Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
Note M – Income Taxes
The table below presents the current and deferred components of income tax expense (benefit) for the following periods:
Year Ended
December 31, 2022 December 31, 2021
Current:
Federal $ —  $ — 
State 33  — 
Foreign 259  — 
Total current income tax expense (benefit) 292  — 
Deferred:
Federal (6,317) (9,376)
State (1,963) (1,893)
Foreign 16  — 
Total deferred income tax expense (benefit) (8,264) (11,269)
Total income tax expense (benefit) $ (7,972) $ (11,269)

A reconciliation of the U.S. federal statutory income tax expense to actual income tax expense is as follows:
Year Ended
December 31, 2022 December 31, 2021
Income (loss) before income taxes $ (138,592) $ (72,806)
Federal statutory income tax rate 21.0  % 21.0  %
Expected federal provision (benefit) for income taxes at the federal statutory income tax rate (29,104) (15,289)
State income tax (benefit), net of federal tax benefit (5,394) (1,946)
Change in fair value of warrants (3,735) (552)
Nondeductible impairment of goodwill 10,483  — 
Permanent differences 226  2,483 
Tax (benefits) / non-deductible expenses related to equity-based compensation 1,784  5,228 
Acquisition costs 620  (1,106)
Change in valuation allowance 18,498  458 
Other (1,350) (545)
Total tax expense (benefit) $ (7,972) $ (11,269)
Effective tax rate 5.8  % 15.5  %
The effective tax rate for 2022 differs from the U.S. federal income tax rate of 21.0% primarily due to nondeductible compensation costs on the Class P Unit Incentive plan and other equity-based compensation, state income tax expense, valuation allowance, and non-deductible impairment of goodwill. The effective tax rate for 2021 differs from the U.S. federal income tax rate of 21.0% primarily due to nondeductible compensation costs on the Class P Unit Incentive plan and state income tax expense.
The table below presents the components of the deferred tax assets, net and deferred tax liabilities:
December 31, 2022 December 31, 2021
Deferred tax assets:
Accrued expenses and reserves $ 4,997  $ 1,106 
Capitalized research and development expenses 1,182  — 
Deferred rent —  58 
Tax credit carryforwards 230  226 
Deferred revenue —  636 
Net operating loss carryforwards 19,303  12,052 
Interest disallowance 4,046  1,921 
Equity-based compensation 1,053  566 
Lease liability 4,293  — 
Other assets 19  14 
Total deferred tax assets 35,123  16,579 
Less: valuation allowance (19,013) (515)
Deferred tax assets, net of valuation allowance 16,110  16,064 
Deferred tax liabilities:
Right-of-use asset $ (3,584) $ — 
Deferred Revenue (1,498) — 
Depreciation and amortization (13,712) (23,922)
Other (571) (743)
Deferred tax liabilities (19,365) (24,665)
Total net deferred tax assets (liabilities) $ (3,255) $ (8,601)

The Company assesses the deferred tax assets for recoverability on a quarterly basis. In assessing the realizability of deferred income tax assets, the Company considers whether it is more-likely-than-not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (“NOL”) and tax credit carryforwards are available. For the year ended December 31, 2022, the valuation allowance on deferred tax assets increased by $18.5 million as the Company concluded that only a portion of the deferred tax assets are more-likely-than-not realizable. For the year ended December 31, 2021 the Company concluded that substantially all of the deferred tax assets are more-likely-than-not realizable.

The table below presents the change in valuation allowance for the following periods:
Valuation allowance as of December 31, 2020 $ (57)
Income tax expense (458)
Valuation allowance as of December 31, 2021 (515)
Income tax expense (18,498)
Valuation allowance as of December 31, 2022 $ (19,013)

As of December 31, 2022, the Company had $69.1 million of U.S. federal net operating losses resulting in U.S. federal, state (net), and foreign deferred tax assets of $14.5 million, $3.4 million, and $1.4 million, respectively. The $14.5 million in U.S. federal net operating loss carryforwards may be carried forward indefinitely to reduce future taxable income for U.S. federal tax purposes, while certain state net operating losses will begin to expire in 2038 and foreign net operating losses begin to expire in 2037.
The table below presents changes in reserves for unrecognized income tax benefits for the periods presented:
Year Ended
December 31, 2022 December 31, 2021
Unrecognized tax benefits, beginning of period $ 1,380  $ 1,671 
Increase (decrease) for tax positions taken related to a prior period —  (291)
Increase (decrease) for tax positions taken during the current period —  — 
Unrecognized tax benefits, end of period $ 1,380  $ 1,380 

During the year ended December 31, 2022 and December 31, 2021, the Company did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. As of December 31, 2022, the Company’s estimated gross unrecognized tax benefits were $1.4 million, of which $1.3 million if recognized would favorably impact the Company’s future earnings. The Company believes there will be no material changes to unrecognized tax benefits within the next twelve months. Due to uncertainties in any tax audit outcome, estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ from the estimates. During December 31, 2022 and December 31, 2021, the Company did not recognize any interest and penalties in the consolidated statements of operations.

The Company and its subsidiaries file income tax returns in various U.S. and foreign jurisdictions. As of December 31, 2022, the Company is subject to examination by the IRS for tax years beginning in 2019. The Company is open to state income tax examinations until the applicable statute of limitations expires, generally four years after tax return filing; however, the ability for the taxing authority to adjust tax attribute carryforwards will continue until the applicable statute of limitations expires after tax attribute utilization or expiration.