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Income Taxes
 12 Months Ended
Dec. 31, 2019
Income Taxes
8.
Income Taxes
The components of income before income taxes are as follows:
 
For the Years Ended December 31,
 
  
    2019    
 
  
    2018    
 
  
    2017    
 
  
(Amounts in thousands)
 
Domestic
  $
(5,432
 )   $
(73
 )   $
(6,709
 )
Foreign
   
31,583
     
21,509
     
13,957
 
                         
Income before income taxes
  $
26,151
    $
21,436
    $
7,248
 
                         
The components of the income tax provision (benefit) are as follows:
 
For the Years Ended December 31,
 
  
    2019    
 
  
    2018    
 
  
    2017    
 
  
(Amounts in thousands)
 
Components of the income tax provision (benefit):
   
     
     
 
Current
  $
8,290
    $
4,354
    $
3,624
 
Deferred
   
(5,287
)     
465
     
(24,729
 )
Equity
 
 
1,737
 
 
 
—  
 
 
 
—  
 
                         
Total
  $
4,740
    $
4,819
    $
(21,105
 )
                         
Jurisdictional components of the income tax provision (benefit):
   
     
     
 
Federal
  $
(965
)    $
(393
)    $
(24,012
 )
State
   
(1,764
)     
718
     
(438
 )
Foreign
   
7,469
     
4,494
     
3,345
 
                         
Total
  $
4,740
    $
 
 
4,819
    $
 
(21,105
 )
                         
During 2019
, the Company generated $0.1 
million in foreign net operating losses and $0.2 million in state net operating losses. During 2018, the Company utilized its remaining U.S. net operating loss carryforwards
of $
19.5
 million. At December 31, 201
9
, the Company had federal business tax credit carryforwards
of $1.2 million and state business tax credit carryforwards of
$
0.9
million available to reduce future domestic income taxes.
The business tax credits carryforwards will expire at various dates through December 2039.
The business tax credit
carryforwards
are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant
stockholders.
The components of deferred income taxes are as follows:
 
 
December 31,
 
  
2019
 
  
2018
 
 
 
(Amounts in thousands)
 
Deferred tax assets:
   
     
 
Temporary timing differences:
   
     
 
Stock-based compensation expense
  $
2,922
    $
2,874
 
Contingent consideration
   
2,206
     
2,263
 
Operating leases
 
 
7,295
 
 
 
 —
 
 
 
Accrued bonus
 
 
 
1,379
 
 
 
3
 
Other
   
4,994
     
3,585
 
                 
Total temporary timing differences
   
18,796
     
8,725
 
Net operating loss carryforwards
   
221
     
—  
  
Tax business credits carryforwards
   
924
     
2,004
 
                 
Total deferred tax assets
   
19,941
     
10,729
 
Less: valuation allowance
   
(6
 )    
(131
 )
                 
Net deferred tax assets
   
19,935
     
10,598
 
Deferred tax liabilities:
   
     
 
Goodwill
   
(1,288
 )    
(1,076
 )
Fixed assets
 
 
(1,650
)
 
 
(956
)
Acquired intangible assets
   
(26,811
 )    
(26,903
 )
Operating lease right of use assets
 
 
(6,144
)
 
 
—  
 
Conversion option on convertible notes
   
(11,066
 )    
(2,394
 )
                 
Total deferred tax liabilities
   
(46,959
 )    
(31,329
 )
                 
Total net deferred tax liabilities
  $
(27,024
 )   $
(20,731
 )
                 
The net change in the total valuation allowance for the year ended December 31, 2019 and 2018 was a decrease of $0.1 million and an increase of $0.1 million, respectively.
The reconciliation of the federal statutory rate to the effective income tax rate for the years ended December 31, 2019, 2018 and 2017 is as follows:
                                                 
 
For the Years Ended December 31,
 
 
2019
   
2018
   
2017
 
 
Amount
 
  
%
 
  
Amount
 
  
%
 
  
Amount
 
  
%
 
 
(Amounts in thousands, except percentages)
 
Income before income taxes
  $
26,151
     
    $
21,436
     
    $
7,248
     
 
                                                 
Expected tax at statutory rate
   
5,492
     
21.0
 %    
4,502
     
21.0
 %    
2,537
     
35.0
 %
Adjustments due to:
   
     
     
     
     
     
 
Difference between U.S. and foreign tax
   
436
     
1.7
 %    
345
     
1.6
 %    
(1,797
 )    
(24.8
 %)
State income and franchise tax
   
(179
 )    
(0.7
 %)    
91
      
0.4
 %    
(307
 )    
(4.2
 %)
Business tax credits
   
(2,746
 )    
(10.5
 %)    
(1,760
 )    
(8.2
 %)    
(708
 )    
(9.8
 %)
Permanent differences:
   
     
     
     
     
     
 
Stock-based compensation expense
   
(1,877
 )    
(7.2
 %)    
(1,213
 )    
(5.7
 %)    
(946
 )    
(13.1
 %)
Transaction costs
   
—  
      
0.0
 %    
—  
      
0.0
 %    
1,232
     
17.0
 %
U.S. taxation of foreign earnings
   
2,227
     
8.5
 %    
2,190
     
10.2
 %    
—  
      
0.0
 %
Executive compensation
   
841
     
3.2
 %    
367
     
1.7
 %    
265
     
3.7
 %
Other
   
92
     
0.4
 %    
97
     
0.5
 %    
205
     
2.8
 %
Change in U.S. federal tax rates
   
—  
      
0.0
 %    
—  
      
0.0
 %    
(12,839
 )    
(177.1
 %)
Change in U.S. state tax rates
   
—
     
0.0
 %    
748
     
3.5
 %    
(151
 )    
(2.1
 %)
Change in Netherlands tax rate
   
(193
 )    
(0.7
 %
)
    
(388
 )    
(1.8
 %)    
—  
      
0.0
 %
Transition tax
   
—
      
0.0
 %    
(1,338
 )    
(6.2
 %)    
3,266
     
45.1
 %
Uncertain tax provisions
   
1,069
     
4.1
 %    
1,021
     
4.8
 %    
241
     
3.3
 %
Change in valuation allowance
   
(125
)    
(0.5
 %
)
    
125
     
0.6
 %    
(12,164
 )    
(167.8
 %)
Return to provision adjustments
   
(79
)    
(0.3
 %
)
    
33
     
0.2
 %    
(161
 )    
(2.2
 %)
Other
   
(218
 )    
(0.8
 %
)
    
(1
 )    
(0.1
 %)    
222
     
3.0
 %
                                                 
Income tax provision (benefit)
  $
4,740
     
18.1
 %   $
4,819
     
22.5
 %   $
(21,105
 )    
(291.2
 %)
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company’s tax returns are subject to examination by federal, state and international taxing authorities for the following periods:
         
Jurisdiction
 
Fiscal Years
 
Subject
to
 
Examination
 
United States
–
federal and state
   
2016
-
2019
  
Sweden
   
2012
-
2019
  
Germany
   
2017
-
2019
  
Netherlands
   
2013
-
2019
  
 
 
 
 
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
                 
 
  
For the Years Ended December 31,
  
 
  
    2019    
 
  
    2018    
 
 
  
(Amounts in thousands)
  
Balance of gross unrecognized tax benefits, beginning of period
  $
2,852
    $
1,806
 
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period
   
602
      
1,062
 
Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken in the prior period
 
 
(16
)
 
 
—  
 
Gross amounts of decrease due to release
   
(16
 )     
(16
 )
                 
Balance of gross unrecognized tax benefits, end of period
  $
3,422
    $
2,852
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in the balance of unrecognized tax benefits as of December 31, 2019 are $
3.4
 
million of tax benefits that, if recognized, would affect the effective tax rate. The Company classifies interest and penalties related to income taxes as components of its income tax provision. The amount of interest and penalties recorded in the accompanying consolidated statements of comprehensive income was approximately $5,000 for the year ended December 31, 2019 and approximately $1,000 for the years ended December 31, 2018 and 2017, respectively. The amount of interest and penalties recorded in the accompanying consolidated balance sheets was approximately $41,000 and $46,000 as of December 31, 2019 and 2018, respectively. The Company does not anticipate the amount of unrecognized tax benefits to change over the next twelve months.
As of December 31, 201
9
, the Company has accumulated undistributed earnings generated by
its
foreign subsidiaries of approximately $
93.5
 million. Because $
58.0
 
million of such earnings have previously been subject to the
one-time
transition tax on foreign earnings required by the 2017 Tax Act, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign and state taxes. At December 31, 2019, the Company has not provided for taxes on outside basis differences of its foreign subsidiaries, as the Company has the ability and intent to indefinitely reinvest the undistributed earnings of its foreign subsidiaries, and there are no needs for such earnings in the United States that would contradict its plan to indefinitely reinvest.
ASU
2016-16,
“Intra-Entity Transfers of Assets Other Than Inventory,”
requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized when the intra-entity transfer occurs rather than deferring recognition of income tax consequences until the transfer was made with an outside party. The Company adopted the provisions of this ASU in the first quarter of 2018. The adoption resulted in a decrease of $
5.7
 
million to other assets, a decrease of
$
5.0
million to deferred tax liabilities and a decrease of $
0.7
million to accumulated deficit at January 1, 2018.
On December 22, 2017, President Trump signed into law H.R. 1/Public Law No.
 115-97,
the tax legislation commonly known as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The Act made significant changes to federal tax law, including, but not limited to, a reduction in the federal income tax rate from 35% to 21%, taxation of certain global intangible
low-taxed
income, allowing for immediate expensing of qualified assets, stricter limits on deductions for interest and certain executive compensation, and a
one-time
transition tax on previously deferred earnings of certain foreign subsidiaries.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of H.R.1. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. During 2018, final adjustments noted below have been made to the provisional amounts recorded during 2017, and the Company has now completed its accounting for various tax impacts of the Act.
The Act lowered the Company’s U.S. statutory federal tax rate from
35
% to 21% effective January 1, 2018. The Company recorded a tax benefit of $
12.8
 million in the year ended December 31, 2017 for the reduction in its US
deferred tax assets and liabilities resulting from the rate change. The accounting for this item is complete and no adjustments were made to this amount during 2018.
 
The Act included a
one-time
deemed repatriation transition tax whereby entities that are shareholders of a specified foreign corporation must include in gross income the undistributed and previously untaxed post-1986 earnings and profits of the specified foreign corporation. The Company’s provisional amount recorded at December 31, 2017 increased its tax provision by $
3.3
 
million. As of December 31, 2018, the accounting for this item was complete.
The Company is subject to a territorial tax system under the Act, in which the Company is required to provide for tax on Global Intangible
Low-Taxed
Income (“GILTI”) earned by certain foreign subsidiaries. The Company has adopted an accounting policy to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense.