Income Taxes

12 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income Tax Expense

Income (loss) from continuing operations before income taxes was as follows (in thousands):

	Year Ended March 31,		Three-Months Ended March 31, (transition period)		Year Ended December 31,
	2022		2021		2020		2019
U.S.	$	(32,904)	$	35,262	$	68,555	$	(102,004)
Non-U.S.	4,674		2,914		4,180		172
(Loss) income from continuing operations before income taxes	$	(28,230)	$	38,176	$	72,735	$	(101,832)

Income tax expense (benefit) from continuing operations was as follows (in thousands):

	Year Ended March 31,		Three-Months Ended March 31, (transition period)		Year Ended December 31,
	2022		2021		2020		2019
Current:
U.S. federal	$	362	$	5,212	$	9,465	$	164
U.S. state	(5)		1,267		3,834		419
Non-U.S.	1,444		804		1,065		453
Total current	1,801		7,283		14,364		1,036
Deferred:
U.S. federal	(6,881)		365		(517)		(9,431)
U.S. state	(940)		84		(1,629)		(540)
Non-U.S.	(6)		(137)		(20)		(602)
Total deferred	(7,827)		312		(2,166)		(10,573)
Income tax (benefit) expense	$	(6,026)	$	7,595	$	12,198	$	(9,537)

Following is a reconciliation of the U.S. statutory federal income tax rate with our effective income tax rate for continuing operations:

	Year Ended March 31,		Three-Months Ended March 31, (transition period)		Year Ended December 31,
	2022		2021		2020		2019
U.S. statutory income tax rate	21.0	%	21.0	%	21.0	%	21.0	%
State tax, net of U.S. federal tax benefit	3.6		2.8		3.8		3.8
Non-U.S. income taxes	(0.8)		0.3		0.4		—
Nondeductible operating expenses	(0.5)		0.9		0.3		(0.4)
Foreign-derived intangible income deduction	—		(1.3)		(0.8)		—
Section 162(m) limitation	(5.4)		—		0.7		—
Non-deductible foreign employee stock compensation	(1.2)		—		—		—
Non-deductible acquisition related expenses	(1.8)		—		—		—
Research and development credit	2.3		(0.9)		(1.0)		0.5
Change in deferred tax measurement rate	0.2		0.1		(5.5)		(0.1)
Change in uncertain tax positions	(1.0)		0.2		0.2		0.1
Excess tax benefits from stock plans	5.4		(3.1)		(1.5)		(0.2)
Change in valuation allowance	(0.4)		(0.1)		34.3		(1.5)
Impairment of intangibles	—		—		—		(13.6)
Capital losses	—		—		(34.8)		—
Other	(0.1)		—		(0.3)		(0.2)
Effective income tax rate	21.3	%	19.9	%	16.8	%	9.4	%

The income tax benefits from continuing operations for the period ended March 31, 2022 were primarily driven by the loss generated in the U.S. The effective tax rate from continuing operations for the same period was primarily affected by the Section 162(m) limitation and the non-deductible GAAP book expenses that are not allowed for income tax purposes as a result of our acquisition of VAY.

Deferred Income Taxes

Individually significant components of deferred income tax assets and liabilities were as follows (in thousands):

	As of March 31,				As of December 31,
	2022		2021		2020
Deferred income tax assets:
Accrued liabilities	$	5,828	$	4,355	$	4,113
Allowance for doubtful accounts	89		276		83
Inventory valuation	222		223		260
Capitalized indirect inventory costs	1,044		1,043		649
Stock-based compensation expense	895		739		978
Deferred rent	6,065		5,211		5,408
Deferred revenue	960		43		16
Interest expense	383		—		—
Net operating loss carryforward	2,194		1,317		1,427
Basis difference on long-lived assets	1,189		1,205		1,216
Credit carryforward	1,048		276		276
Capital losses	25,744		25,565		26,126
Other	290		279		89
Gross deferred income tax assets	45,951		40,532		40,641
Valuation allowance	(26,510)		(26,335)		(26,985)
Deferred income tax assets, net of valuation allowance	19,441		14,197		13,656
Deferred income tax liabilities:
Prepaid advertising	(273)		(1,133)		(134)
Other prepaids	(135)		(573)		(923)
Basis difference of long-lived assets	(4,740)		(5,664)		(5,275)
Deferred rent	(5,532)		(4,682)		(4,867)
Other	(1)		(1)		(31)
Deferred income tax liabilities	(10,681)		(12,053)		(11,230)
Net deferred income tax assets	$	8,760	$	2,144	$	2,426

Our net deferred income tax assets were recorded on our Consolidated Balance Sheets as follows (in thousands):

	As of March 31,				As of December 31,
	2022		2021		2020
Deferred income tax assets, non-current	$	8,760	$	2,144	$	2,426
Deferred income tax liabilities, non-current	—		—		—
Net deferred income tax assets (liabilities)	$	8,760	$	2,144	$	2,426

We account for income taxes based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Evaluating the need for, and amount of, a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence on a jurisdiction-by-jurisdiction basis. Such judgments require us to interpret existing tax law and other published guidance as applied to our circumstances. As part of this assessment, we consider both positive and negative evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which the strength of the evidence can be objectively verified.

As of March 31, 2022, we had a valuation allowance against net deferred income tax assets of $26.5 million. Of the valuation allowance, $25.7 million relates to domestic capital losses and $0.5 million relates to state tax credit carryforwards and state net operating loss carryforwards as we currently do not anticipate generating income of appropriate character to utilize those deferred tax assets. The remainder of $0.3 million relates to certain foreign intangible assets which are not more likely than not to be realized due the indefinite nature of the deferred tax assets. Should it be determined in the future that it is more likely than not that our domestic deferred income tax assets will be realized, an appropriate portion of valuation allowance would be released during the period in which such an assessment is made.

Income Tax Carryforwards

As of March 31, 2022, we had the following income tax carryforwards (in millions):

	Amount		Expires in
Net operating loss carryforwards
U.S. federal	$	4.0	Indefinite
U.S. state	$	18.4	2028 - 2042
U.S. state	$	1.4	Indefinite
Capital loss carryforwards
U.S federal and state	$	101.3	2025
Income tax credit carryforwards
U.S. federal	$	0.7	2042
U.S. state	$	0.4	Indefinite

The timing and manner in which we are permitted to utilize our net operating loss carryforwards may be limited by Internal Revenue Code Section 382, Limitation on Net Operating Loss Carry-forwards and Certain Built-in-Losses Following Ownership Change.

Unrecognized Tax Benefits

Following is a reconciliation of gross unrecognized tax benefits from uncertain tax positions, excluding the impact of penalties and interest (in thousands):

	Year Ended March 31,		Three-Months Ended March 31, (transition period)		Year Ended December 31,
	2022		2021		2020		2019
Balance, beginning	$	2,374	$	2,323	$	2,338	$	2,330
Additions for tax positions taken in prior years	133		—		4		44
Reductions for tax positions taken in prior years	—		—		—		(81)
Additions for tax positions related to the current year	103		51		109		87
Lapses of statutes of limitations	—		—		(20)		(42)
Other	(828)		—		(108)		—
Balance, ending	$	1,782	$	2,374	$	2,323	$	2,338

Of the $1.8 million of gross unrecognized tax benefits from uncertain tax positions outstanding as of March 31, 2022, $1.7 million would affect our effective tax rate if recognized.

We recorded tax-related interest and penalty expense of $0.1 million for both 2022 and 2021 and $0.4 million for 2020. We had a cumulative liability for interest and penalties related to uncertain tax positions as of March 31, 2022 and 2021 of $2.3 million and $2.2 million, respectively.

Our U.S. federal income tax returns for 2008 through 2022 are open to review by the U.S. Internal Revenue Service. Our state income tax returns for 2008 through 2022 are open to review, depending on the respective statute of limitation in each state. Currently the Company's U.S corporate income tax returns for 2016 through 2019

are under IRS examination. In addition, we file income tax returns in several non-U.S. jurisdictions with varying statutes of limitation. As of March 31, 2022, we believe it is reasonably likely that, within the next twelve months, $0.1 million of the previously unrecognized tax benefits related to certain non-U.S. filing positions may be recognized due to the expirations of the statutes of limitations and an anticipated deregistration of a certain foreign entity.