Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
 9 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income tax expense and effective tax rates were as follows:
Three Months Ended September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
(in thousands, except effective tax rate)
Income (loss) before income taxes $ 23,585  $ 7,930  $ 60,843  $ (5,383)
Income tax (benefit) expense (69,704) 649  (68,456) 2,954 
Effective tax rate (295.5) % 8.2  % (112.5) % 54.9  %

In general, with certain exceptions, ASC 740-270, Income Taxes, requires the use of an estimated annual effective tax rate to compute the tax provision during an interim period. For the three and nine months ended September 30, 2022, the Company has net income before income taxes and used an estimated annual effective tax rate to compute the income tax provision. However, due to operating losses for the nine months ended September 30, 2021, the Company determined that it was unable to reliably estimate its annual effective tax rate. As such, for the three and nine months ended September 30, 2021, the Company used a discrete method, which reflected the actual tax attributable to year-to-date earnings and losses for the period.

The Company recorded income tax benefit of $69.7 million and income tax expense of $0.6 million for the three months ended September 30, 2022 and 2021, respectively. The effective tax rate for the three months ended September 30, 2022 was negative 295.5% compared to 8.2% for the three months ended September 30, 2021. The effective tax rate for the three months ended September 30, 2022, differs from the Federal statutory rate of 21%
primarily due to the release of federal and state valuation allowances during the quarter as discussed below, state taxes, and U.S. tax on foreign operations. The effective tax rate for the three months ended September 30, 2021 differs from the Federal statutory rate of 21% primarily due to valuation allowances and state taxes.

The Company recorded income tax benefit of $68.5 million and income tax expense of $3.0 million for the nine months ended September 30, 2022 and 2021, respectively. The effective tax rate for the nine months ended September 30, 2022 was negative 112.5% compared to 54.9% for the nine months ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022, differs from the Federal statutory rate of 21% primarily due to the release of federal and state valuation allowances during the quarter as discussed below, state taxes, and U.S. tax on foreign operations. The effective tax rate for the nine months ended September 30, 2021 differs from the Federal statutory rate of 21% primarily due to revaluation of deferred taxes in the United Kingdom, valuation allowances and state taxes.

The Company’s net U.S. federal and state deferred tax assets were previously fully offset by a valuation allowance, excluding a portion of its deferred tax liabilities for tax deductible goodwill, primarily as a result of the Company’s lack of U.S. earnings history and cumulative loss position. The Company prepares a quarterly analysis of its deferred tax assets which considers positive and negative evidence, including its cumulative income (loss) position, revenue growth, continuing and improved profitability, and expectations regarding future profitability. Although the Company believes its estimates are reasonable, the ultimate determination of the appropriate amount of valuation allowance involves significant judgment.

The Company determined sufficient positive evidence existed to conclude that the U.S. deferred tax assets are more likely than not realizable. As a result, the Company released the valuation allowance attributed to the deferred tax assets associated with the Company’s operations in the U.S. during the three months ended September 30, 2022. In making the determination to release the valuation allowance, the Company considered its movement into a cumulative income position for the most recent three-year period, the significant decrease in interest expense from the paydown of debt in the fourth quarter of 2021 using IPO proceeds, its seventh consecutive quarter of operating income, forecasts for future earnings for its U.S. operations, and other factors. The release of the valuation allowance resulted in a non-cash deferred tax benefit of $70.2 million, which materially decreased the Company’s income tax expense during the three months ended September 30, 2022.

On August 16, 2022, the "Inflation Reduction Act" (H.R. 5376) was signed into law in the United States. Among other things, the Act imposes a 15% corporate alternative minimum tax for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. The Company is still in the process of analyzing the provisions of the Act. The Company does not currently expect the Inflation Reduction Act to have a material impact on the condensed consolidated financial statements.