Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXESIncome (loss) before income tax (benefit) expense consists of the following:

	Years ended December 31,
	2022		2021		2020
Domestic	$	(37,875)	$	(13,202)	$	(33,991)
Foreign	16,224		4,641		3,218
(Loss) Income before income taxes	$	(21,651)	$	(8,561)	$	(30,773)

The components of the income tax expense (benefit) for income taxes are as follows:

	Years ended December 31,
	2022		2021		2020
Current:
Federal	$	(1,329)	$	211	$	(3,557)
State	162		114		169
Foreign	3,860		6,372		(2,032)
Current income tax expense (benefit)	2,693		6,697		(5,420)
Deferred:
Federal	2		15,464		(2,886)
State	(32)		6,418		(2,937)
Foreign	2,442		2,824		(20,159)
Deferred income tax expense (benefit)	2,412		24,706		(25,982)
Income tax expense (benefit)	$	5,105	$	31,403	$	(31,402)

Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to our actual income tax expense (benefit) are summarized below:

	Years ended December 31,
	2022		2021		2020
Tax expense at statutory rate	$	(4,548)	$	(1,798)	$	(6,462)
State income taxes, net of federal benefit	(864)		106		(1,400)
Foreign tax rate difference	314		303		1,999
Change in valuation allowance	2,534		26,475		(3,736)
Impact of intra-entity IP transfers	—		231		(19,227)
Prepaid tax on intercompany profit	2,966		3390		—
Impact of permanent differences of non-deductible cost	2,221		1,658		(602)
Withholding/other foreign taxes	165		838		—
Research and development credit	(273)		(737)		(662)
Global intangible low-taxed income (“GILTI”)	3,238		763		—
Foreign currency gain/loss	(468)		594		—
Provision to return adjustments & deferred adjustments	(395)		313		(572)
Change in enacted tax rates	(883)		(306)		(1,138)
Equity based compensation	1,144		(245)		(42)
Uncertain tax positions	(46)		(185)		—
Other	—		3		440
Income tax expense (benefit)	$	5,105	$	31,403	$	(31,402)

The components of our net deferred income tax assets and liabilities are as follows:

	As of December 31,
	2022		2021
Net deferred income tax asset - Non-current
Warranty cost	$	301	$	305
Inventory reserve	2,255		2,287
Unearned service revenue	8,930		9,913
Employee stock options	3,772		3,282
Tax credits	4,296		3,688
Loss carryforwards	19,197		18,487
Depreciation	729		1,295
Other, net	—		1,402
Intangibles & goodwill	12,461		14,400
Lease liability	3,690		4,749
Total deferred tax assets	55,631		59,808
Valuation allowance	(37,295)		(35,148)
Total deferred tax assets net of valuation allowance	18,336		24,660
Net deferred income tax liability - Non-current
Other, net	(2,420)		—
Operating lease right-of-use asset	(3,441)		(4,441)
Total deferred tax liabilities	(5,861)		(4,441)
Net deferred tax assets	$	12,475	$	20,219

Our domestic entities had a net deferred tax liability in the amount of $0.5 million and $0.4 million as of December 31, 2022 and December 31, 2021, respectively. Our foreign entities had net deferred tax assets in the amount of $12.9 million and $20.6 million as of December 31, 2022 and December 31, 2021, respectively. At December 31, 2022 we had U.S. federal and state net operating loss carryforwards of $22.1 million and $90.5 million, respectively. $21.9 million of our federal net operating losses carryforward indefinitely while a portion of our federal and state net operating loss carryforwards will begin to expire in 2034 and 2029, respectively. We also had federal and state R&D credits of $3.2 million and $0.4 million, respectively. The federal credits will begin to expire in 2037 and our state credits carryforward indefinitely. Foreign net operating losses are $48.7 million, the majority of which can be carried forward indefinitely.

At December 31, 2022, our foreign subsidiaries had net deferred tax assets primarily relating to Intangibles of $10.3 million and net operating losses of $9.0 million, the majority of which can be carried forward indefinitely. At December 31, 2021, our foreign subsidiaries had net deferred tax assets primarily relating to Intangibles of $17.3 million and net operating losses of $7.8 million, the majority of which can be carried forward indefinitely.

The realization of deferred tax assets is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Management's evaluation begins with a jurisdictional review of cumulative gains or losses incurred over recent years. A significant piece of objective negative evidence exists when a jurisdiction has incurred cumulative losses over recent years. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the positive and negative evidence for recoverability, we establish a valuation allowance against the net deferred tax assets of a taxing jurisdiction in which we operate unless it is “more likely than not” that we will recover such assets through the above means. We have valuation allowances of $37.3 million and $35.1 million for the years December 31, 2022 and 2021, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2022, 2021 and 2020 was a $2.1 million increase, $26.5 million increase and $3.7 million increase, respectively. The increase in the valuation allowance for the year ended December 31, 2022 primarily relates to the recording of valuation allowances against our net U.S. and Singapore deferred tax assets.

On December 22, 2017, the United States enacted the U.S. Tax Cuts and Jobs Act, resulting in significant modifications to existing law, which included a transition tax on the mandatory deemed repatriation of foreign earnings. As a result of the U.S. Tax Cuts and Jobs Act, the Company can repatriate foreign earnings and profits to the U.S. with minimal U.S. income tax consequences, other than the transition tax and GILTI tax. The Company reinvested a large portion of its undistributed foreign earnings and profits in acquisitions and other investments and intends to bring back a portion of foreign cash in certain jurisdictions where the Company will not be subject to local withholding taxes and which were subject already to transition tax and GILTI tax. At December 31, 2022, we have not provided for approximately $0.4 million of withholding tax on foreign earnings and profits in certain jurisdictions that we intend to invest these earnings indefinitely.

Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. We review our tax contingencies on a regular basis and make appropriate accruals as necessary.

During 2022, the United States enacted the Inflation Reduction Act of 2022 and the CHIPS and Science Act of 2022. We have performed an analysis of the applicable tax law changes and have determined any change would be immaterial.

As of December 31, 2022, 2021 and 2020, our unrecognized tax benefits totaled $2.4 million, $1.7 million and $1.9 million, respectively, which are included in Income taxes payable and offsetting an associated deferred tax asset.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Years ended December 31,
	2022		2021		2020
Balance at January 1	$	1,664	$	1,873	$	1,924
Additions based on tax positions related to the current year	1,924		53		273
Additions for tax positions of prior years	—		—		—
Lapse of statute of limitations	(1,160)		(262)		(324)
Balance at December 31	$	2,428	$	1,664	$	1,873

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The table below summarizes the open tax years and ongoing tax examinations in major jurisdictions as of December 31, 2022.

Jurisdiction	Open Years	Examination in Process
United States - Federal Income Tax	2019-2022	N/A
United States - various states	2018-2022	N/A
Germany	2014-2022	N/A
Switzerland	2020-2022	N/A
Singapore	2018-2022	N/A

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $2.4 million. We do not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to our financial position. We are subject to income taxes at the federal, state and foreign country level. Our tax returns are subject to examination at the U.S. state level and are subject to a three to four year statute of limitations, depending on the state.