Advantage Solutions Inc. Income Taxes Disclosure
16. Income Taxes
The benefit from income taxes is as follows:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Current tax expense |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
916 |
|
|
$ |
24,805 |
|
|
$ |
15,973 |
|
State |
|
|
2,004 |
|
|
|
9,784 |
|
|
|
5,337 |
|
Foreign |
|
|
9,605 |
|
|
|
13,456 |
|
|
|
13,941 |
|
Total current tax expense |
|
|
12,525 |
|
|
|
48,045 |
|
|
|
35,251 |
|
Deferred tax benefit |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(59,986 |
) |
|
|
(66,730 |
) |
|
|
(130,718 |
) |
State |
|
|
(14,245 |
) |
|
|
(16,230 |
) |
|
|
(59,537 |
) |
Foreign |
|
|
(1,081 |
) |
|
|
(2,733 |
) |
|
|
(3,438 |
) |
Total deferred tax benefit |
|
|
) |
|
|
) |
|
|
) |
|||
Total benefit from income taxes |
|
$ |
(62,787 |
) |
|
$ |
(37,648 |
) |
|
$ |
(158,442 |
) |
A reconciliation of the Company's effective income tax rate as compared to the federal statutory income tax rate is as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Statutory U.S. rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
|
|
21.0 |
% |
State income taxes, net of federal tax benefit |
|
|
2.2 |
% |
|
|
4.3 |
% |
|
|
2.7 |
% |
Foreign tax, net of federal tax benefit |
|
|
(0.8 |
%) |
|
|
(2.9 |
%) |
|
|
(0.2 |
%) |
Deconsolidation of subsidiaries |
|
|
0.0 |
% |
|
|
14.0 |
% |
|
|
0.0 |
% |
Goodwill impairment |
|
|
(6.2 |
%) |
|
|
0.0 |
% |
|
|
(13.5 |
%) |
Equity-based compensation |
|
|
0.1 |
% |
|
|
(2.3 |
%) |
|
|
0.0 |
% |
Work opportunity tax credit |
|
|
0.6 |
% |
|
|
2.5 |
% |
|
|
0.2 |
% |
Disallowed executive compensation |
|
|
(0.6 |
%) |
|
|
(1.8 |
%) |
|
|
(0.2 |
%) |
Meals and entertainment |
|
|
(0.5 |
%) |
|
|
(2.0 |
%) |
|
|
(0.1 |
%) |
Contingent consideration fair value adjustment |
|
|
0.0 |
% |
|
|
(0.4 |
%) |
|
|
0.0 |
% |
Fair value adjustment of warrant liability |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.3 |
% |
Other |
|
|
(1.6 |
%) |
|
|
(0.8 |
%) |
|
|
(0.2 |
%) |
Effective tax rate |
|
|
14.2 |
% |
|
|
31.7 |
% |
|
|
10.0 |
% |
The geographic components of loss before income taxes are as follows:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
U.S. sources |
|
$ |
(452,261 |
) |
|
$ |
(217,097 |
) |
|
$ |
(1,598,544 |
) |
Non-U.S. sources |
|
|
11,070 |
|
|
|
98,238 |
|
|
|
21,450 |
|
Loss from continuing operations before income taxes |
|
$ |
(441,191 |
) |
|
$ |
(118,859 |
) |
|
$ |
(1,577,094 |
) |
Net deferred tax liabilities consist of the following:
|
|
December 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
63,915 |
|
|
$ |
82,600 |
|
Interest expense |
|
|
88,466 |
|
|
|
71,478 |
|
Right-of-use liabilities |
|
|
9,517 |
|
|
|
12,748 |
|
Net operating losses |
|
|
2,855 |
|
|
|
5,471 |
|
Acquisition and divestiture related expenses |
|
|
5,460 |
|
|
|
6,511 |
|
Capitalized research and development costs |
|
|
2,919 |
|
|
|
4,849 |
|
Contingent consideration |
|
|
— |
|
|
|
1,662 |
|
Insurance reserves |
|
|
2,599 |
|
|
|
2,204 |
|
Acquired intangible assets, including goodwill |
|
|
1,419 |
|
|
|
1,302 |
|
Other |
|
|
2,977 |
|
|
|
6,274 |
|
Total deferred tax assets |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Acquired intangible assets, including goodwill |
|
|
299,981 |
|
|
|
357,657 |
|
Interest rate collars and caps |
|
|
414 |
|
|
|
6,799 |
|
Right-of-use assets |
|
|
6,465 |
|
|
|
8,955 |
|
Debt issuance costs |
|
|
6,359 |
|
|
|
7,242 |
|
Reorganization expenses |
|
|
— |
|
|
|
3,276 |
|
Other |
|
|
7,861 |
|
|
|
9,561 |
|
Total deferred tax liabilities |
|
|
321,080 |
|
|
|
393,490 |
|
Less: deferred income tax asset valuation allowances |
|
|
(3,199 |
) |
|
|
(3,491 |
) |
Net deferred tax liabilities |
|
$ |
144,152 |
|
|
$ |
201,882 |
|
|
|
|
|
|
|
|
||
|
|
December 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Reported as: |
|
|
|
|
|
|
||
Noncurrent deferred tax asset |
|
$ |
2,737 |
|
|
$ |
2,254 |
|
Noncurrent deferred tax liabilities |
|
|
146,889 |
|
|
|
204,136 |
|
Net deferred tax liabilities |
|
$ |
144,152 |
|
|
$ |
201,882 |
|
Income tax expense from discontinued operations was $41.3 million, $8.6 million and $13.1 million for the fiscal years ended December 31, 2024, 2023 and 2022, respectively. Income tax expense for the fiscal years ended December 31, 2024, 2023 and 2022 was impacted primarily by the sale of the divested entities and changes in the income before income taxes from discontinued operations. T
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act, which, among other things, imposes a new corporate alternative minimum tax and an excise tax on stock buybacks. As of December 31, 2024, the Company has determined that the Act had no tax impacts on its consolidated financial statements.
The Organization for Economic Co-operation and Development (“OECD”) published its model rules “Tax Challenges Arising From the Digitalization of the Economy - Global Anti-Base Erosion Model Rules (Pillar Two)” which established a global minimum corporate tax rate of 15% for certain multinational enterprises. Many countries have implemented or are in the process of implementing the Pillar Two legislation, which will apply to the Company. While the Company does not currently estimate a material impact to the consolidated financial statements, the Company continues to monitor the impact as countries implement legislation and the OECD provides additional guidance.
The Company held cash and cash equivalents in foreign subsidiaries of $65.0 million and $44.0 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, the undistributed earnings of the Company’s foreign subsidiaries was $130.7 million and $125.1 million, respectively.
The Company has not recorded a deferred tax liability related to undistributed earnings of its foreign subsidiaries as of December 31, 2024, except for a $0.6 million deferred tax liability for unremitted earnings in Canada with respect to which the
Company no longer has an indefinite reinvestment assertion. Taxes have not been provided on the remaining $114.2 million of undistributed foreign earnings. The incremental tax liability associated with these earnings is expected to be immaterial.
The Company evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. Deferred tax assets are only recorded to the extent that they are realizable based upon past and future income. The Company’s valuation allowances on its deferred tax assets as of December 31, 2024, 2023 and 2022 were $3.2 million, $ and $3.6 million, respectively.
As of December 31, 2024, the Company had $3.6 million of United States Federal Net Operating Losses (“NOL”), $30.1 million state NOL, and $3.9 million foreign NOL. The change of ownership provisions of the Tax Reform Act of 1986 may limit utilization of a portion of the Company’s domestic NOL to future periods. The United States Federal NOL expires in tax year 2037, $17.9 million of the state NOL expires between tax years 2024 and 2043 and the remaining $12.2 million of the state NOL carry forward indefinitely. Foreign NOL of $1.2 million expires between tax years 2024 and 2034 and the remaining $2.7 million of the foreign NOL carry forward indefinitely.
Uncertain Tax Positions
The Company accounts for uncertain tax positions when it is more likely than not that the tax position will not be sustained on examination by the taxing authorities, based on the technical merits of the position. As of December 31, 2024, 2023, and 2022, the Company’s unrecognized tax benefits were $2.9 million, $2.9 million and $0.6 million, respectively. The Company recorded uncertain tax positions related to capitalizing interest to inventory and California research and development credits for the year ended December 31, 2024. $2.2 million out of the $2.9 million of the unrecognized tax benefits as of December 31, 2024 would be included in the effective tax rate if recognized in future periods.
|
|
December 31, |
|
|||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Beginning unrecognized tax benefits |
|
$ |
2,887 |
|
|
$ |
560 |
|
|
$ |
563 |
|
Increases for tax positions related to prior years |
|
|
— |
|
|
|
2,350 |
|
|
|
— |
|
Decreases due to lapsed statutes of limitations |
|
|
(29 |
) |
|
|
(23 |
) |
|
|
(3 |
) |
Ending unrecognized tax benefits |
|
$ |
2,858 |
|
|
$ |
2,887 |
|
|
$ |
560 |
|
The Company is unaware of any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase within the next twelve months. The Company files tax returns in the United States, various states and foreign jurisdictions. With few exceptions, as of December 31, 2024, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to 2020. The Company does not have any material ongoing income tax audits.
The Company has elected to classify interest and penalties as components of tax expense. These amounts were $1.4 million, $0.9 million and $0.2 million for the years ended December 31, 2024, 2023 and 2022, respectively.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.