Note 8 - Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2026 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
8. INCOME TAXES
Income tax expense increased by $2.4 million for the six months ended June 30, 2026, to $1.4 million income tax expense as compared to $1.0 million income tax benefit for the six months ended June 30, 2025. The Company’s effective tax rate was 13% for the six months ended June 30, 2026, compared to 36% for the six months ended June 30, 2025. The increase was primarily due to changes in the foreign, federal and state taxes, and year-to-date recognition of worldwide pre-tax income (loss) in relation to their forecasted amounts for the full year. The Company’s provision for income taxes for the six months ended June 30, 2026, was primarily attributable to foreign taxes, U.S. federal and state taxes.
The Company’s total amount of unrecognized tax benefits, excluding interest, as of June 30, 2026, was $17.3 million, of which $2.5 million, if recognized, would affect the Company’s effective tax rate. The Company’s total amount of unrecognized tax benefits, excluding interest, as of December 31, 2025, was $17.1 million, of which $2.5 million, if recognized, would affect the Company’s effective tax rate. As of June 30, 2026, the Company has recorded unrecognized tax benefits of $3.1 million, including interest of $0.7 million, as long-term taxes payable in the condensed consolidated balance sheets. The remaining $14.9 million has been recorded within the Company’s DTAs, which is subject to a full valuation allowance.
The valuation allowance was approximately $69.9 million as of June 30, 2026, and December 31, 2025, which was related to U.S. net federal and state DTAs. The worldwide net DTA balances were immaterial as of June 30, 2026, and December 31, 2025. The Company has historically maintained a full valuation allowance against all the domestic DTAs because it was more likely than not that the DTAs will not be realized. The Company intends to continue maintaining a full valuation allowance on the DTAs until sufficient evidence indicates its DTAs will be realized. However, considering the Company’s current assessment of the probability of maintaining profitability, there is a reasonable possibility that in the short term, a portion, or all, of the valuation allowance would no longer be prudent. As such, the Company may release a portion, or all, of the valuation allowance against DTAs within the next 12 months. This release, if any, would result in the recognition of certain DTAs and a decrease to income tax expense for the period such release is recorded. The Company is currently evaluating both quantitative and qualitative factors that may impact the valuation allowance assessment. Therefore, the exact timing and amount of the valuation allowance release are subject to the Company’s profitability and projected ability to utilize the Company’s tax attributes, among other factors.
The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. federal and various state and foreign jurisdictions. For U.S. federal and California income tax purposes, the statute of limitations currently remains open for the tax years ended to present and to present, respectively. In addition, all of the net operating loss and research and development credit carryforwards that may be utilized in future years may be subject to federal and state examination. In May 2026, the Company received a notice from the Department of the Treasury Internal Revenue Service (“IRS”) that the Company’s federal income tax return for 2023 was selected for examination. The examination remains in its early stages, and no issues have been raised by the IRS to date. The Company is not currently under other known income tax examinations in the U.S. for any other periods or in any other of its major foreign subsidiaries’ jurisdictions.
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