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 Income Taxes
The domestic and international components of income (loss) before income taxes are presented as follows:
Year Ended December 31,
2023 2022 2021
(in thousands)
Domestic $ (85,032) $ 19,228  $ (31,975)
Foreign 21,222  154,970  79,845 
Income (loss) before income taxes $ (63,810) $ 174,198  $ 47,870 
The income tax provision consists of the following:
Year Ended December 31,
2023 2022 2021
(in thousands)
Current:
Federal $ 3,827  $ 12,002  $ 498 
State 65  237  84 
Foreign 9,896  13,432  7,630 
Total current 13,788  25,671  8,212 
Deferred:
Federal (371) 32,317  5,108 
State (4,942) (3,686) (4,506)
Foreign (6,910) (3,490) 484 
Change in valuation allowance 7,772  (1,654) (3,397)
Total deferred (4,451) 23,487  (2,311)
Total income tax provision $ 9,337  $ 49,158  $ 5,901 
The actual income tax provision differs from the amount computed using the federal statutory rate as follows:
Year Ended December 31,
2023 2022 2021
(in thousands)
Provision (benefit) at statutory rate $ (13,288) $ 36,582  $ 10,071 
State income taxes (net of federal benefit) 7  187  62 
Research and development credits (10,066) (10,146) (10,441)
Foreign rate differential (375) (21,629) (10,063)
Stock compensation 2,213  6,186  4,029 
Foreign income inclusion 27,678  27,971  14,119 
Provision to return (4,741) 6,236  (263)
Uncertain tax positions 1,272  2,551  1,072 
Permanent and other (377) 1,101  726 
Foreign unremitted earnings (758) (490) (59)
Transaction costs —  5  45 
Foreign tax credits —  2,224  — 
Attribute expirations —  34  — 
Valuation allowance 7,772  (1,654) (3,397)
Total income tax provision $ 9,337  $ 49,158  $ 5,901 
The components of the deferred income tax assets are as follows:
December 31,
2023 2022
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 29,860  $ 30,225 
Research and development credits 78,246  73,965 
Foreign tax credits 71  — 
Accrued expenses and other 13,106  10,271 
Lease obligation 2,942  1,961 
Accrued compensation 3,447  6,919 
Stock-based compensation 11,203  9,976 
Intangible assets 8,967  5,582 
147,842  138,899 
Less valuation allowance (74,292) (66,273)
73,550  72,626 
Deferred tax liabilities:
Fixed assets (966) (4,350)
Leased right-of-use assets (2,839) (1,784)
Pension liability (371) (1,569)
Net deferred tax assets $ 69,374  $ 64,923 
At December 31, 2023, the Company had federal, state and foreign tax net operating loss carryforwards of approximately $100.2 million, $77.8 million and $49.5 million, respectively. The federal and state tax loss carryforwards will begin to expire in 2025 and 2030, and foreign tax loss will not expire, unless previously utilized.
At December 31, 2023, the Company had federal, state and foreign tax credit carryforwards of approximately $29.6 million, $106.3 million and $3.2 million, respectively. The federal, state and foreign tax credit carryforwards will begin to expire in 2024, 2030 and 2026, respectively, unless previously utilized. The Company also has foreign incentive deductions of approximately $7.2 million that do not expire.
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. Based upon the Company’s review of all positive and negative evidence, the Company continues to have a valuation allowance on its state deferred tax assets, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax-free jurisdictions in which it operates.
The Company recorded an income tax provision of $9.3 million in the year ended December 31, 2023, an income tax provision of $49.2 million in the year ended December 31, 2022, and an income tax provision of $5.9 million in the year ended December 31, 2021.
The difference between the Company’s effective tax rate and the 21.0% United States federal statutory rate for the year ended December 31, 2023 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including tax credits and a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, and release of uncertain tax positions under ASC 740-10. The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.
The difference between our effective tax rate and the 21.0% U.S. federal statutory rate for the year ended December 31, 2022 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, release of uncertain tax positions under ASC 740-10, and release of the valuation allowance on certain federal research and development credits. The permanent tax item related to global intangible low-taxed income, or GILTI, also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.
The difference between our effective tax rate and the 21.0% U.S. federal statutory rate for the year ended year ended December 31, 2021 resulted primarily from a tax on GILTI, and non-deductible foreign stock-based compensation, offset by a benefit related to research and development tax credits, foreign earnings taxed at rates other than the federal statutory rate and the effect of a release of valuation allowance against certain Singapore deferred tax assets pertaining to usage of net operating losses.
Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are de-recognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.
At December 31, 2023, the Company’s unrecognized tax benefits totaled $68.6 million, $58.5 million of which, if recognized at a time when the valuation allowance no longer exists, would affect the effective tax rate. The unrecognized tax benefits are not expected to materially change in next 12 months. At December 31, 2023, the Company had accrued approximately $0.3 million of interest and penalties. The total amounts of interest and penalties recognized for the years ended December 31, 2023, 2022 and 2021 were not material.
The following table summarizes the changes to the unrecognized tax benefits during 2023, 2022 and 2021:
(in thousands)
Balance as of December 31, 2020 $ 63,765 
Additions based on tax positions related to the current year 3,366 
Additions related to acquisitions 241 
Decreases based on tax positions of prior year (1,688)
Balance as of December 31, 2021 65,684 
Additions based on tax positions related to the current year 3,431 
Decreases based on tax positions of prior year (1,981)
Balance as of December 31, 2022 67,134 
Additions based on tax positions related to the current year 3,032 
Decreases based on tax positions of prior year (1,528)
Balance as of December 31, 2023 $ 68,638 
The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At December 31, 2023, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2020, 2019, and 2017, respectively.
The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. The Company recorded a tax provision in the years ended December 31, 2023 and 2022 at the incentive rate. Due to the valuation allowance release in 2021 and the Company’s use of loss carryforwards, the Company recorded a tax benefit in the year ended December 31, 2021 at the incentive rate, net of any expected tax payable. Without the incentive rate, deferred taxes and the valuation allowance release would have provided an overall tax benefit, net of any current period payable.