Note 13.  Income Taxes 

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income (or loss) for the year, projections of the proportion of income (or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, or additional information is obtained. The computation of the annual estimated effective tax rate includes applicable modifications, which were projected for the year, such as certain book expenses not deductible for tax, tax credits and foreign deemed dividends.

Our effective tax rate (“ETR”) from continuing operations was 31.0% and (155.0%) for the three months ended June 30, 2026 and 2025, respectively, and 29.1% and (6.2%) for the six months ended June 30, 2026 and 2025, respectively. The income tax benefit for the three and six months ended June 30, 2026 and 2025 relates to results generated by our businesses in the United States, Canada, and certain other foreign jurisdictions. During the second and fourth quarters of 2025, respectively, we reversed substantially all of the valuation allowance previously recorded against the deferred tax assets of our Canadian and U.S operating subsidiaries due to sustained improvements in operating results, including a return to profitability and forecasts of future taxable income sufficient to realize the remaining deferred tax assets. Management considered a variety of positive and negative evidence which provided a basis for the conclusion that it is more likely than not that the deferred tax assets will be realized in future periods.

Canada Tax Reassessments 

In April 2026, STS Tracer Services Ltd. (“STS Canada”), a Canadian subsidiary, received a NOR from the CRA for approximately CAD $0.5 million ($0.3 million USD), including approximately CAD $0.4 million ($0.2 million USD) in income taxes, and approximately CAD $0.1 million ($0.1 million USD) in interest and penalties. This reassessment related to taxation years ended December 31, 2019, December 31, 2022, December 31, 2023, and December 31, 2024. The CRA disallowed certain expenses related to transfer pricing adjustments that are supported by annual third-party transfer pricing studies. The CRA further asserted that taxable income should be adjusted in those tax years and in other years subject to carryback adjustments.

We filed our initial Notice of Objection with the CRA for NCS Canada in March 2026 and filed a revised Notice of Objection in May 2026, with the assistance of external advisors, as we believe our tax positions are supportable under applicable Canadian tax laws. We also filed a Notice of Objection with Alberta for NCS Canada in May 2026 and a revised Notice of Objection, to correspond with the current reassessment, in  June 2026. In July 2026, we filed a Notice of Objection for STS Canada. We intend to pursue all available administrative and judicial remedies necessary to resolve this matter. 

As of June 30, 2026, we have not recorded a liability related to the CRA NOR or the Alberta reassessment in the consolidated financial statements in accordance with treatment prescribed for uncertain tax positions under ASC 740, “Income Taxes,” as we believe it is more likely than not that our tax filing positions will ultimately be sustained. We cannot predict the ultimate outcome of this matter and the final disposition of any appeals, which could take years to resolve. If we are unable to successfully defend our tax positions with the CRA or Alberta, we may be required to record additional tax liability and record tax expense, as well as penalty and interest. We expect to be required to make a cash deposit of up to 50% of the assessed amounts while the appeals process is underway for each of these matters. As of June 30, 2026, we made deposits of approximately CAD $2.0 million ($1.4 million USD) with Alberta pursuant to a deposit request. This payment is recorded as a long-term asset on the accompanying condensed consolidated balance sheet within deposits and other assets. If our tax positions are ultimately sustained, any such deposits would be refunded with interest, and we expect the impact on our net income to be immaterial, representing the difference between the interest paid by the taxing authorities on refunded amounts and the returns that could otherwise have been earned on those funds.