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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The domestic and foreign components of (loss) income before provision for income taxes were as follows:
202220212020
Domestic$(193,237)$(301)$12,837 
Foreign(6,063)(227)(740)
Total (loss) income before income taxes$(199,300)$(528)$12,097 
The provision (benefit) for income taxes consisted of the following:
Year Ended December 31,
202220212020
Current (benefit) / provision
Federal$2 $(16)$(16)
State77 112 188 
Foreign2,756 1,666 657 
Total current (benefit) / provision$2,835 $1,762 $829 
Deferred (benefit) / provision
Federal$1,103 $(23,020)$7 
State(850)(2,682)4 
Foreign(1,062)(2,464)101 
Total deferred (benefit) / provision$(809)$(28,166)$112 
Total (benefit) / provision
Federal$1,105 $(23,036)$(9)
State(773)(2,570)192 
Foreign1,694 (798)758 
Total (benefit) / provision$2,026 $(26,404)$941 
A reconciliation of the U.S. federal statutory income tax rate of 21% for the years ended December 31, 2022, 2021 and 2020 to the Company’s effective tax rate is as follows:
Year Ended December 31,
202220212020
Income tax (benefit) provision at the U.S. federal statutory rate$(41,853)$(111)$2,540 
State income taxes(1,732)(519)323 
Permanent differences380 292 (53)
Change in valuation allowance19,660 (18,572)(3,720)
Effect of foreign operations(147)(825)325 
Stock-based compensation4,205 (838)198 
Transaction costs— 1,262 — 
Section 162(m)493 — — 
Derivative and warrant liabilities(1,940)(6,612)— 
U.S. GILTI inclusion139 — — 
Goodwill impairment21,945 — — 
Effect of change in tax rates(1,253)(835)(253)
Sale of foreign subsidiary— — 1,323 
Research & development tax credits— (501)(253)
Foreign currency translation & transactions560 254 144 
Prior period adjustments— — 230 
Other1,569 601 137 
Total provision (benefit) for income taxes$2,026 $(26,404)$941 
For the years ended December 31, 2022, 2021 and 2020, the Company’s effective tax rate was (1.0)%, 5,000.8% and 7.8% respectively. For the year ended December 31, 2022, the Company’s effective tax rate differed from the U.S. federal statutory income tax rate of 21% primarily related to a valuation allowance against net deferred tax assets that were not realizable on a more-likely-than-not basis and the impairment of non-deductible goodwill for which no tax benefit was provided. For the year ended December 31, 2021, the Company’s effective tax rate differed from the U.S. federal statutory income tax rate of 21% primarily due to the partial release of the Company’s U.S. valuation allowance as a result of certain business combinations consummated during 2021. The Company recorded excess deferred tax liabilities related to the business combinations which provided a source of future taxable income to support partial realization of the Company’s pre-existing deferred tax assets. The income tax benefit related to the change in valuation allowance was offset by an income tax provision for foreign taxes. For the year ended December 31, 2020, the Company’s effective tax rate differed from the U.S. federal statutory income tax rate of 21% primarily due to a valuation allowance against net deferred tax assets that were not realizable on a more-likely-than-not basis.
In August 2022, the Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted. This new legislation includes the implementation of a new corporate alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions. The income tax provisions of the IRA and the CHIPS Act had limited applicability to the Company and did not have a material impact on the Company’s consolidated financial statements.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act included several measures to assist companies including temporary changes to income and non-income based tax laws. Several significant tax-related provisions of the CARES Act included: (1) allowing federal net operating loss (“NOL”) carryforwards originating in 2018, 2019 or 2020 to be carried back to the prior five tax years; (2) eliminating the 80% taxable income limitation by allowing corporate entities to fully utilize federal NOL carryforwards to offset taxable income in 2018, 2019 or 2020; (3) increasing the net interest expense deduction limitation to 50% of adjusted taxable income from 30% for the 2019 and 2020 tax years; (4) allowing taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years; and (5) allowing companies to deduct more of their cash charitable contributions paid during calendar year 2020 by increasing the taxable income limitation to 25% from 10%. The income tax provisions of the CARES Act had
limited applicability to the Company and did not have a material impact on the Company’s consolidated financial statements.
Significant components of deferred tax assets and liabilities as of were as follows:
Year Ended December 31,
20222021
Deferred tax assets
Net operating loss carryforwards$99,315 $93,592 
Accruals2,295 3,503 
Stock-based compensation2,834 6,380 
Bad debt351 241 
Deferred rent— 4,167 
Interest expense5,509 735 
Lease liabilities20,022 — 
Section 174 capitalized R&D costs9,826 — 
Capitalized production expenses2,384 — 
Other99 691 
Total deferred tax asset$142,635 $109,309 
Valuation allowance(86,515)(66,848)
Net deferred tax asset$56,120 $42,461 
Deferred tax liabilities
Deferred state income tax(2,178)(1,596)
Operating lease, right-of-use asset(16,078)— 
Depreciation and amortization(1,529)(1,905)
Intangible assets(33,131)(37,352)
Total deferred tax liability$(52,916)$(40,853)
Net deferred tax asset (liability)$3,204 $1,608 
Net deferred tax assets are included within Prepaid and other assets and net deferred tax liabilities are included within Other liabilities on the Company’s consolidated balance sheets.
In assessing the realizability of its deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the weight of available evidence, the Company concluded it is more likely than not that it will not be able to realize its U.S. deferred tax assets and therefore has maintained a full valuation allowance on its U.S. deferred tax assets. In addition, the Company maintains a valuation allowance against certain deferred tax assets in the United Kingdom (the “U.K.”), Spain, Japan and Canada. The Company’s valuation allowance increased by approximately $19.7 million in 2022.
As of December 31, 2022, the Company has U.S. federal and state NOLs of approximately $337.4 million and $11.8 million, respectively. Of the $337.4 million of U.S. federal NOLs, $202.2 million expire in tax year beginning 2030 through 2037 if not utilized and $135.2 million that have an indefinite lived carryforward period. The $11.8 million of state NOLs will expire in tax years beginning in 2025 to 2042 if not utilized. As of December 31, 2022, the Company has foreign NOL carryforwards of $2.5 million in Canada expiring in 2041 through 2042, $4.2 million in Japan expiring in 2026 through 2032, and $1.4 million in Spain and $24.4 million in the U.K., both with indefinite carryforward periods. Utilization of NOLs and tax credit carryforwards are subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a change in the Company’s ownership, as defined in current income tax regulations.
As of December 31, 2022, the Company has deferred interest expense carryforwards under IRC Section 163(j) of $24.1 million which may be carried forward indefinitely but only available to offset 30% of tax adjusted earnings before
interest and taxes (EBIT). In addition, the Company had federal research and development tax credits of approximately $7.5 million, which expire in the tax years beginning in 2032 through 2040, if not utilized.
Notwithstanding the current taxation of certain foreign subsidiaries under GILTI and one-time transition taxation enacted as part of the Tax Cut and Jobs Act, the Company intends to continue to reinvest its foreign earnings indefinitely outside the U.S. If these future earnings are repatriated to the U.S., or if the Company determines that such earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred taxes (if any) and applicable withholding taxes. It is not practicable to estimate the tax impact of the reversal of the outside basis difference, or the repatriation of cash due to the complexity of its hypothetical calculation.
The Company applies the applicable authoritative guidance which prescribes a comprehensive model in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. The Company recognizes interest and penalties related to income tax positions taken on the Company’s tax returns in income tax expense in the consolidated statements of operations. As of December 31, 2022 and 2021, the Company recorded an uncertain tax position of $nil including interest and penalties related to state taxes. As of December 31, 2020, the Company had no uncertain tax positions.
The Company, or one of its subsidiaries, files its tax returns in the U.S. and certain state and foreign income tax jurisdictions with varying statute of limitations. The earliest years’ tax returns filed by the Company that are still subject to examination by the tax authorities in the major jurisdictions are as follows:
Years
United States2018
United Kingdom2021
Japan2017
Canada2018