Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The benefit from for income taxes consists of:

	Year Ended December 31,
(in thousands)	2021		2020		2019
Current income tax:
Federal	$	—	$	—	$	—
State	408		179		182
Foreign	585		(4)		186
	993		175		368
Deferred income tax:
Federal	(9,001)		(3,265)		(3,418)
State	(1,416)		104		(584)
	(10,417)		(3,161)		(4,002)
Benefit from income taxes	$	(9,424)	$	(2,986)	$	(3,634)

The components of net loss before income taxes for fiscal years 2021, 2020, and 2019 consisted of the following:

	2021		2020		2019
United States	$	(85,391)	$	(39,390)	$	(19,092)
International	168		(158)		(113)
Total net loss before income taxes	$	(85,223)	$	(39,548)	$	(19,205)

Deferred tax (liabilities) assets are comprised of the following at:

	December 31,
	2021		2020
Deferred tax liabilities:
Subordinated debt	$	(19,998)	$	(6,482)
Indefinite lived intangibles	—		(168)
Operating lease assets	(1,067)		(1,208)
Software development costs	(2,978)		(2,814)
Intangible assets	(21,839)		(281)
Depreciation on property, plant and equipment	(1,490)		(931)
Gross deferred tax liabilities	(47,372)		(11,884)
Deferred tax assets:
Allowances for bad debts and inventory	3,038		3,392
Capitalized inventory costs	223		185
Employee benefit accruals	5,692		2,783
Interest expense limitation under section 163 (j)	4,812		2,798
Operating lease liabilities	1,155		1,208
Federal net operating loss carryforward	42,792		15,719
State net operating loss carryforward	10,353		3,569
Federal and state tax credit carryforwards	11,901		7,549
Other	2,246		944
Gross deferred tax assets	82,212		38,147
Less valuation allowance	(37,157)		(26,431)
Non-current net deferred tax liabilities	$	(2,317)	$	(168)

The Company has Federal tax credit carryforwards of $10.4 million that expire in various tax years from 2028 to 2041. The Company has a Federal operating loss carryforward of $36.2 million expiring from 2029 through 2037 and a Federal operating loss carryforward of $167.5 million with an unlimited carryforward period. The Company also has state tax credits of $1.7 million and net operating loss carryforwards that vary by jurisdiction, ranging from $0 to $46.1 million, and expire in various tax years through 2041. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. A valuation allowance is required to the extent it is more likely than not that the future benefit associated with certain Federal and state tax loss carryforwards will not be realized

As a result of this analysis and based on the current year’s taxable income, and utilization of the Company's net deferred tax assets, management determined an increase in the valuation allowance in the current year to be appropriate.

In calculating the valuation allowance, the Company was not permitted to use its existing deferred tax liabilities related to its indefinite-lived intangible assets (i.e. “naked credit deferred tax liabilities”) as a source of taxable income to support the realization of its existing finite-lived deferred tax assets; however, the Company is permitted to use its existing deferred tax liabilities related to its indefinite-lived intangible assets as a source of taxable income to support the realization of its existing indefinite-lived deferred tax assets.

In the current year, the income tax provision includes a reduction of the Company’s valuation allowance due to the establishment of a deferred tax liability in connection with the Punchh Acquisition. The establishment of that deferred tax liability created “future taxable income”, partially utilizing existing deferred tax assets of the Company

and resulting in a $10.4 million reduction of the Company’s valuation allowance. The Punchh Acquisition resulted in a change in ownership for Punchh as defined by IRC Section 382; the Company determined the identified change in ownership should not limit the Company's ability to utilize Punchh net operating loss and credit carryforwards.

In 2020, the income tax provision included a reduction of the Company’s valuation allowance due to the establishment of a deferred tax liability in connection with the issuance of the 2026 Notes convertible debt. The establishment of that deferred tax liability created “future taxable income”, partially utilizing existing deferred tax assets of the Company and resulting in a $6.2 million reduction of the Company’s valuation allowance. In addition, the income tax provision included an increase of the Company’s valuation allowance due to the reversal of a deferred tax liability in connection with the retirement of a portion of the 2024 Notes issued in 2019. The reversal of that deferred tax liability eliminated future taxable income for the utilization of existing deferred tax assets of the Company, resulting in a $3.0 million increase to the Company’s valuation allowance.

In 2019, the income tax provision included a reduction of the Company’s valuation allowance due to the establishment of a deferred tax liability in connection with the issuance of the 2024 Notes. The establishment of that deferred tax liability created "future taxable income" for the utilization of existing deferred tax assets of the Company, resulting in the $4.1 million reduction of the Company’s valuation allowance.

The Company records the benefits relating to uncertain tax positions only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. At December 31, 2021, the Company had no reserve for uncertain tax positions and the Company believes the Company has adequately provided for its tax-related liabilities. The Company is no longer subject to federal income tax audits for years before 2018.

The following table reconciles the Company's effective tax rate from the U.S. federal statutory tax rate of 21% for each of 2021, 2020, and 2019:

	Year Ended December 31,
	2021		2020		2019
Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.3		2.8		(4.5)
Nondeductible expenses	(0.8)		(0.2)		(0.3)
Tax credits (including R&D)	1.7		4.5		4.0
Foreign income tax rate differential	(0.5)		—		—
Expired tax credit	—		—		(1.3)
Deferred tax adjustment	—		0.6		(4.8)
Stock based compensation	(0.7)		0.4		1.9
Redemption of notes	—		(2.9)		—
Valuation allowance	(10.7)		(19.6)		3.2
Other	(0.3)		1.0		(0.3)
	11.0	%	7.6	%	18.9	%

The effective income tax rate was 11.0%, 7.6% and 18.9% during the years ended December 31, 2021, December 31, 2020, and December 31, 2019 respectively. The decrease in 2021 compared to the statutory tax rate of 21.0% was primarily due to the valuation allowance and nondeductible acquisition expenses, which were partially offset by tax credits. The decrease in 2020 compared to the statutory tax rate of 21.0% was primarily due to the valuation allowance, and only partially offset by tax credits. The decrease in 2019 compared to the statutory tax rate of 21.0% was primarily due to deferred tax adjustments related to state taxes, offset by changes in the valuation allowance and excess tax benefits resulting from the exercise of non-qualified stock options.