Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company’s loss from operations before benefit for income taxes for the years ended December 31, 2023 and 2022 consisted of the following:

For the Year Ended December 31,
(in thousands) 2023 2022
United States $ (140,821) $ (92,021)
Foreign (30,379) (24,596)
Total loss before income taxes $ (171,200) $ (116,617)

The components of the benefit from income taxes consisted of the following:
For the Year Ended December 31,
(in thousands) 2023 2022
Current:
Federal $ 5,788  $ 4,309 
State 743  905 
Foreign 723  558 
Total current provision $ 7,254  $ 5,772 
Deferred:
Federal (8,580) (9,336)
State (946) (4,455)
Foreign (1,886) (2,398)
Total deferred benefit (11,412) (16,189)
Total income tax benefit $ (4,158) $ (10,417)

The reconciliation between income taxes computed at the U.S. statutory income tax rate to the Company’s benefit from income taxes for the years ended December 31, 2023 and 2022 is set forth in the table below as follows:

For the Year Ended December 31,
(in thousands) 2023 2022
Benefit for income taxes at 21% rate $ (35,952) 21.0  % $ (24,490) 21.0  %
State taxes, net of federal benefit (2,123) 1.2  % (1,358) 1.2  %
Change in valuation allowance 16,889  (9.9) % 10,628  (9.1) %
Rate change (44) 0.0  % (1,687) 1.4  %
Credits (544) 0.3  % (604) 0.5  %
Permanent differences and other 1,440  (0.7) % (2,712) 2.2  %
Revaluation of warrants 1,352  (0.8) % (53) 0.0  %
Uncertain tax positions 1,580  (0.9) % 591  (0.5) %
Foreign withholding tax 148  (0.1) % 134  (0.1) %
Foreign rate differential (1,725) 1.0  % (2,120) 1.8  %
Executive compensation expense 634  (0.4) % 872  (0.7) %
Transaction related expense —  0.0  % 210  (0.2) %
Global intangible low taxed income 314  (0.2) % 283  (0.2) %
Foreign derived intangible income —  0.0  % (311) 0.3  %
Goodwill impairment 13,873  (8.1) % 10,200  (8.7) %
Benefit for income taxes $ (4,158) 2.4  % $ (10,417) 8.9  %

Significant components of the Company’s deferred tax assets (liabilities) as of December 31, 2023 and 2022 are set forth as follows:
December 31,
(in thousands) 2023 2022
Deferred tax assets:
Net operating loss carry-forward $ 17,221  $ 13,617 
Credit carryforward 1,325  1,386 
Interest expense limitation carryforward 21,978  15,844 
Non-deductible reserves 1,571  339 
Accruals and other temporary differences 2,622  2,835 
Stock compensation 1,665  1,164 
Capitalized R&D Costs 2,301  — 
Lease liability 2,745  2,780 
Property and equipment 1,849  1,007 
Gross deferred tax assets $ 53,277  $ 38,972 
Less: valuation allowance (33,454) (16,177)
Total deferred tax assets (after valuation allowance) $ 19,823  $ 22,795 
Deferred tax liabilities:
Property and equipment (1,442) (1,738)
Intangible assets (22,193) (33,117)
Goodwill (3,569) (5,914)
Change in accounting method (719) (1,378)
Right-of-use asset (2,357) (2,514)
Research and development costs (3,338) (3,327)
Total deferred tax liabilities $ (33,618) $ (47,988)
Net deferred tax liabilities $ (13,795) $ (25,193)

The valuation allowance increased by $17.3 million during 2023, primarily due to an increase in U.S. disallowed interest expense carryover and U.S. state tax attributes deemed not realizable. In determining the need for a valuation allowance, the Company has given consideration to its worldwide cumulative loss position when assessing the weight of the sources of taxable income that can be used to support the realization of deferred tax assets. The Company has assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. The Company has also considered the ability to implement certain strategies that would, if necessary, be implemented to accelerate taxable income and use expiring deferred tax assets. The Company believes it is able to support the deferred tax assets recognized as of the end of the year based on all of the available evidence.

As of December 31, 2023, the Company has U.S. state tax net operating loss carryforwards of approximately $48.7 million which may be available to offset future income tax liabilities and expire at various dates beginning in 2032 through 2043. Additionally, the Company has U.S. state tax net operating loss carryforwards of approximately $5.7 million which carryforward indefinitely. Additionally, the Company has generated $57.0 million of foreign operating loss carryforwards which expire at various dates.

As of December 31, 2023, the Company did not have any federal research and development tax credits carried forward. The Company has $1.6 million of foreign research and development tax credit carryforwards.

Due to provisions of the Tax Cuts and Jobs Act of 2017, the Company has a carryforward of U.S. disallowed interest expense of $96.3 million, which has an indefinite carryforward period.

Utilization of the NOL carryforwards may be subject to limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. There could be additional ownership changes in the future, which may result in additional limitations on the utilization of the NOL and tax credit carryforwards.

For taxable years beginning after December 31, 2017, taxpayers are subjected to the global intangible low-taxed income provisions, or GILTI provisions. The GILTI provisions require the Company to currently recognize in U.S. taxable income a deemed dividend inclusion of foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The ability to benefit from a deduction and foreign tax credits against a portion of the GILTI income may be limited under the GILTI rules as a result of the utilization of net operating
losses, foreign sourced income, and other potential limitations within the foreign tax credit calculation. For each of the years ended December 31, 2023, and 2022 the Company recorded an income tax charge related to GILTI of $0.3 million. The Company has made an accounting policy election, as allowed by the SEC and FASB, to recognize the impacts of GILTI within the period incurred. Accordingly, no U.S. deferred taxes are provided on GILTI inclusions of future foreign subsidiary earnings.

As of December 31, 2023, the Company has not provided U.S. taxes on the undistributed earnings of its foreign subsidiaries that it considers indefinitely reinvested. This indefinite reinvestment determination is based on the future operational and capital requirements of the Company’s domestic and foreign operations. The Company expects that the cash held by its foreign subsidiaries of $6.8 million as of December 31, 2023 will continue to be used for its foreign operations and, therefore, does not anticipate repatriating these funds.

The Company conducts business globally and, as a result, its subsidiaries file income tax returns in U.S. federal and state jurisdictions and various foreign jurisdictions. In the normal course of business, the Company may be subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, Malta, the Netherlands, the United Kingdom, and the United States. Since the Company is in a U.S. state loss carry-forward position, the Company is generally subject to state income tax examinations by tax authorities for all years for which a loss carryforward is utilized. As of December 31, 2023, the Company was not under income tax examination in any jurisdiction.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax examinations.

The following table sets forth a reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, included in accrued liabilities and other noncurrent liabilities in the Company’s consolidated balance sheets:

(in thousands) December 31, 2023 December 31, 2022
Unrecognized tax benefits as of the beginning of the year $ 8,574  $ 8,132 
Additions for tax positions of current year 192  442 
Unrecognized tax benefits as of the end of the year $ 8,766  $ 8,574 

The Company and its subsidiaries have accumulated significant intercompany obligations owed between and among its various subsidiaries and itself. During the year ended December 31, 2022, the Company completed its assessment of its U.S. and non-U.S. income and non-income tax risks related to these obligations. These obligations are included in both current and prior period unrecognized tax benefits associated with the intercompany balances.

If the unrecognized tax benefit balance as of December 31, 2023 and 2022 were recognized, they would each separately result in a tax benefit for each year, which would impact the effective tax rate for each year. The Company does not anticipate any material changes to its unrecognized tax benefits within the next 12 months.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense. During the years ended December 31, 2023 and 2022 the Company recognized approximately $1.1 million and an immaterial amount in interest and penalties, respectively. The Company had accrued approximately $1.8 million and $1.0 million of interest and penalties as of December 31, 2023 and 2022, respectively.