Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

On a quarterly basis, the Company estimates its effective tax rate for the full fiscal year and records a quarterly income tax provision based on the anticipated annual effective rate and the recognition of any discrete items within the quarter.

The Company recorded an income tax provision of $1.3 million and $4.0 million, respectively in relation to pretax income of $1.2 million and $9.4 million, respectively, for the three and nine months ended September 30, 2024, which resulted in an effective income tax rate of 108.6% and 42.4%, respectively, primarily impacted by state taxes, non-deductible compensation, certain stock-based compensation, certain non-deductible costs incurred with the transaction contemplated by the Merger Agreement and other non-deductible expenses, and U.S. taxes on foreign income. The Company recorded an income tax provision of $1.4 million and $4.3 million, respectively in relation to pretax income of $4.5 million and $13.2 million, respectively, for the three and nine months ended September 30, 2023, which resulted in an effective income tax rate of 30.5% and 32.3%, respectively, primarily impacted by state taxes, non-deductible compensation, certain stock-based compensation and other non-deductible expenses.

In accordance with ASC 740-10, Income Taxes, the Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:

•Future reversals of existing taxable temporary differences;

•Future taxable income exclusive of reversing temporary differences and carryforwards; and

•Tax-planning strategies.

The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors, including but not limited to:

•Nature, frequency, and severity of recent losses;

•Duration of statutory carryforward periods;

•Historical experience with tax attributes expiring unused; and

•Near- and medium-term financial outlook.

The Company utilizes a rolling three years of actual and current year anticipated results as the primary measure of cumulative income/losses in recent years, as adjusted for permanent differences. The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's current estimates, due to unanticipated events, could have a material effect on its financial condition and results of operations. The Company has a $1.2 million valuation allowance against certain deferred tax assets as of September 30, 2024.

Based on the Company’s current assessment, the remaining net deferred tax assets as of September 30, 2024 are considered more likely than not to be realized. The valuation allowance of $1.2 million may be increased or reduced as conditions change or if the Company is unable to implement certain available tax planning strategies. The realization of the Company’s net deferred tax assets ultimately depends on future taxable income, reversals of existing taxable temporary differences or through a loss carry back.