Income Taxes

6 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 10 — Income Taxes

The Company is a corporation that is subject to U.S. federal, state and foreign income taxes.

For the three months ended June 30, 2024, the Company recognized an income tax benefit of $1.0 million for an effective tax rate of -8.6%. The Company’s effective tax rate of -8.6% is different than the U.S. federal statutory income tax rate of 21% primarily due to a non-cash income tax benefit recognized in the Company’s state deferred tax liability. For the three months ended June 30, 2023, the Company recognized an income tax expense of $6.9 million for an effective tax rate of 33.5%. The Company’s effective tax rate of 33.5% is different than the U.S. federal statutory income tax rate of 21% primarily due to state income taxes, permanent differences and the change of the Company’s valuation allowance on its federal deferred tax asset not subject to separate return limitations.

For the six months ended June 30, 2024, the Company recognized an income tax benefit of $22.6 million for an effective tax rate of 18.4%. The Company’s effective tax rate of 18.4% is different than the U.S. federal statutory income tax rate of 21% primarily due to permanent differences. For the six months ended June 30, 2023, the Company recognized an income tax benefit of $39.7 million for an effective tax rate of -62.1%. The Company’s effective tax rate of -62.1% is different than the U.S. federal statutory income tax rate of 21% primarily due to a non-cash benefit discrete item of $54.9 million related to the partial release of its valuation allowance in the Company’s deferred tax asset not subject to separate return limitations offset by the impact of other permanent differences.

The Company evaluates and updates the estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of the Company’s actual earnings compared to annual projections, the effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective tax rate. The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory rate.

Deferred income tax assets and liabilities are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce deductions and income in the future. The deferred tax asset estimates are subject to revision, either up or down, in future periods based on new facts or circumstances. The Company reduces deferred tax assets by a valuation allowance when, based on estimates, it is more likely than not that a portion of those assets will not be realized in a future period. In evaluating the Company’s valuation allowance, the Company considers cumulative losses, the reversal of existing temporary differences, the existence of taxable income in carryback years, tax optimization planning and future taxable income for each of its taxable jurisdictions. The Company assesses the realizability of its deferred tax assets quarterly; changes to the Company’s assessment of its valuation allowance in future periods could materially impact its results of operations. The Company’s valuation allowance primarily relates to various state operating loss carryforwards. A deferred tax liability of $239.3 million and $92.2 million is included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, respectively.

QuarterNorth Acquisition

On March 4, 2024, the Company completed the QuarterNorth Acquisition, which is further discussed in Note 2 — Acquisitions and Divestitures. The Company recognized a net deferred tax liability of $168.5 million in its purchase price allocation as of the acquisition date to reflect differences between tax basis and the fair value of QuarterNorth’s assets acquired and liabilities assumed. The deferred tax balance is based on preliminary calculations and on information available to management at the time such estimates were made. Further analysis will be performed upon filing QuarterNorth’s tax returns that may result in a change to the net deferred tax liability recognized.