Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

6.INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The $2.2 trillion economic stimulus bill contains numerous tax law changes. We evaluated the tax changes to determine what provisions would apply to us. As permitted by the CARES Act, we have deferred payment of the employer’s portion of social security payroll tax payments and made a payment equal to one half of the deferred amount during the year ended December 31, 2021. The remaining half was paid during the year ended December 31, 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law. We currently do not anticipate the recently enacted law, including the corporate alternative minimum tax, one percent excise tax on stock repurchases, or tax incentives to promote clean energy, to have a material impact on our consolidated financial statements.

For the years ended December 31, 2022, 2021 and 2020, income (loss) before income taxes is broken out between U.S. and foreign-sourced operations and consisted of the following (in thousands):

	2022		2021		2020
Domestic	$	77,562	$	21,328	$	(32,216)
Foreign		5,067		32,589		18,985
Total	$	82,629	$	53,917	$	(13,231)

The components of the provision for income taxes for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands):

	2022		2021		2020
Current expense (benefit):
Federal	$	9,584	$	808	$	(937)
State		3,162		806		437
Foreign		10,291		8,480		8,407
Total current expense		23,037		10,094		7,907
Deferred expense (benefit):
Federal		(10,438)		(468)		(2,688)
State		(3,615)		(1,845)		(4,524)
Foreign		(871)		(2,318)		(4,083)
Total deferred benefit		(14,924)		(4,631)		(11,295)
Total income tax expense (benefit)	$	8,113	$	5,463	$	(3,388)

The difference between the income tax expense (benefit) reported and amounts computed by applying the statutory federal rate of 21.0% to pretax income (loss) for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands):

	2022		2021		2020
Computed federal income tax expense (benefit) at applicable statutory rate of 21%	$	17,352	$	11,323	$	(2,778)
State income tax benefit		35		(283)		(1,448)
Tax credits		(1,978)		(2,507)		(2,391)
Tax effect of international items		(10,698)		(281)		4,705
Uncertain tax positions		(47)		401		(455)
Deferred compensation insurance assets		706		(413)		(290)
Stock-based compensation		(3,423)		(5,571)		(1,822)
Valuation allowance		3,523		—		1,257
DOJ settlement		—		—		1,890
Remeasurement of state deferred taxes		(375)		(526)		(1,765)
Non-deductible expenses		2,027		2,455		1,077
Remeasurement of contingent consideration liabilities		1,061		733		(1,185)
Other — including the effect of graduated rates		(70)		132		(183)
Total income tax expense (benefit)	$	8,113	$	5,463	$	(3,388)

Deferred income tax assets and liabilities at December 31, 2022 and 2021, consisted of the following temporary differences and carry-forward items (in thousands):

	2022		2021
Deferred income tax assets:
Allowance for credit losses on trade receivables	$	1,925	$	1,494
Accrued compensation expense		9,968		11,063
Inventory differences		5,712		4,887
Net operating loss carryforwards		11,117		14,833
Stock-based compensation expense		7,167		6,388
Operating lease assets		12,801		13,431
Federal R&D tax credit		634		5,003
UT R&D Credit		4,679		4,126
IRC section 174 capitalized R&D		15,012		—
Other		8,827		9,939
Total deferred income tax assets		77,842		71,164
Deferred income tax liabilities:
Prepaid expenses		(1,568)		(1,047)
Property and equipment		(20,925)		(20,797)
Intangible assets		(38,547)		(42,888)
Foreign withholding tax		(1,571)		(5,575)
Operating lease liabilities		(11,527)		(11,938)
Other		(2,040)		(3,556)
Total deferred income tax liabilities		(76,178)		(85,801)
Valuation allowance		(13,527)		(10,786)
Net deferred income tax liabilities	$	(11,863)	$	(25,423)
Reported as:
Deferred income tax assets	$	6,599	$	6,080
Deferred income tax liabilities		(18,462)		(31,503)
Net deferred income tax liabilities	$	(11,863)	$	(25,423)

Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. Deferred income tax balances reflect the temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The valuation allowance is primarily related to state credit carryforwards, non-US net operating loss carryforwards, and capital loss carryforwards for which we believe it is more likely than not that the deferred tax assets will not be realized. The valuation allowance increased by $2.7 million during the year ended December 31, 2022, increased by $573,000 during the year ended December 31, 2021, and increased by $5.6 million during the year ended December 31, 2020.

As of December 31, 2022, we had U.S federal net operating loss carryforwards of $29.7 million, which were generated by Cianna Medical, Vascular Access Technologies, Inc., DFINE Inc., and Biosphere Medical, Inc., prior to our acquisition of these companies. These net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section 382. If unused $29.6 million of the NOLs will expire between 2025 and 2037. Of the NOLs incurred post-2017, $97,000 can be carried forward indefinitely. We anticipate that we will utilize all current net operating loss carryforwards prior to their expiration dates over the next 13 years. We utilized a total of $15.9 million in U.S. federal net operating loss carryforwards during the year ended December 31, 2022.

As of December 31, 2022, we had $22.2 million of non-U.S. net operating loss carryforwards, of which $21.1 million have no expiration date and $1.1 million expire at various dates through 2034. Non-U.S. net operating loss carryforwards utilized during the year ended December 31, 2022 were not material.

We do not consider our foreign earnings to be permanently reinvested. Consequently, we have recorded tax expense of $320,000, $288,000 and $228,000 for foreign withholding taxes on unremitted foreign earnings during the years ended December 31, 2022, 2021 and 2020, respectively. Additionally, for the year ended December 31, 2022, a tax benefit of $4.3 million was recorded with respect to the restructuring of our foreign entities and the associated change in foreign withholding taxes on the unremitted foreign earnings.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. In our opinion, we have made adequate provisions for income taxes for all years subject to audit. We are no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2019. In foreign jurisdictions, we are no longer subject to income tax examinations for years before 2016.

Although we believe our estimates are reasonable, the final outcomes of these matters may be different from those which we have reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and operating results in the period in which we make such determination.

The total liability for unrecognized tax benefits at December 31, 2022, including interest and penalties, was $1.9 million, of which $1.9 million would favorably impact our effective tax rate if recognized. At December 31, 2022, none of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet. The total liability for unrecognized tax benefits at December 31, 2021, including interest and penalties, was $2.0 million, of which $2.0 million would favorably impact our effective tax rate if recognized. At December 31, 2021, $1.0 million of the total liability was presented as a reduction to non-current deferred income tax assets on our consolidated balance sheet. As of December 31, 2022 and 2021, we had accrued $336,000 and $322,000 respectively, in total interest and penalties related to unrecognized tax benefits. We account for interest and penalties for unrecognized tax benefits as part of our income tax provision. During the years ended December 31, 2022, 2021 and 2020, our liability for unrecognized tax benefit was increased (decreased) for interest and penalties by $14,000, $46,000, and $(90,000), respectively. We estimate it is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may decrease, including expirations related to statutes of limitation, up to $109,000.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands):

	2022		2021		2020
Unrecognized tax benefits, opening balance	$	1,635	$	1,674	$	2,161
Gross increases (decreases) in tax positions taken in a prior year		(10)		82		115
Gross increases in tax positions taken in the current year		294		316		283
Lapse of applicable statute of limitations		(343)		(437)		(885)
Unrecognized tax benefits, ending balance	$	1,576	$	1,635	$	1,674

The tabular roll-forward ending balance does not include interest and penalties related to unrecognized tax benefits.