v3.25.2
Income Taxes
 6 Months Ended
Jun. 30, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income tax provision differed from the amounts computed by applying the U.S. federal income tax rate of 21% to income before income tax for the reasons set forth below (dollars in thousands):
Three months ended June 30,
20252024
U.S. federal statutory tax rate$375 21.0 %$420 21.0 %
State income taxes, net of federal benefit17 1.0 %15 0.7 %
Non-U.S. income taxed at different rates(45)(2.5)%(61)(3.1)%
Increase (reduction) in tax expense related to stock-based awards(188)(10.5)%16 0.8 %
Change in valuation allowance(416)(23.3)%(387)(19.4)%
Non-deductible expenses274 15.3 %12 0.6 %
Income tax expense and effective rate$17 1.0 %$15 0.6 %
Six months ended June 30,
20252024
U.S. federal statutory tax rate$1,518 21.0 %$796 21.0 %
State income taxes, net of federal benefit81 1.1 %256 6.8 %
Non-U.S. income taxed at different rates(120)(1.7)%(153)(4.1)%
Increase (reduction) in tax expense related to stock-based awards(190)(2.6)%39 1.0 %
Change in valuation allowance(1,642)(22.7)%(724)(19.1)%
Non-deductible expenses434 6.0 %43 1.1 %
Income tax expense and effective rate$81 1.1 %$257 6.7 %
As of June 30, 2025, the Company had U.S. net operating loss carryforwards (“NOLs”) of $186.2 million, including $39.8 million expiring in various amounts from 2029 through 2037, which can offset 100% of taxable income, and $146.4 million that has an indefinite carryforward period, which can offset 80% of taxable income per year. Additionally, the Company has an estimated $74.8 million in certain state NOL carryforwards and $3.8 million in tax credit carryforwards.
As a result of the ownership change experienced in 2023, the Company’s ability to use NOLs to reduce taxable income is generally limited by Section 382 of the Internal Revenue Code of 1986 to an annual amount of $3.5 million plus net unrealized built in gain of $24.5 million. The Company’s use of NOLs arising after the date of the ownership change are not impacted by the Section 382 limitation. NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward periods, then the ability to apply those NOLs as offsets to future taxable income is lost. Based on an analysis of the Section 382 limitation, the Company estimates that all carryforwards with the exception of $0.9 million of the state NOL carryforwards and $3.8 million of the tax credit carryforwards will be available for utilization if there is sufficient taxable income in subsequent periods. Although the ownership change will significantly limit the ability of the Company to utilize the pre-change net operating losses and credits, the Company does not expect a significant impact to its financial statements given the valuation allowance that is recorded to estimate the realizability of the deferred tax assets.
Given the Company’s anticipated future earnings, we believe that there is a reasonable possibility that within the next 3 to 12 months, sufficient positive evidence may become available to allow us to reach the conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and an income tax benefit for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on our ongoing analysis of all negative and positive evidence including the level of profitability that we are able to achieve.
On July 4, 2025, the U.S. enacted H.R. 1 “A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14”, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation. ASC 740, “Income Taxes,” requires the effects of changes in tax rates and laws to be recognized in the period in
which the legislation is enacted. Changes in tax laws may affect recorded deferred tax assets and deferred tax liabilities and our effective tax rate in the future, and the Company continues to evaluate the impacts the new legislation will have on its financial statements.