Income taxes |
3 Months Ended |
|---|---|
Mar. 31, 2026 | |
| Income taxes [Abstract] | |
| Income taxes |
9. Income taxes
We recorded income tax expense in the first quarter of 2026 of $23 thousand at an effective tax rate of 2.9% compared to income tax expense in the first quarter of
2025 of $51 thousand at an effective tax rate of 72.9%. In the fourth quarter of 2024, the Company recorded a valuation allowance on the full value of its U.S. federal net deferred tax asset. The need for this valuation allowance has
been assessed as of March 31, 2026 and management continues to believe that the negative evidence, as further discussed below, continues to support our valuation allowance. As such, we recorded no U.S. federal income tax expense during the first quarter of 2026 and the first quarter of 2025. The effective tax rate for the first quarter of 2026 was low due to tax
expense only being recorded on income taxes associated with earnings in the United Kingdom and minimum required state taxes in the United States. The effective tax rate for the first quarter of 2025 was unusually high due to (1) a near-breakeven
level of pre-tax earnings of $70 thousand and (2) tax expense only included taxes associated with earnings in the United Kingdom and
minimum required state taxes in the United States.
As of March 31, 2026 and December 31, 2025, we had $8.5
million and $8.7 million, respectively, of valuation allowance against our net deferred income tax assets in multiple global tax
jurisdictions. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. Federal net operating losses can be carried forward indefinitely, however
these indefinite-lived NOLs are generally limited to offsetting 80% of taxable income in any given year. The Federal R&D credit carryforwards typically have a 20-year carryforward period.
In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback
periods, future reversals of taxable temporary differences, projections of taxable income, income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of
profitable operations and projections of future profitability within the carryforward period, including any potential tax planning strategies. Negative evidence includes items such as cumulative losses and projections of future losses. Upon
changes in facts and circumstances, management may conclude that deferred tax assets for which no valuation allowance is currently recorded may not be realized, resulting in a charge to establish a valuation allowance. Existing valuation
allowances are re-examined on a quarterly basis under the same standards of positive and negative evidence.
We are subject to U.S. federal income tax, as well as income tax in certain U.S. state and foreign jurisdictions. We have substantially concluded
all U.S. federal, state and local income tax, and foreign tax regulatory examination matters through 2021. However, our federal tax returns for the years 2022 through 2025 remain open to examination. Various U.S. state and foreign tax jurisdiction
tax years remain open to examination as well, but we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements.
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