Income Taxes

3 Months Ended

12 Months Ended

Mar. 31, 2020

Dec. 31, 2019

The Company recognized an income tax benefit of $0.1 million and income tax expense of $1.7 million during the three months ended March 31, 2020 and 2019, respectively.

The Company calculates its (benefit from) provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The effective tax rate (income taxes as a percentage of income before income taxes) was 6.6% and 29.6% for the three months ended March 31, 2020 and 2019, respectively. The Company’s effective income tax rate can vary from period to period depending on, among other factors, the business mix of our earnings; the amount of permanent tax adjustments related to the tax treatment of incentive stock options, transaction costs, and compliance with IRC section 162M; and the level of our tax credits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and authorizes more than $2 trillion to battle COVID-19 and its economic effects, including immediate cash relief for individual citizens, loan programs for small business, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries. To date, the Company has not applied for any of the relief programs under the CARES Act but will continue to monitor the situation and evaluate any additional future legislation.

Income Taxes

Prior to the consummation of the reverse recapitalization, TPG Pace Holding Corp. was registered in the Cayman Islands. On November 20, 2019 TPG Pace Holding Corp. effected a deregistration as an exempted company in the Cayman Islands under the Cayman Islands Companies Law (2018 Revision), and a domestication as a corporation incorporated under the laws of the State of Delaware under Section 388 of the DGCL, pursuant to which the Company’s jurisdiction of incorporation will be changed from the Cayman Islands to the State of Delaware. This domestication was analyzed under the applicable tax laws and it was determined that there were no significant tax implications associated with the domestication.

The Company recognized income tax expense of $5.2 million, $4.4 million and $1.8 million during the years ended December 31, 2019, 2018 and 2017, respectively, which consists of the following (in thousands):



	2019			2018			2017
Current provision
Federal	$	(85	)	$	(100	)	$	173
State	43			222			62
Total current provision	(42		)	122			235
Deferred provision
Federal	3,740			3,256			955
State	1,501			1,044			564
Total deferred provision	5,241			4,300			1,519
Total income tax expense	$	5,199		$	4,422		$	1,754

A reconciliation of the “expected” income taxes computed by applying the federal statutory income tax rate to the total expense is as follows (in thousands):



	2019			2018			2017
Computed “expected” tax (benefit) expense	$	(139	)	$	3,197		$	3,422
Increase (decrease) in income taxes resulting from:
State income taxes	1,535			1,219			2
Return-to-provision	49			—			—
Permanent items	4,054			(264		)	190
Enacted rate change	—			—			(1,755		)
Other	(300		)	270			(105		)
Total income tax expense	$	5,199		$	4,422		$	1,754

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant changes in U.S. tax law including reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from 35% to 21%. As a result of the enacted law, the Company revalued deferred tax assets and liabilities at the new rate. This revaluation resulted in a benefit of $1.8 million to 2017 income tax expense in continuing operations and a corresponding reduction in the deferred tax liability. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the consolidated financial statements. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows at December 31, 2019 and 2018 (in thousands):



	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	6,633		$	4,192
Location contracts acquired	4,699			1,887
Other	260			1,032
	11,592			7,111
Deferred tax liabilities:
Property and equipment	24,568			16,006

	$	(12,976	)	$	(8,895	)

The Company assesses the realizability of the deferred tax assets at each balance sheet date based on actual and forecasted operating results in order to determine the proper amount, if any, required for a valuation allowance. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. As of December 31, 2019, the Company is in a net deferred tax liability position and is in a three-year cumulative income position. As such, it is the Company’s belief that it is more likely than not that its deferred tax assets will be realized.

As of December 31, 2019, and 2018, the Company has not recorded a liability for unrecognized tax benefits.

The following table summarizes carryforwards of net operating losses as of December 31, 2019 and 2018 (in thousands):



	2019			2018
	Amount		Expiration	Amount		Expiration
Federal net operating losses	$	27,873	2033 - 2039	$	17,942	2031 - 2038
State net operating losses	14,454		2024 - 2031	5,655		2023 - 2030

The Company also has credit carryforwards of approximately $0.5 million and $0.3 million for the years ended December 31, 2019 and 2018, which are expected to be fully utilized in 2021.