Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.24.0.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES 17—INCOME TAXES
As of December 31, 2023, unremitted earnings in foreign subsidiaries are indefinitely reinvested. Should these earnings be distributed in the future in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to various jurisdictions. Due to the 2017 Tax Act, there is no U.S. federal tax on cash repatriation from foreign subsidiaries, but it could be subject to foreign withholding tax and U.S. state income taxes.
Income (loss) before income taxes by tax jurisdiction consists of the following for the periods shown below (in thousands):
Years Ended December 31,
2023 2022 2021
United States $ (7,749) $ (27,615) $ 25,181 
Foreign 5,229  3,997  (14,702)
Total income (loss) $ (2,520) $ (23,618) $ 10,479 
Provision for (benefit from) current and deferred income taxes consists of the following for the periods shown below (in thousands):
Years Ended December 31,
2023 2022 2021
Current tax expense:
Federal $ 55  $ (422) $ 959 
State 559  (314) 731 
Foreign 3,861  2,632  396 
Total current tax expense $ 4,475  $ 1,896  $ 2,086 
Deferred tax expense:
Federal $ 9,234  $ (6,818) $ 1,443 
State 3,643  197  (404)
Foreign (479) (1,110) (3,383)
Total deferred tax expense $ 12,398  $ (7,731) $ (2,344)
Income tax expense (benefit) $ 16,873  $ (5,835) $ (258)
The difference between the actual rate and the federal statutory rate is as follows:
Years Ended December 31,
2023 2022 2021
Statutory rate 21.0  % 21.0  % 21.0  %
Foreign provision 6.6  —  0.6 
State/province income tax (3.7) 5.8  4.0 
Stock compensation 43.6  8.9  (1.6)
Unrecognized tax benefits 11.1  0.9  8.9 
Research credit 14.8  3.5  (11.0)
Return to provision
 (15.3) 0.8  1.5 
Other foreign branch impacts
 (16.7) (10.2) (4.6)
Valuation allowance (643.4) (3.6) 3.2 
Foreign-derived intangible income deduction (FDII) 1.2  0.3  — 
Global intangible low taxed income (GILTI) (2.8) (0.5) — 
Non-deductible expenses-other (30.7) (2.3) 3.4 
Foreign branch income (43.6) (3.5) 1.3 
Foreign tax deduction 23.8  2.4  — 
Fair value adjustment on warrants 25.2  0.9  (27.9)
Foreign tax settlement
 (60.6) —  — 
Other (0.2) 0.2  (1.3)
Effective tax rate (669.7) % 24.6  % (2.5) %
Deferred tax assets and liabilities consist of the following (in thousands):
December 31,
2023 2022
Deferred tax assets:
Net operating loss carryforwards $ 5,770  $ 8,704 
Tax credit carryforwards 1,953  3,213 
Accrued liabilities 955  1,308 
Stock compensation 5,826  4,712 
Charitable contribution 509  651 
Intangibles
 852  — 
Property and equipment 5,288  — 
Operating lease liabilities 2,425  4,672 
Total gross deferred tax assets $ 23,578  $ 23,260 
Less: Valuation allowance (18,300) (2,191)
Total deferred tax assets $ 5,278  $ 21,069 
Deferred tax liabilities:
Intangibles —  373 
Property and equipment —  748 
Prepaid expenses 1,159  1,031 
Operating lease assets 2,282  4,491 
Other 271  457 
Total deferred tax liabilities $ 3,712  $ 7,100 
Deferred tax assets (liability), net $ 1,566  $ 13,969 
The Company had approximately $19.3 million of accumulated federal net operating loss as of December 31, 2023, which may be carried forward indefinitely to offset taxable income. The Company did not have a material federal research credit carryforward as of December 31, 2023. The federal research credits are limited to a 20-year carryforward period and will expire starting in 2043. The Company also had a charitable contribution carryforward of approximately $2.1 million as of December 31, 2023. The charitable contribution is limited to a 5-year carryforward period and will expire in 2026.
The Company had tax effected state net operating loss carryforwards of approximately $1.7 million as of December 31, 2023, of which $0.5 million will carryforward indefinitely and $1.2 million will begin to expire between 2036 and 2043. The Company had $3.6 million of California research credit carryforwards as of December 31, 2023, which may be carried forward indefinitely. The Company also had $0.6 million of Texas research credit carryforwards as of December 31, 2023, which may be carried forward for 20 years and will expire starting in 2038.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss the Company expects to enter within the next three months. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2023, a valuation allowance of $18.3 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
Years Ended December 31,
2023 2022 2021
Balance at beginning of period $ 533  $ 637  $ — 
Increases for tax positions of prior years 75  313  609 
Increases for tax positions of current year —  —  148 
Decreases for tax positions of prior years —  —  — 
Settlements —  (183) (120)
Decreases for lapses in statute of limitations (261) $ (234) $ — 
Balance at end of period $ 347  $ 533  $ 637 
The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns and for all open tax years. As of December 31, 2023, the Company recorded approximately $0.3 million of unrecognized tax benefits, all of which would impact the effective tax rate, if recognized. The Company does not anticipate that its unrecognized tax benefits will materially change within the next 12 months. The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense. As of December 31, 2023, income tax expense includes an accrual of $0.1 million for the payment of interest and penalties associated with unrecognized tax benefits.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, the Company is subject to examination for both U.S. federal and state tax returns for the years 2020 to present. In late 2019, the Company was notified by the Israel Tax Authority that the Company’s Israel tax returns for the tax years ended December 31, 2016 through 2018 were under examination. In 2023, the company settled this examination with the Israel Tax Authority closing tax years 2016 through 2021. Therefore, only tax years starting from 2022 remain open to examination under the statute of limitations by the Israel Tax Authority for Israel. The tax years starting from 2020 remain open to examination by the Hong Kong Inland Revenue Department for Asia. For the remaining jurisdictions, the Company is subject to examination by tax authorities from the date the Company started operations in the respective foreign jurisdiction to present.