Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

6.INCOME TAXES

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.

The Organization for Economic Cooperation and Development (“OECD”) Pillar 2 global minimum tax rules, which generally provide for a minimum effective tax rate of 15%, are intended to apply for tax years beginning in 2024. On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. Under a transitional safe harbor released July 17, 2023, the undertaxed profits rule top-up tax in the jurisdiction of a company's ultimate parent entity will be zero for each fiscal year of the transition period if that jurisdiction has a corporate tax rate of at least 20%. The safe harbor transition period will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026. We are closely monitoring developments and evaluating the impact these new rules are anticipated to have on our tax rate, including eligibility to qualify for these safe harbor rules.

For the years ended December 31, 2023, 2022 and 2021, income before income taxes is broken out between U.S. and foreign-sourced operations consisted of the following (in thousands):

	2023		2022		2021
Domestic	$	60,935	$	77,562	$	21,328
Foreign		51,154		5,067		32,589
Total	$	112,089	$	82,629	$	53,917

The components of the provision for income taxes for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

	2023		2022		2021
Current expense:
Federal	$	15,684	$	9,584	$	808
State		3,775		3,162		806
Foreign		10,862		10,291		8,480
Total current expense		30,321		23,037		10,094
Deferred expense (benefit):
Federal		(11,030)		(10,438)		(468)
State		(1,699)		(3,615)		(1,845)
Foreign		86		(871)		(2,318)
Total deferred benefit		(12,643)		(14,924)		(4,631)
Total income tax expense	$	17,678	$	8,113	$	5,463

The difference between the income tax expense reported and amounts computed by applying the statutory federal rate of 21.0% to pretax income for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

	2023		2022		2021
Computed federal income tax expense at applicable statutory rate of 21%	$	23,539	$	17,352	$	11,323
State income tax expense (benefit)		1,627		35		(283)
Tax credits		(2,412)		(1,978)		(2,507)
Tax effect of international items		(3,994)		(10,698)		(281)
Uncertain tax positions		4		(47)		401
Deferred compensation insurance assets		(548)		706		(413)
Stock-based compensation		(3,001)		(3,423)		(5,571)
Valuation allowance		(90)		3,523		—
Remeasurement of state deferred taxes		(73)		(375)		(526)
Non-deductible expenses		2,101		2,027		2,455
Remeasurement of contingent consideration liabilities		317		1,061		733
Other — including the effect of graduated rates		208		(70)		132
Total income tax expense	$	17,678	$	8,113	$	5,463

Deferred income tax assets and liabilities at December 31, 2023 and 2022, consisted of the following temporary differences and carry-forward items (in thousands):

	2023		2022
Deferred income tax assets:
Allowance for credit losses on trade receivables	$	2,009	$	1,925
Accrued compensation expense		10,285		9,968
Inventory differences		5,477		5,712
Net operating loss carryforwards		10,007		11,117
Stock-based compensation expense		7,913		7,167
Operating lease assets		11,331		12,801
Federal R&D tax credit		—		634
State R&D tax credits		5,237		4,679
IRC Section 174 capitalized R&D		26,370		15,012
Other		10,159		8,827
Total deferred income tax assets		88,788		77,842
Deferred income tax liabilities:
Prepaid expenses		(1,123)		(1,568)
Property and equipment		(23,539)		(20,925)
Intangible assets		(34,613)		(38,547)
Foreign withholding tax		(2,005)		(1,571)
Operating lease liabilities		(10,129)		(11,527)
Other		(1,898)		(2,040)
Total deferred income tax liabilities		(73,307)		(76,178)
Valuation allowance		(13,740)		(13,527)
Net deferred income tax assets (liabilities)	$	1,741	$	(11,863)
Reported as:
Deferred income tax assets	$	7,288	$	6,599
Deferred income tax liabilities		(5,547)		(18,462)
Net deferred income tax assets (liabilities)	$	1,741	$	(11,863)

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 $213,000 during the year ended December 31, 2023, increased by $2.7 million during the year ended December 31, 2022, and increased by $573,000 during the year ended December 31, 2021.

As of December 31, 2023, we had U.S federal net operating loss carryforwards of $24.7 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, $24.7 million of the net operating losses will expire between 2025 and 2037. We anticipate that we will utilize all current net operating loss carryforwards prior to their expiration dates over the next 12 years. We utilized a total of $5 million in U.S. federal net operating loss carryforwards during the year ended December 31, 2023.

As of December 31, 2023, we had $22.6 million of non-U.S. net operating loss carryforwards, of which $20.6 million have no expiration date and $2 million expire at various dates through 2035. Non-U.S. net operating loss carryforwards utilized during the year ended December 31, 2023 were not material.

We do not consider our foreign earnings to be permanently reinvested. Consequently, we have recorded tax expense of $434,000, $320,000 and $288,000 for foreign withholding taxes on unremitted foreign earnings during the years ended December 31, 2023, 2022 and 2021, 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 2020. In foreign jurisdictions, we are no longer subject to income tax examinations for years before 2017.

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, 2023, including interest and penalties, was $1.9 million, of which $1.9 million would favorably impact our effective tax rate if recognized. 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, 2023 and 2022, none 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, 2023 and 2022, we had accrued $290,000 and $336,000 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, 2023, 2022 and 2021, our liability for unrecognized tax benefit was increased (decreased) for interest and penalties by $(46,000), $14,000, and $46,000, respectively. We estimate it is reasonably possible that within the next 12 months the total liability for unrecognized tax benefits may increase, including expirations related to statutes of limitation, up to $7,000.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits for the years ended December 31, 2023, 2022 and 2021, consisted of the following (in thousands):

	2023		2022		2021
Unrecognized tax benefits, opening balance	$	1,576	$	1,635	$	1,674
Gross increases (decreases) in tax positions taken in a prior year		112		(10)		82
Gross increases in tax positions taken in the current year		442		294		316
Lapse of applicable statute of limitations		(508)		(343)		(437)
Unrecognized tax benefits, ending balance	$	1,622	$	1,576	$	1,635

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