Tax Receivable Agreement

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Tax Receivable Agreement

Tax Receivable Agreement

In connection with the Company's initial public offering ("IPO"), the Company entered into a tax receivable agreement ("TRA") with Parent 2 that provides for the payment by the Company to Parent 2 of 90% of the amount of cash savings, if any, in U.S. federal, state, local and non-U.S. income tax that the Company realizes (or in some circumstances is deemed to realize) as a result of the utilization of the Company's and the Company’s subsidiaries’ (a) depreciation and amortization deductions, and any offset to taxable income and gain or increase to taxable loss, resulting from the tax basis the Company has in its assets at the consummation of the IPO, (b) net operating losses, (c) tax credits and (d) certain other tax attributes. At the end of each reporting period, any changes in the Company's estimate of the liability will be recorded in the condensed consolidated statement of operations as a component of other income (expense). The timing and amount of future tax benefits associated with the TRA are subject to change, and future payments may be required which could be materially different from the current estimated liability. The TRA will remain in effect until all tax benefits have been used or expired, unless the TRA is terminated early.

As of September 30, 2019 and December 31, 2018, the TRA liability balance was $117.9 million and $134.6 million, respectively. The first payment related to the TRA was made in January 2019 for $16.7 million. The next TRA payment is anticipated to be made in the first quarter of 2020. This payment is estimated to be $27.7 million, and is reflected as a current liability as of September 30, 2019.

Income Taxes

Income tax expense for the three and nine months ended September 30, 2019, was $5.8 million and $13.2 million, respectively, compared to an income tax benefit of $12.5 million and $13.3 million for the three and nine months ended September 30, 2018, respectively. For the three and nine months ended September 30, 2019, the Company's effective tax rates were 31.2% and 29.1%, respectively. The variance from the statutory federal tax rate of 21.0% for the three and nine months ended September 30, 2019, was primarily due to state taxes, Global Intangible Low Taxed Income provision, non-deductible items and foreign rate differential.

For the three and nine months ended September 30, 2018, the Company's effective tax rates were 25.0% and 25.8%, respectively. The variance from the statutory federal tax rate of 21.0% for the three months ended September 30, 2018 was primarily due to state income taxes, non-deductible items and a foreign rate differential partially offset by a reduction in valuation allowance treated as a discrete item during the quarter. The variance from the statutory federal rate of 21.0% for the nine months ended September 30, 2018 was primarily due to the same items impacting the three-month rate, partially offset by a refinement of the provisional estimate of the one-time repatriation tax under the 2017 Tax Cuts and Jobs Act treated as a discrete item during the first quarter.