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INCOME TAXES | 9 Months Ended
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Sep. 30, 2024
INCOME TAXES [Abstract] |
INCOME TAXES |
13. | INCOME TAXES
The Company uses the estimated annual effective tax rate approach as prescribed by ASC 740-270, Interim Reporting, to calculate its interim tax provision. For the three and nine months ended September 30, 2024, the Company recorded income tax expense of $0.8 million and $5.2 million, respectively, resulting in an effective tax rate of 5.7% for the nine months ended September 30, 2024. The tax expense for the three and nine months ended September 30, 2024 represents federal and state tax liabilities that are not fully sheltered by net operating loss carryforwards (“NOLs”) due to limitations from prior ownership changes and other limitations on NOLs incurred after 2017. The Company’s effective tax rate differs from the federal statutory tax rate of 21% due primarily to the reversal of the valuation allowance on certain federal and state NOLs estimated to be realized in the current year and, to a lesser extent, the tax benefit associated with the employee exercise of stock options and vesting of RSUs. Valuation Allowance A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carryback and carryforward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, to outweigh objective negative evidence of recent financial reporting losses. Based on these criteria and the relative weighting of both the positive and negative evidence available, the Company continues to maintain a full valuation allowance against its net deferred tax assets. Net Operating Losses As of December 31, 2023, the Company had federal and state (post-apportioned basis) NOLs of $315.6 million and $216.4 million, respectively. Approximately $35.6 million and $95.1 million of the foregoing federal and state NOLs, respectively, will expire at various dates from 2028 through 2043, if not limited by triggering events prior to such time. Under the provisions of the Internal Revenue Code, changes in ownership of the Company, in certain circumstances, would limit the amount of federal NOLs that can be utilized annually in the future to offset taxable income. In particular, Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on an entity’s ability to use NOLs upon certain changes in ownership. If the Company is limited in its ability to use its NOLs in future years in which it has taxable income, then the Company will pay more taxes than if it were otherwise able to fully utilize its NOLs. As of December 31, 2023, approximately $267.8 million of the foregoing federal NOLs are subject to limitation under Section 382 due to prior ownership changes. The Company may experience ownership changes in the future as a result of subsequent shifts in ownership of the Company’s capital stock that the Company cannot predict or control that could result in further limitations being placed on the Company’s ability to utilize its federal NOLs.

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