Income taxes

6 Months Ended

Jun. 30, 2019

Note 9. 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 rate. As the year progresses, the Company will refine its estimate based on facts and circumstances by each tax jurisdiction.

Income tax benefit was

estimated

at $3,513 and $2,744 and the effective tax rate (ETR) from continuing operations was 16.21% and 14.13% for the three and six months ended

June 30, 2019.

The following items caused the quarterly ETR to be significantly different from our expected annual ETR at statutory tax rates:

•

For the

three and

six months

ending June 30, 2019, we recorded a discrete tax expense of approximately $

and $

, respectively, as a result of a greater state tax expense than was originally estimated in our tax provision for our year ended December 31, 2018. This decreased the effective tax rate by

0.00

% and

0.43

% for the

three and

six months

ending June 30, 2019, respectively.

•

For the three and six months ending June 30, 2019, we recorded a discrete tax benefit of approximately $784 as a result of a establishing the opening deferred tax asset upon MEC’s conversion from S to C on May 9, 2019. This increased the effective tax rate by 3.62% and 4.04% for the three and six months ending June 30, 2019, respectively.

•

For the

three and

six months

ending June 30, 2019, we recorded a discrete tax expense of approximately $

1,800

million as a result of estimated non-deductible executive compensation in excess of the $1,000 million per individual limitation under Section 162(m) of the Internal Revenue Code.

This decreased the effective tax rate by

8.44

% and

9.43

% for the three and

six months

ending June 30, 2019, respectively.

The acquired DMP entities are subject to taxation in the United States and five state jurisdictions. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in these jurisdictions. Accounting Standards Codification (ASC) Topic 740,

Income Taxes

, states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of technical merits.

Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements as of June 30, 2019.

Prior to the Company’s IPO, the Company’s legacy business was an S Corporation, where substantially all taxes were passed to the shareholders and the Company did not pay federal or state corporate income taxes on its taxable income. In connection with the IPO, the Company’s legacy business converted to a C Corporation. As a result, the consolidated business will be subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward. Upon the Company’s conversion from a non-taxable entity to a taxable entity, we established an opening deferred tax asset of $784 as a result of evaluating estimated temporary differences that existed on this date.

The Company’s policy for recording interest and penalties associated with potential income tax audits is to record such expense as a component of income tax expense. There were no amounts for penalties or interest recorded as of June 30, 2019. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its positions.