INCOME TAXES

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXESThe Company is included within IAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, the income tax provision and/or benefit has been computed for the Company on an as if standalone, separate return basis and payments to and refunds from IAC for the Company’s share of IAC’s consolidated federal and state tax return liabilities/receivables calculated on this basis have been reflected within cash flows from operating activities in the accompanying consolidated statement of cash flows. The tax sharing agreement between the Company and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to the Company, entitlement to refunds, allocation of tax attributes and other matters and, therefore, ultimately governs the amount payable to or receivable from IAC with respect to income taxes. Any differences between taxes currently payable to or receivable from IAC under the tax sharing agreement and the current tax provision or benefit computed on an as if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital in the consolidated statement of shareholders’ equity and financing activities within the consolidated statement of cash flows.

At the end of each interim period, the Company estimates the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or the Company’s tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision or benefit in the quarter in which the change occurs. Included in the income tax benefit for the three months ended June 30, 2023 was a benefit of $3.0 million due to a higher estimated annual effective tax rate from that applied to the first quarter’s ordinary loss from continuing operations. The higher estimated annual effective tax rate was primarily due to the reduced impact that forecasted nondeductible compensation expense and foreign and state taxes had on the increase in forecasted ordinary domestic pre-tax losses.

For the three months ended June 30, 2023, the Company recorded an income tax benefit of $2.1 million, which represents an effective income tax rate of 12%. The effective income tax rate is lower than the statutory rate of 21% due primarily to nondeductible stock-based compensation and foreign income taxed at different rates, partially offset by research credits and an adjustment to the forecasted annual effective tax rate. For the six months ended June 30, 2023, the Company recorded an income tax provision of $1.3 million, despite a pre-tax loss, due primarily to nondeductible stock-based compensation and foreign income taxed at different rates, partially offset by research credits. For the three and six months ended June 30, 2022, the Company recorded an income tax benefit of $3.7 million and $9.7 million, which represents an effective income tax rate of 13% and 15%, respectively. For the three and six months ended June 30, 2022, the effective income tax rate is lower than the statutory rate of 21% due primarily to unbenefited foreign losses and tax shortfalls generated by the exercise and vesting for stock-based awards.

The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Accruals for interest are not material and there are currently no accruals for penalties.

The Company’s income taxes are routinely under audit by federal, state, local and foreign authorities as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. On June 27, 2023 the Joint Committee of Taxation completed its review of the federal income tax returns for the years ended December 31, 2013 through 2019, which includes the operations of the Company, and approved the audit settlement previously agreed to with the Internal Revenue Service. The statutes of limitations for the years 2013 through 2019 have been extended to December 31, 2023. Returns filed in various other jurisdictions are open to examination for various tax years beginning with 2013. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

At June 30, 2023 and December 31, 2022, the Company has unrecognized tax benefits, including interest, of $7.0 million and $6.2 million, respectively; all of which are for tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at June 30, 2023 are subsequently recognized, the income tax provision would be reduced by $6.6 million. The comparable amount as of December 31, 2022 is $5.8 million. The Company believes it is reasonably possible that its unrecognized tax benefits could decrease by $0.2 million by June 30, 2024 due to settlements; $0.1 million of which would reduce the income tax provision.

The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience. At June 30, 2023, the Company has a U.S. gross deferred tax asset of $210.2 million that the Company expects to fully utilize on a more likely than not basis. Of this amount, $22.8 million will be utilized upon the future reversal of deferred tax liabilities and the remaining net deferred tax asset of $187.4 million will be utilized based on forecasts of future taxable income. The Company’s most significant net deferred tax asset relates to U.S. federal net operating loss (“NOL”) carryforwards of $108.1 million. The Company expects to generate sufficient future taxable income of at least $514.5 million prior to the expiration of these NOLs, the majority of which expire between 2032 and 2037, and a portion of which never expire, to fully realize this deferred tax asset.