Income Tax

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Tax

Income Tax

The effective income tax rate was (220.4)% and (9.4)%, respectively, for the three months ended September 30, 2024 and 2023 and (102.4)% and (4.3)%, respectively, for the nine months ended September 30, 2024 and 2023. The effective tax rate differs from the U.S. federal rate primarily due to the impacts of the valuation allowance placed on the Company’s deferred tax assets in prior periods, the release of the domestic valuation allowance in the current period, the windfall tax benefit on stock compensation activity, and the executive compensation addback under Internal Revenue Code Section 162(m).

Prior to September 30, 2024, the Company concluded that a valuation allowance was required against its deferred tax assets. The Company considers all available positive and negative evidence in its assessment of the recoverability of its deferred tax assets each reporting period. As of September 30, 2024, the Company determined that a valuation allowance against its domestic deferred tax assets was no longer required, primarily due to sustained tax profitability (pre-tax earnings or loss adjusted by permanent book to tax differences) beginning in the fourth quarter of 2023 through the first nine months of 2024, which is objective and verifiable evidence, as well as anticipated future earnings. The Company believes it is now more likely than not that it will realize its domestic deferred tax assets.

When a change in valuation allowance is recognized during an interim period, the change in valuation allowance resulting from current year ordinary income is included in the annual effective tax rate and the release of valuation allowance supported by projections of future taxable income is recorded as a discrete tax benefit in the interim period. The Company recognized a one-time income tax benefit of $60.8 million during the three months ended September 30, 2024 related to a release of its domestic valuation allowance. The Company’s judgment regarding the need for a valuation allowance may reasonably change in future reporting periods due to many factors, including changes in the level of tax profitability that the Company achieves and changes in tax laws or regulations.