INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

11. INCOME TAXES

The components of income before income taxes for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

	2021		2020		2019
Domestic	$	(38,407)	$	(17,689)	$	(15,661)
Foreign		15,720		17,782		21,733
Total	$	(22,687)	$	93	$	6,072

The following is a reconciliation from the tax computed at statutory income tax rates to the Company’s income tax expense for the years ended December 31, 2021, 2020 and 2019 (in thousands):

	2021		2020		2019
Tax computed at statutory US federal income tax rates	$	(4,760)	$	20	$	1,275
Noncontrolling interest		(158)		(851)		(648)
Foreign tax rate differential		(4,520)		1,866		(1,769)
Over (under) provided in prior periods		(78)		(520)		(244)
Nondeductible expenses		1,429		1,098		3,359
Benefit Attributable CARES Act		—		(3,064)		—
Capitalized transactions costs		898		—		19
Change in tax reserves		2,524		2,148		3,883
State Taxes, net of federal benefit		(1,399)		(409)		(429)
Change in valuation allowance		3,575		33		(35)
Investment Tax Credit		101		84		(1,215)
Stock-based compensation		510		406		422
Deferred income tax revaluation		—		(10)		(513)
Total Income Tax Expense	$	(1,878)	$	801	$	4,105

The components of income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

\
	2021		2020		2019
Current:
United States—Federal	$	460	$	504	$	(1,559)
United States—State		2		3		(336)
Foreign		4,272		7,611		8,192
Total current income tax expense	$	4,734	$	8,118	$	6,297
Deferred:
United States—Federal	$	(5,800)	$	(6,527)	$	(1,805)
United States—State		(1,402)		(413)		(93)
Foreign		590		(377)		(294)
Total deferred income tax expense (benefit)	$	(6,612)	$	(7,317)	$	(2,192)
Consolidated:
United States—Federal	$	(5,340)	$	(6,023)	$	(3,364)
United States—State		(1,400)		(410)		(429)
Foreign		4,862		7,234		7,898
Total income tax expense (benefit)	$	(1,878)	$	801	$	4,105

The significant components of deferred tax assets and liabilities are as follows as of December 31, 2021 and 2020 (in thousands):

	2021		2020
Deferred tax assets:
Accounts receivable and inventory allowances	$	2,348	$	1,972
Basis in investments		6,939		7,512
Accrued expenses		8,619		4,701
Deferred revenue		27,940		3,141
Employee benefits		8,454		4,363
Other, net		968		744
Net operating losses		41,117		26,582
Tax Credits		1,916		1,997
Operating lease liability		31,207		14,648
Total deferred tax asset		129,508		65,660
Deferred tax liabilities:
Acquired intangible assets, property and equipment		83,423		26,736
Right-of-use asset		29,967		14,594
Prepaid expense		189		209
Total deferred tax liabilities		113,579		41,539
Valuation allowance		(33,642)		(31,014)
Net deferred tax liabilities	$	(17,713)	$	(6,893)

Deferred tax assets and liabilities are reflected in the accompanying consolidated balance sheets as follows (in thousands):

	2021		2020
Deferred tax assets:
Long term	$	3,747	$	3,782
Total deferred tax asset	$	3,747	$	3,782
Deferred tax liabilities:
Long term	$	(21,460)	$	(10,675)
Total deferred tax liabilities	$	(21,460)	$	(10,675)
Net deferred tax liabilities	$	(17,713)	$	(6,893)

The Company’s effective tax rate for the years ended December 31, 2021 and 2020 was 8.3% and 858.3%, respectively.

The effective tax rate for the year ended December 31, 2021 was primarily impacted by the following items: (i) a $0.9 million provision related to certain transactional charges incurred in connection with acquisitions for which there is no tax benefit, (ii) a $2.5 million net increase of unrecognized tax positions, (iii) a $1.7 million net increase for permanently non-deductible expenses, and (iv) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in jurisdictions where valuation allowances have been established for deferred tax assets as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands.

The effective tax rate for the year ended December 31, 2020 was primarily impacted by the following items: (i) a $3.1 million net benefit attributable to the remeasurement of domestic losses at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) a $2.1 million net increase of unrecognized tax positions, (iii) a $1.5 million net increase for permanently non-deductible expenses, (iv) a $21.5 million loss on the sale of Vibrant with no tax

benefit, and (v) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in jurisdictions where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands.

As of December 31, 2021, the Company estimated that it had gross federal, state and foreign net operating loss (“NOL”) carryforwards of $54.1 million, $46.8 million and $120.2 million respectively. Of these, $85.2 million will expire between 2029 and 2042 and $135.9 million may be carried forward indefinitely.

The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. A significant piece of negative evidence evaluated is cumulative losses incurred in certain reporting jurisdictions over the three-year period ended December 31, 2021. Other negative evidence examined includes, but is not limited to, losses expected in early future years, a history of tax benefits expiring unused, uncertainties whose unfavorable resolution would adversely affect future results, and brief carryback, carry forward periods. On the basis of this evaluation, the Company believed it was more likely than not that the benefit from some of these federal, state, and foreign deferred taxes would not be realized.

In recognition of this risk at December 31, 2021 the Company has provided a valuation allowance against certain domestic and foreign deferred tax assets of $33.6 million. The valuation allowance primarily relates to foreign net operating losses, with the remaining amount applicable to other net deferred tax assets which the Company does not expect to be able to realize.

As of December 31, 2021 The Company had an estimated $156.6 million of undistributed earnings attributable to foreign subsidiaries for which no provision for state income taxes or foreign withholding taxes have been made because it is expected that such earnings will be reinvested outside the U.S. indefinitely unless repatriation can be done substantially tax-free. The Company will generally be free of additional U.S. federal tax consequences on distributed foreign subsidiary earnings due to a dividends received deduction implemented as part of the Tax Act for earnings distributed after January 1, 2018. Additionally, due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings, the majority of previously unremitted earnings have already been subjected to U.S. federal income tax. The Company continues to assert indefinite reinvestment on outside basis differences in our non-U.S. subsidiaries, additionally any determination of the amount of the unrecognized deferred tax liability on outside basis differences is not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios and the variation due to multiple potential assumptions relating to the timing of any future repatriation.

The Company had unrecognized tax benefits (including interest and penalty) of $51.3 million as of December 31, 2021, $40.8 million as of December 31, 2020 and, $38.6 million as of December 31, 2019. The net increase of the reserve during the year ended December 31, 2021 was attributable to an increase in tax positions for prior periods of $1.8 million, a net increase in tax positions for the current period of $3.9 million, a net increase in tax positions acquired as part of a business combination of $8.3 million and partially offset by a lapse in statute of a prior year position of $3.4 million.

The following shows the activity related to unrecognized tax benefits (not including interest and penalty) during the three years ended December 31, 2021 (in thousands):

Gross unrecognized uncertain tax benefits at December 31, 2018	$	30,232
Increase in unrecognized tax benefits taken during a prior period		—
Increase in unrecognized tax benefits taken during the current period		3,383
Lapse in statute of limitations		(933)
Settlements		—
Gross unrecognized uncertain tax benefits at December 31, 2019	$	32,682
Increase in unrecognized tax benefits taken during a prior period		—
Increase in unrecognized tax benefits taken during the current period		2,964
Lapse in statute of limitations		(1,768)
Settlements		—
Gross unrecognized uncertain tax benefits at December 31, 2020	$	33,878
Increase in unrecognized tax benefits taken during a prior period		(216)
Increase in unrecognized tax benefits taken during the current period		3,880
Increase in unrecognized tax benefits acquired as part of a business combination		8,275
Lapse in statute of limitations		(2,103)
Settlements		—
Gross unrecognized uncertain tax benefits at December 31, 2021	$	43,714

The Company’s accounting policy is to classify interest and penalties related to income tax matters as part of income tax expense. The accrued amounts for interest and penalties are $7.6 million as of December 31, 2021, $6.9 million as of December 31, 2020, and $5.9 million as of December 31, 2019.

The majority of unrecognized uncertain tax benefits (including interest and penalty) would impact the effective tax rate if recognized.

The Company and its subsidiaries file income tax returns in the US and in various, state and local and foreign jurisdictions. The statute of limitations related to the consolidated US federal income tax return is closed for all tax years up to and including 2013. The expiration of the statute of limitations related to the various state and foreign income tax returns that the Company and subsidiaries file varies by jurisdiction.