is as follows for the years ended December 31:

(in thousands)	2022		2021
Non-current deferred tax assets:
Net operating loss carryforwards	$	383,908	$	368,824
U.S. federal and state tax credits	282		194
Other non-U.S. deferred tax assets	12,775		13,326
Share-based compensation	1,317		1,220
Accrued expenses	1,369		962
Unrealized losses	10,112		10,397
Other	—		334
Depreciation	144		61
Non-current deferred tax liabilities:
Intangible assets	(9,082)		(8,290)
Other non-U.S. deferred tax liability	(420)		(523)
Other	(244)		—
	400,161		386,505
Valuation allowance	(404,141)		(389,147)
Non-current deferred tax liabilities, net	$	(3,980)	$	(2,642)

A valuation allowance is provided when it is deemed more likely than not that some portion or all of a deferred tax asset will not be realized. In determining whether a valuation allowance is needed requires an extensive analysis of positive and negative evidence regarding realization of the deferred tax assets and, inherent in that, an assessment of the likelihood of sufficient future

taxable income. When there is a cumulative pretax loss for financial reporting for the current and two preceding years (i.e., a three year cumulative loss), this is a significant element of negative evidence that would be difficult to overcome on a more likely than not or any other basis. Therefore, the Company’s valuation allowance was $404.1 million and $389.1 million as of December 31, 2022 and 2021, respectively.

The Company does not recognize deferred taxes on cumulative earnings of its U.S. subsidiaries because the Company intends for those earnings to be indefinitely reinvested. As of January 1, 2021, approximately $15 million of earnings in India were deemed to be indefinitely reinvested. During 2021, the Company recognized income tax expense on the $15 million as the Company no longer intended for India earnings to be indefinitely reinvested. The other non-Luxembourg earnings that are indefinitely reinvested as of December 31, 2022 were approximately $3.8 million, which if distributed would result in no additional tax due.

The Company had a deferred tax asset of $383.9 million as of December 31, 2022 relating to Luxembourg, U.S. federal, state and foreign net operating losses compared to $368.8 million as of December 31, 2021. As of December 31, 2022 and 2021, a valuation allowance of $383.1 million and $367.8 million, respectively, has been established related to Luxembourg net operating loss (“NOL”). The gross amount of net operating losses available for carryover to future years is approximately $1,537.7 million as of December 31, 2022 and approximately $1,476.8 million as of December 31, 2021. These losses are scheduled to expire between the years 2024 and 2042.

In addition, the Company had a deferred tax asset of $0.8 million and $0.8 million as of December 31, 2022 and 2021, respectively, relating to state tax credits. Some of the state tax credit carryforwards have an indefinite carryforward period.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act signed into law on March 27, 2020 allowed the Company to utilize a five year carryback of the full $14.8 million net operating loss generated in the U.S. in 2020. The Company’s income tax receivable related to such carryback was $5.1 million and $6.0 million as of December 31, 2022 and 2021, respectively. The Company received $5.1 million related to such receivable in the first quarter of 2023.

The effective tax rate differs from the Luxembourg statutory tax rate due to tax rate differences on foreign earnings, increases in uncertain tax positions, state taxes, a decrease in unrecognized tax benefits, tax exempt income primarily from the sale of Pointillist (see Note 4) and a valuation allowance against deferred tax assets the Company believes it is more likely than not will not be realized

The following table reconciles the Luxembourg statutory tax rate to our effective tax rate for the years ended December 31:

	2022		2021
Statutory tax rate	24.94	%	24.94	%
Change in valuation allowance	(32.14)		130.03
State tax expense	(0.01)		(3.87)
Tax credits	—		0.36
Uncertain tax positions	(6.80)		11.82
Tax rate differences on foreign earnings	(1.21)		6.46
Tax Exempt Income	0.19		(145.91)
Provision to Return	3.45		—
Other	0.51		(2.70)
Effective tax rate	(11.07)	%	21.14	%

The Company follows ASC Topic 740 which clarifies the accounting and disclosure for uncertainty in tax positions. We analyzed our tax filing positions in the domestic and foreign tax jurisdictions where we are required to file income tax returns as well as for all open tax years subject to audit in these jurisdictions. The Company has open tax years in the United States (2016 through 2021), India (2011 through 2022) and Luxembourg (2016 through 2021).

The following table summarizes changes in unrecognized tax benefits during the years ended December 31:

(in thousands)	2022		2021
Amount of unrecognized tax benefits as of the beginning of the year	$	9,023	$	8,541
Decreases as a result of tax positions taken in a prior period	(1,595)		(1,648)
Increases as a result of tax positions taken in a prior period	11		2,130
Increases as a result of tax positions taken in the current period	1,576		—
Amount of unrecognized tax benefits as of the end of the year	$	9,015	$	9,023

The total amount of unrecognized tax benefits including interest and penalties that, if recognized, would affect the effective tax rate is $16.7 million and $14.9 million as of December 31, 2022 and 2021, respectively. The Company recognizes interest, if any, related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2022 and 2021, the Company had recorded accrued interest and penalties related to unrecognized tax benefits of $7.6 million and $5.8 million, respectively.