Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 10. Income Taxes

The components of the income tax provision are as follows:

	Year Ended December 31,
	2023		2022		2021
Current:
Federal	$	—	$	(483)	$	1,065
State	(399)		(644)		(205)
Total current	(399)		(1,127)		860
Deferred
Federal	(66)		285		8,561
State	(157)		—		852
Total deferred	(223)		285		9,413
Income tax (expense) benefit	$	(622)	$	(842)	$	10,273

The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.

	December 31,
	2023		2022
Deferred tax assets
Accrued expenses and other	$	3,721	$	1,230
Unrealized gain/loss on investments	811		1,296
Stock-based compensation	2,638		1,626
Deferred revenue	27,599		49,053
Goodwill	9,217		6,378
Operating lease liabilities	793		1,071
Loss and loss adjustment reserves	2,479		16,392
Net operating losses	102,044		100,920
Disallowed interest	9,650		5,676
Research and development capitalized costs	169		521
Valuation allowance	(140,535)		(117,568)
Total deferred tax assets	18,586		66,595
Deferred tax liabilities
Property and equipment	(98)		(87)
Intangibles	(1,167)		(3,614)
Operating lease right-of-use assets	(774)		(1,026)
Deferred policy acquisition costs	(5,715)		(1,907)
Reinsurance balance due	(11,491)		(59,794)
Internally developed software	—		(590)
Total deferred tax liabilities	(19,245)		(67,018)
Net deferred tax liabilities	$	(659)	$	(423)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax purposes and the tax effect of the tax loss carryforwards. We have recorded a valuation allowance due to the uncertainty surrounding the ultimate realizability or recoverability of such assets. Management evaluates, on an annual basis, both the positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable and the amount of the valuation allowance. In our evaluation, we considered our cumulative losses as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes, we determined that the negative evidence outweighed the positive evidence. At such time as it is determined that it is more likely than not the deferred tax assets are realizable, the valuation allowance will be reduced. The valuation allowance increased by $22.9 million for the year ended December 31, 2023, from $117.6 million at December 31, 2022, to $140.5 million at December 31, 2023.

As of December 31, 2023, we had net operating loss carryforwards for federal tax purposes of approximately $425.1 million and $260.4 million for state income tax purposes, which may be used to offset future taxable income. The net operating loss carryforwards for federal tax purposes generated prior to January 1, 2018, will begin to expire in 2031, and the net operating loss carryforwards for state tax purposes began to expire in 2023. The net operating loss with an unlimited carryforward period is $321.9 million for federal tax purposes and $61.3 million for state tax purposes. Utilization of net operating loss and tax credit carryforwards are subject to certain limitations under Sections 382–384 of the Internal Revenue Code of 1986, as amended, in the event of a change in our ownership, as defined in current income tax regulations. We have determined that we have experienced a limited number of ownership changes in our history but do

not expect the resulting limitations to impose any significant constraints on the benefit of its tax attributes. Additional ownership changes may occur in the future.

A reconciliation of the income tax provision to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:

	Year Ended December 31,
	2023		2022		2021
Tax computed at federal statutory rate	$	27,995	$	32,701	$	24,492
State tax, net of federal tax benefit	1,934		4,879		5,531
Loss on impairment	(4,775)		(3,836)		—
Equity compensation	(3,311)		(3,939)		12,821
Officer compensation	(15)		(860)		(5,306)
Debt transactions	(1,591)		4,808		(1,791)
Enacted tax rate changes	(2,061)		90		123
Return to provision	4,816		(6,533)		(648)
Valuation allowance	(23,453)		(27,724)		(25,296)
Other	(161)		(428)		347
Income tax benefit (expense)	$	(622)	$	(842)	$	10,273

The U.S. federal statutory tax rate is 21%, while our effective tax rate for 2023, 2022, and 2021 was (0.5)%, (0.5)%, and 8.8%, respectively. The difference for all years is due primarily to the tax benefit of pre-tax book losses being offset by the valuation allowance.

We file federal and state income tax returns. We are not currently under examination but are open to audit by the I.R.S. and state tax authorities for tax years beginning in 2012. The resolutions of any examinations are not expected to be material to these financial statements. As of December 31, 2023, there are no penalties or accrued interest recorded in the financial statements.

We had no uncertain tax position reserves as of December 31, 2023 and 2022.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022. Based upon our analysis of the Inflation Reduction Act of 2022 and subsequently released guidance, we do not believe that its provisions will have a material impact on our financial statements.

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. Although Congress is considering legislation that would repeal or defer this capitalization and amortization requirement, it is not certain that this provision will be repealed or otherwise modified.