Income Taxes

6 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We are subject to U.S. federal and state taxes with respect to our allocable share of any taxable income or loss of ADK, LLC, as well as any stand-alone income or loss we generate. ADK, LLC is treated as a partnership for U.S. income tax purposes and for most applicable state and local income tax purposes and generally does not pay income taxes in most jurisdictions. Instead, ADK, LLC’s taxable income or loss is passed through to its members, including us. Despite its status as a partnership in the United States, ADK, LLC’s foreign subsidiaries are taxable entities operating in foreign jurisdictions. As such, these foreign subsidiaries record a tax expense or benefit in jurisdictions where a valuation allowance has not been recorded.

Our effective tax rate in 2024 will differ from the U.S. federal statutory rate primarily due to changes in valuation allowance, tax expense or benefit in foreign jurisdictions taxed at different tax rates, foreign research and development tax credits and incentives, and changes in non-controlling interest.

Based primarily on our limited operating history and ADK LLC’s historical domestic losses, we believe there is a significant uncertainty as to when we will be able to use our domestic, federal and state, deferred tax assets (“DTAs”). Therefore, we have recorded a valuation allowance against these DTAs for which we have concluded that it is not more likely than not that these will be realized.

As part of reverse capitalization, the Company entered into Tax Receivable Agreements (“TRAs”) with certain shareholders that will represent approximately 85% of the calculated tax savings based on the portion of basis adjustments on future exchanges of ADK, LLC units and other carryforward attributes assumed that we anticipate to be able to utilize in future years. Through June 30, 2024, there have been exchanges of units that would generate a DTA; however, as there is a full valuation allowance on the related DTA, we have not recorded a liability under the TRAs.

Under GAAP, the Company ordinarily calculates its provision for income taxes at the end of each interim reporting period by computing an estimated annual effective tax rate adjusted for tax items that are discrete to each period. For the three months ended March 31, 2024, the company calculated the tax provision based on actual year to date results because small changes in forecasted pre-tax book income led to large differences in the estimated annual effective tax rate. For the three and six months ended June 30, 2024, the Company is using the estimated annual effective tax rate due to reliable forecasts.

The Company recorded a provision for income taxes of $86 and $342 for the three months ended June 30, 2024 and 2023, respectively. The Company recorded a benefit for income taxes of $1,023 and $3,364 for the six months ended June 30, 2024 and 2023, respectively. Income tax benefit (provision) for the three and six months ended June 30, 2024 are primarily related to the Company’s foreign operations. Income tax benefit (provision) for the three and six months ended June 30, 2023 are primarily related to the tax effects of our acquisition of GEO and subsequent tax reorganizations.