INCOME TAXES (Notes)

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

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

	Year Ended December 31,
	2022		2021		2020
Income from operations before income taxes:
United States	$	31,322	$	31,085	$	9,182
Foreign	14,015		12,870		3,252
Total income from operations before income taxes	$	45,337	$	43,955	$	12,434
Provision for (Benefit from) income taxes:
Current tax expense (benefit):
Federal	$	—	$	—	$	—
State	121		119		133
Foreign benefit of net operating losses	(880)		(1,616)		(883)
Other foreign	1,283		2,612		1,295
Total current tax expense	524		1,115		545
Deferred tax (benefit) expense:
Federal	—		—		—
State	—		—		—
Other foreign	(10,428)		1,452		827
Total deferred tax (benefit) expense	(10,428)		1,452		827
Total (benefit from) provision for income taxes	$	(9,904)	$	2,567	$	1,372

Net deferred tax assets (liabilities) consisted of the following at December 31, 2022 and 2021 (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Tax credit and loss carryforwards	$	230,253	$	247,658
Allowances for bad debts	42		45
Difference in accounting for:
Revenues	10,563		3,515
Costs and expenses	27,350		27,093
Inventories	1,289		1,529
Long-term lease liabilities	5,365		6,093
Gross deferred tax assets	274,862		285,933
Valuation allowance	(252,874)		(273,877)
Deferred tax assets after valuation allowance	21,988		12,056
Deferred tax liabilities:
Difference in accounting for:
Costs and expenses	(826)		(779)
Inventories	—		(46)
Right of use asset	(5,312)		(6,021)
Gross deferred tax liabilities	(6,138)		(6,846)
Net deferred tax assets	$	15,850	$	5,210
Recorded as:
Deferred tax assets, net	15,859		5,210
Deferred tax liabilities, net	(9)		—
Net deferred tax assets	$	15,850	$	5,210

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. Management believes the remaining deferred tax assets, based largely on the long history of U.S. tax losses, warrant a valuation allowance based on the weight of available negative evidence. We have experienced recent profitability in the U.S.; however we intend to continue maintaining a full valuation allowance on our U.S. deferred tax assets until there is sufficient positive evidence to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Any such release of the valuation allowance, or a portion thereof, would result in a material non-cash income tax benefit in the quarter the realizability of the respective deferred taxes were deemed to be more likely than not and would increase non-cash income tax expense in the periods subsequent to the reversal.

For U.S. federal and state income tax purposes at December 31, 2022, we had tax credit carryforwards of $46.9 million, which will expire between 2023 and 2042, federal net operating loss carryforwards of $616.4 million and state net operating loss carryforwards of $328.1 million, the majority of which will expire between 2023 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 September 19, 2022 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, 2022.

Additionally, we have foreign net operating loss carryforwards of $107.5 million and capital loss carryforwards of $1.5 million, each with an indefinite carryforward period and tax credit carryforwards of $6.0 million that begin to expire in 2031. We have

determined there is uncertainty regarding the realization of a portion of these assets and have recorded a valuation allowance against $49.3 million of net operating losses, $1.5 million of capital losses and $6.0 million of tax credits at December 31, 2022.

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, 2022, 2021, and 2020:

	Year Ended December 31,
	2022		2021		2020
Statutory tax	$	9,521	$	9,230	$	2,611
Tax credits utilized and expired	838		892		1,356
Foreign operations	4,155		1,526		981
Change in uncertain tax positions	(11,323)		—		(474)
Non-deductible expenses and other	630		294		304
Stock based compensation	(3,115)		(7,542)		(430)
Non-deductible executive compensation	2,630		3,464		551
Non-taxable income from PPP loan forgiveness	—		(1,638)		—
Change in valuation allowance	(13,240)		(3,659)		(3,527)
(Benefit from) provision for income taxes	$	(9,904)	$	2,567	$	1,372

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 and, in 2022, increases in our U.S. foreign income inclusion - also known as global intangible low-taxed income (GILTI) - largely driven by the 2022 U.S. tax law change requiring the capitalization of R&D costs – drives the change in the taxes on foreign operations. The 2022 decrease in our uncertain tax positions relates to the recognition of an uncertain tax benefit associated with our German subsidiary’s net operating loss carryforwards due to the expiration of the statute of limitations associated with the issue. 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 change in the non-deductible executive compensation was primarily related to the change in the value of stock compensation awarded to our executives. The decreases in our valuation allowance were primarily driven by the decreases of U.S. net deferred tax assets. In 2022 the decrease in our net deferred tax assets was driven by higher U.S. taxable income largely associated with the 2022 U.S. tax law change requiring the capitalization of R&D costs. The higher taxable income allowed us to utilize interest expense carryforward deductions and to utilize net operating losses that would have expired in 2022 and 2023. These deferred tax asset utilizations were largely, but not entirely, substituted with new deferred tax assets representing future R&D amortization deductions.

As a result of Tax Cuts and Jobs Act (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 January 1, 2020, 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 and $11.2 million related to German net operating loss carryforwards utilizable in our subsequently reorganized German subsidiary. 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 a 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. During 2022, the decrease of $11.2 million was primarily due to the expiration of the statute of limitations associated with net operating loss carryforwards at our German subsidiary. The

balance of the unrecognized benefit at December 31, 2022 relates only Irish withholding tax issue, which 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, 2022, 2021, and 2020 (in thousands):

Unrecognized tax benefits at January 1, 2020	$	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
Decreases due to expiration of statute of limitations	(11,233)
Unrecognized tax benefits at December 31, 2022	$	436

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, 2022 and 2021.

The tax years 2011 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.