Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income Tax Expense
The following table sets forth the income (loss) before income taxes and the total income tax (benefit) expense.
Year Ended December 31,
2022 2021 2020
(in thousands)
Income (loss) before income taxes:
U.S. $ 65,786  $ (11,100) $ (85,223)
Foreign (264) (7,517) (2,916)
Income (loss) before income taxes $ 65,522  $ (18,617) $ (88,139)
Income tax expense (benefit):
Current income taxes:
U.S. federal $ —  $ —  $ (85)
U.S. state 1,769  445  672 
Foreign 1,837  756  448 
Total current income tax expense 3,606  1,201  1,035 
Deferred income taxes:
U.S. federal (56,754) 545  1,669 
U.S. state (24,780) 1,653  1,901 
Foreign (1,124) (713) (667)
Total deferred income tax (benefit) expense (82,658) 1,485  2,903 
Total income tax (benefit) expense $ (79,052) $ 2,686  $ 3,938 
The following table sets forth the reconciliations of the statutory federal income tax rate to actual rates based upon the income (loss) before income taxes:
Year Ended December 31,
2022 2021 2020
Income tax expense (benefit) and rate attributable to: % % %
U.S. federal income tax 21.0  % (21.0) % (21.0) %
U.S. state income tax, net of federal benefit 4.9  % 2.3  % (1.5) %
Change in valuation allowances (147.5) % (0.4) % 25.5  %
U.S. tax on foreign operations 0.2  % 19.4  % 0.8  %
Change in tax rates —  % 6.6  % 0.8  %
Non-deductible IPO costs —  % 5.6  % —  %
Non-deductible stock compensation 3.1  % —  % —  %
Research and development tax credits (1.3) % —  % —  %
Recognition of stranded deferred tax balances (1.3) % —  % —  %
Other 0.3  % 1.9  % (0.1) %
Effective income tax rate (120.6) % 14.4  % 4.5  %
The effective tax rate for the year ended December 31, 2022 differs from the U.S. federal statutory rate of 21% primarily due to the release of the U.S. federal and state valuation allowances in 2022, and state taxes. The rate for the year ended December 31, 2021 differs from the U.S. federal statutory rate of 21% primarily due to U.S. tax on
foreign operations, non-deductible IPO costs, and change in tax rates in the United Kingdom. U.S. tax on foreign operations consists principally of Global Intangible Low-taxed Income (“GILTI”) and Base Erosion Anti-avoidance Tax (“BEAT”).
Deferred Tax Assets and Liabilities
Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows:
December 31,
2022 2021
(in thousands)
Deferred tax assets:
Income tax loss carryforwards $ 66,135  $ 83,342 
Accrued expenses and other liabilities 5,485  7,500 
Interest expense carryovers 38,449  38,444 
Interest rate swap —  2,188 
Stock-based compensation 3,497  3,270 
Other 1,225  581 
Total deferred tax assets 114,791  135,325 
Valuation allowances (1,455) (100,339)
Net deferred tax assets 113,336  34,986 
Deferred tax liabilities:
Property and equipment (2,073) (5,120)
Capitalized expenses (4,618) (4,414)
Intangible assets (38,157) (40,217)
Total deferred tax liabilities (44,848) (49,751)
Net deferred tax assets (liabilities) $ 68,488  $ (14,765)
Prior to September 2022, the company’s net U.S. federal and state deferred tax assets were 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 third quarter of 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 $96.6 million, which materially decreased the Company’s income tax expense during the year ended December 31, 2022.
Net Operating Losses
As of December 31, 2022, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $230.8 million, of which $72.8 million may be carried forward indefinitely and $158.0 million will
begin to expire in 2036. The Company had total state NOL carryforwards of approximately $310.2 million, which will begin to expire in 2025.
Utilization of some of the U.S. federal and state NOL and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of NOL and credits before utilization. The net operating losses are presented net of any expirations associated with such limitations.
At December 31, 2022, the Company had foreign net operating losses of $5.7 million which will begin to expire in 2036.
Taxation of Unremitted Foreign Earnings
Undistributed foreign earnings of the Company’s foreign subsidiaries were approximately $98.3 million and $116.5 million at December 31, 2022 and 2021, respectively. During the year ended December 31, 2020, the Company re-evaluated its position to repatriate foreign earnings and concluded undistributed foreign earnings will be permanently reinvested in its foreign subsidiaries. The Company believes that it can maintain a sufficient level of liquidity for its U.S. operations arising from the normal course of operations, including liquidity needs associated with U.S. debt service requirements. As a result, deferred taxes associated with foreign withholding taxes of $0.7 million and $0.5 million have not been recorded for repatriation of undistributed foreign earnings as of December 31, 2022 and 2021, respectively.
Unrecognized Tax Benefits
ASC 740, Income Taxes, prescribes a recognition threshold of more-likely-than not to be sustained upon examination as it relates to the accounting for uncertainty in income tax benefits recognized in an enterprise’s financial statements. The Company’s unrecognized tax benefits are associated with tax positions taken during prior years and amounted to $0.2 million and $0.1 million as of December 31, 2022, and 2021, respectively. There were no unrecognized tax benefits as of December 31, 2020.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the income tax expense in the consolidated statements of operations. As of December 31, 2022, and 2021, the Company accrued a nominal amount of interest and penalties. If the Company is eventually able to recognize the uncertain positions, the Company’s effective tax rate would be reduced.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or foreign income tax examination by taxing authorities for years prior to 2017.
Inflation Reduction Act
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% non-deductible excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. We expect the excise tax to apply to the Company’s share repurchase program but do not expect the tax to have a material effect on the Company’s consolidated financial statements. For further information on the share repurchase program, see “Note 20 — Stockholders' Equity.”