INCOME TAXES (Notes)

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The CARES Act includes several income tax provisions such as net operating loss (“NOL”) carryback and carryforward benefits and other tax deduction benefits. As noted previously, the U.S. deferred tax asset has a full valuation; accordingly, these NOL and other benefit provisions had no impact on our financial statements for the period ended December 31, 2021 and December 31, 2020. The CARES Act accelerates the alternative minimum tax (“AMT”) credit refund originally enacted by the TCJA. At December 31, 2020, we had received the cash from the Internal Revenue Service associated with this refund receivable which had been recorded as a long-term asset at December 31, 2019.

Income (loss) before income taxes and the components of the income tax provision (benefit) consisted of the following for the years ended December 31, 2021, 2020, and 2019 (in thousands):

	Year Ended December 31,
	2021		2020		2019
Income (loss) from operations before income taxes:
United States	$	31,085	$	9,182	$	4,311
Foreign	12,870		3,252		(1,786)
Total income from operations before income taxes	$	43,955	$	12,434	$	2,525
Provision for (Benefit from) income taxes:
Current tax expense (benefit):
Federal	$	—	$	—	$	(4)
State	119		133		58
Foreign benefit of net operating losses	(1,616)		(883)		(462)
Other foreign	2,612		1,295		1,632
Total current tax expense	1,115		545		1,224
Deferred tax (benefit) expense:
Federal	—		—		—
Other foreign	1,452		827		(6,300)
Total deferred tax (benefit) expense	1,452		827		(6,300)
Total provision for (benefit from) income taxes	$	2,567	$	1,372	$	(5,076)

Net deferred tax assets (liabilities) consisted of the following at December 31, 2021 and 2020 (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	247,658	$	254,745
Allowances for bad debts	45		47
Difference in accounting for:
Revenues	3,515		6,659
Costs and expenses	27,093		23,217
Inventories	1,529		1,466
Acquired intangible assets	—		62
Long-term lease liabilities	6,093		7,432
Gross deferred tax assets	285,933		293,628
Valuation allowance	(273,877)		(278,785)
Deferred tax assets after valuation allowance	12,056		14,843
Deferred tax liabilities:
Difference in accounting for:
Revenues	—		—
Costs and expenses	(779)		(626)
Inventories	(46)		(92)
Right of use asset	(6,021)		(7,324)
Gross deferred tax liabilities	(6,846)		(8,042)
Net deferred tax assets	$	5,210	$	6,801
Recorded as:
Deferred tax assets, net	5,210		6,801
Deferred tax liabilities, net	—		—
Net deferred tax assets	$	5,210	$	6,801

Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. During the year ended December 31, 2019 we determined that our Irish subsidiary has reached a level of sustained profitability sufficient enough to release a significant portion of the valuation allowance on its net operating loss carryforward. Accordingly, we reversed a $6.0 million valuation allowance against the Irish subsidiary’s net operating loss carryforward deferred tax asset. Additionally, during the year ended December 31, 2019 we completed a legal entity reorganization that reduced the number of our German subsidiaries. This reorganization allowed us to reverse a valuation allowance on the net operating loss carryforward deferred tax asset of one of the surviving German entities resulting in an increase to the deferred tax asset, net of a provision for related uncertain tax position, of $1.5 million. Management believes the remaining deferred tax assets, based largely on the history of U.S. tax losses, warrant a valuation allowance based on the weight of available negative evidence.

For U.S. federal and state income tax purposes at December 31, 2021, we had tax credit carryforwards of $47.7 million, which will expire between 2022 and 2041, and net operating loss carryforwards of $704.9 million, the majority of which will expire between 2022 and 2037.

The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue Code. We completed an assessment at December 31, 2020 regarding whether there may have been a

Section 382 ownership change and concluded that it is more likely than not that none of our net operating loss and tax credit amounts are subject to any Section 382 limitation. Our Section 382 conclusion remains unchanged at December 31, 2021.

Additionally, we have foreign net operating loss carryforwards of $93.3 million and capital loss carryforwards of $1.5 million, each with an indefinite carryforward period and tax credit carryforwards of $6.1 million that begin to expire in 2030. We have determined there is uncertainty regarding the realization of a portion of these assets and have recorded a valuation allowance against $62.1 million of net operating losses, $1.5 million of capital losses and $6.1 million of tax credits at December 31, 2021.

Our assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on our levels of pre-tax income and other tax related adjustments. Reversal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of reversal.

The following table sets forth a reconciliation of our income tax provision (benefit) to the statutory U.S. federal tax amount for the years ended December 31, 2021, 2020, and 2019:

	Year Ended December 31,
	2021		2020		2019
Statutory tax	$	9,230	$	2,611	$	530
Tax credits utilized and expired	892		1,356		815
Foreign operations	1,526		981		921
Change in uncertain tax positions	—		(474)		11,185
Non-deductible expenses and other	294		304		1,373
Stock based compensation	(7,542)		(430)		52
Non-deductible executive compensation	3,464		551		1,049
Non-taxable income from PPP loan forgiveness	(1,638)		—		—
Change in valuation allowance	(3,659)		(3,527)		(21,001)
Provision for (benefit from) income taxes	$	2,567	$	1,372	$	(5,076)

The increase in our statutory tax is driven by the increase in our income from operations before taxes. The change in our tax credits is driven by expiring U.S. research and development tax credits exceeding current year tax credits generated. Changes in the jurisdictional mix of our foreign profitability drives the change in the taxes on foreign operations. The changes in our uncertain tax positions relates to the 2020 settlement of an audit issue in our Israel subsidiary. The change in our stock-based compensation was related to the increased deduction resulting from the increase in the market value of our stock compared to the book expense determined at the grant date. The increase in the non-deductible compensation was primarily related to the increased value of stock compensation awarded to our executives. An additional new line item is added in 2021 for the benefit related to the non-taxable income from the forgiveness of the PPP loan. The 2021 and 2020 decreases in our valuation allowance were primarily driven by the decreases of U.S. deferred tax assets and in 2019 by reversal of valuation allowances on our foreign net operating loss carryforwards. In 2019, we have determined that our Irish subsidiary reached a level of sustained profitability sufficient enough to release a significant portion of the valuation allowance on its net operating loss carryforward. Accordingly, we recorded a $6.0 million benefit related to a valuation allowance against the Irish subsidiary net operating loss carryforward deferred tax asset. Additionally, the reorganization of our German subsidiaries allowed us to reverse a valuation allowance on the net operating loss carryforward deferred tax asset of one of the surviving German entities. We recorded a gross benefit of $12.6 million for this release and correspondingly recorded an $11.1 million charge for a related uncertain tax position resulting in a net benefit of $1.5 million.

As a result of TCJA and the current U.S. taxation of deemed repatriated earnings, the additional taxes that might be payable upon repatriation of foreign earnings are not significant. However, we do not have any current plans to repatriate these earnings because the underlying cash will be used to fund the ongoing operations of the foreign subsidiaries.

A tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. At December 31, 2019, our unrecognized tax benefits and related accrued interest and penalties related to an audit issue at our subsidiary in Israel in the amount of $1.8 million, of which $1.8 million would affect our income tax provision and effective tax rate if recognized. During 2019 we had an increase in our unrecognized tax positions of $11.1 million related to our German subsidiary net operating loss carryforward; this increase

relates to the German subsidiary’s legal entity reorganization mentioned above. During 2020, we reversed the accrual for the unrecognized tax position related to the audit issue at our subsidiary in Israel due to the settlement of the issue. The total decreases to the value of our unrecognized tax benefits during 2020, including the impacts of any foreign currency revaluations, were $(0.8) million. The balance of the unrecognized benefit at December 31,2020 relates only to the unrecognized tax position related to our German subsidiary net operating loss carryforward. During 2021, we had an decrease in our unrecognized tax positions of $(0.5) million of which $0.4 million related to a withholding tax issue in our Irish subsidiary and $(0.9) million related to foreign currency revaluations. The entire balance at December 31, 2021 would not affect our income tax provision or effective rate if recognized.

The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2021, 2020, and 2019 (in thousands):

Unrecognized tax benefits at January 1, 2019	$	1,763
Increases for tax positions taken during a prior period	11,248
Unrecognized tax benefits at December 31, 2019	13,011
Decreases for tax positions taken during a prior period	(818)
Unrecognized tax benefits at December 31, 2020	12,193
Decreases for tax positions taken during a prior period	(524)
Unrecognized tax benefits at December 31, 2021	$	11,669

We recognize interest and penalties related to uncertain tax positions in income tax expense. There were no accrued interest and penalties related to uncertain tax positions at December 31, 2021 and 2020.

The tax years 2010 and forward remain open to examination by taxing authorities in the jurisdictions in which we operate. The most significant operating jurisdictions include: the United States, Ireland, the Netherlands, Germany, Israel, Japan, and the United Kingdom.