XML 34 R20.htm IDEA: XBRL DOCUMENT v3.22.2.2
Income Taxes
 9 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

The Company computes its tax provision for interim periods by applying the estimated annual effective tax rate to year-to-date income from recurring operations and adjusting for discrete items arising in that quarter. However, if the Company is unable to make a reliable estimate of its annual effective tax rate, then the actual effective tax rate for the year-to-date period may be the best estimate. For the three and nine months ended September 30, 2021, the Company determined that its annual effective tax rate approach would provide a reliable estimate and therefore used its historical method to calculate its tax provision. However, for the three and nine months ended September 30, 2022, the Company used a discrete effective tax rate method as it was determined that the effective tax rate determined using the forecast of

ordinary income or loss does not reasonably estimate the effective tax rate to be applied to year-to-date pre-tax (loss) income, and any small changes would result in significant changes in the estimated annual effective tax rate.

The Company’s effective tax rate for the three and nine months ended September 30, 2022 is (65.2%) and 62.3%, respectively. For the three and nine months ended September 30, 2021, the effective tax rate was 58.0% and 53.9%, respectively. The difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% in the above periods was primarily the result of excess tax benefits on stock-based compensation, state taxes, foreign income taxed at different rates and permanent tax adjustments related to nondeductible executive compensation.

As of September 30, 2022, the Company recognized sizable tax deductions for stock-based compensation. These permanent benefits are creating net operating losses that have resulted in a net deferred tax asset. These permanent tax benefits have also created a cumulative history of losses such that the Company has determined that the resulting net deferred tax asset is not more likely than not to be realized. The Company began recording a valuation allowance during the three months ended June 30, 2022 against its U.S. net deferred tax assets. As of September 30, 2022, the Company's valuation allowance was $6.7 million.