Upland Software, Inc.UPLD
Upland Software, Inc. Income Taxes Disclosure
6. Income Taxes
The Company's loss from continuing operations before income taxes was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Loss before provision for income taxes: | |||||||||||||||||
| United States | $ | (76,081) | $ | (117,208) | $ | (40,818) | |||||||||||
| Foreign | (34,011) | (65,159) | (29,336) | ||||||||||||||
| $ | (110,092) | $ | (182,367) | $ | (70,154) | ||||||||||||
The components of the provision (benefit) for income taxes attributable to continuing operations are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 126 | $ | — | $ | — | |||||||||||
| State | 1,216 | 901 | 971 | ||||||||||||||
| Foreign | 4,922 | 1,613 | 4,776 | ||||||||||||||
| Total Current | $ | 6,264 | $ | 2,514 | $ | 5,747 | |||||||||||
| Deferred | |||||||||||||||||
| Federal | $ | 87 | $ | (468) | $ | 84 | |||||||||||
| State | (876) | (771) | 1,062 | ||||||||||||||
| Foreign | (2,835) | (3,768) | (8,634) | ||||||||||||||
| Total Deferred | (3,624) | (5,007) | (7,488) | ||||||||||||||
| (Benefit from) provision for income taxes | $ | 2,640 | $ | (2,493) | $ | (1,741) | |||||||||||
As of December 31, 2024 the Company had total net operating loss carryforwards of approximately $244.5 million consisting of $200.6 million and $43.9 million related to the U.S federal and foreign net operating loss carryforwards, respectively. $138.8 million of the U.S. federal net operating loss carryforwards are related to years prior to 2018 and begin to expire in 2025. The remaining $61.9 million carryforward indefinitely. In addition, $43.9 million of foreign net operating loss carryforwards carry forward indefinitely, and the remainder will expire beginning in 2041. Utilization of the U.S. federal net operating losses and tax credits may be subject to substantial annual limitation due to the “change of ownership” provisions of the Internal Revenue Code of 1986. The annual limitation will result in the expiration of approximately $155.0 million of U.S. federal net operating losses and $4.1 million of credit carryforwards before utilization.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes are as follows (in thousands):
| As of December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Deferred tax assets: | |||||||||||||||||
| Accrued expenses and allowances | $ | 722 | $ | 583 | $ | 1,640 | |||||||||||
| Deferred revenue | 794 | 571 | 608 | ||||||||||||||
| Stock compensation | 512 | 489 | 612 | ||||||||||||||
| Net operating loss and tax credit carryforwards | 27,683 | 40,222 | 52,149 | ||||||||||||||
| Disallowed interest expense carryforwards | 19,482 | 17,670 | 17,181 | ||||||||||||||
| Capital expenses | 346 | 66 | 295 | ||||||||||||||
| Tax credit carryforwards | 216 | — | 348 | ||||||||||||||
| Lease liability | 453 | 960 | 2,139 | ||||||||||||||
| Research and development expenses | 19,402 | 13,247 | 6,243 | ||||||||||||||
| Other | 550 | 410 | 461 | ||||||||||||||
| Valuation allowance | (50,385) | (41,259) | (20,482) | ||||||||||||||
| Net deferred tax assets | $ | 19,775 | $ | 32,959 | $ | 61,194 | |||||||||||
| Deferred tax liabilities: | |||||||||||||||||
| Prepaid expenses | $ | (142) | $ | — | $ | (161) | |||||||||||
| Intangible assets | (23,409) | (36,342) | (54,153) | ||||||||||||||
| Goodwill | (195) | (2,850) | (7,382) | ||||||||||||||
| Tax credit carryforwards | — | (15) | — | ||||||||||||||
| Right of use asset | (326) | (670) | (1,504) | ||||||||||||||
| Unrealized gains | (2,143) | (4,049) | (10,705) | ||||||||||||||
| Deferred commissions | (4,562) | (5,003) | (5,705) | ||||||||||||||
| Net deferred tax liabilities | $ | (30,777) | $ | (48,929) | $ | (79,610) | |||||||||||
| Net deferred taxes | $ | (11,002) | $ | (15,970) | $ | (18,416) | |||||||||||
Due to the uncertainty surrounding the timing of realizing the benefits of its favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net deferred tax assets. During the year ended December 31, 2024, the valuation allowance increased by $9.1 million and during the year ended December 31, 2023 the valuation allowance increased by $20.8 million. The valuation allowance for the year ended December 31, 2024 increased $10.1 million related primarily to current U.S., U.K. and Australia operations, which have current year losses. This increase was offset by a decrease of $1.0 million due to the tax effect of items recorded in other comprehensive income . The valuation allowance for the year ended December 31, 2023 decreased by $20.8 million due to the tax effect of $7.1 million of items recorded in other comprehensive income with the remaining increase of approximately $13.7 million related primarily to current operations.
At December 31, 2024, we did not provide deferred income taxes on temporary differences resulting from earnings of certain foreign subsidiaries which are indefinitely reinvested. The reversal of these temporary differences could result in additional tax; however, it is not practicable to estimate the amount of any unrecognized deferred income tax liabilities at this time. Deferred income taxes are provided as necessary with respect to earnings that are not indefinitely reinvested.
The Company’s provision for income taxes differs from the expected tax expense (benefit) computed by applying the statutory federal income tax rate to income before taxes due to the following:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State taxes, net of federal benefit | (0.8) | % | 1.1 | % | (0.2) | % | |||||||||||
| Tax credits | — | % | — | % | 0.6 | % | |||||||||||
| Effect of foreign operations | (1.6) | % | (0.4) | % | 0.1 | % | |||||||||||
| Stock compensation | (1.5) | % | (2.2) | % | (9.5) | % | |||||||||||
| Global intangible low-taxed income | (2.6) | % | (1.3) | % | — | % | |||||||||||
| U.K. intercompany dividend | 2.5 | % | — | % | — | % | |||||||||||
| Disallowed excess executive compensation | (0.7) | % | — | % | (0.6) | % | |||||||||||
| Goodwill impairment | (12.8) | % | (12.5) | % | (3.6) | % | |||||||||||
| Permanent items and other | (0.9) | % | 1.0 | % | (0.5) | % | |||||||||||
| Change in valuation allowance | (5.0) | % | (5.9) | % | (6.9) | % | |||||||||||
| Change in tax rates | — | % | 0.6 | % | 2.1 | % | |||||||||||
| (2.4) | % | 1.4 | % | 2.5 | % | ||||||||||||
Under ASC 740-10, Income Taxes - Overall, the Company periodically reviews the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. The Company uses a “more likely than not” criterion for recognizing an asset for unrecognized income tax benefits or a liability for uncertain tax positions. The Company has determined it has an immaterial exposure related to uncertain tax positions as of December 31, 2024. To the extent the Company is required to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as an accrued liability.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024, the Company has not accrued any interest or penalties related to uncertain tax positions.
The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction and in several state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before December 31, 2020 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, 2019 US operating losses generated in years prior to 2020 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.