v3.26.3
Income Tax Expense (Benefit)
 9 Months Ended
Sep. 30, 2026
Income Tax Disclosure [Abstract]  
Income Tax Expense (Benefit)
14.
Income Tax Expense (Benefit)

The following table summarizes the Company’s income tax expense and effective tax rate for the three and nine months ended September 30, 2026 and 2025:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2026

 

 

2025

 

 

2026

 

 

2025

 

 

 

(in thousands, except percentages)

 

Income before provision for income taxes

 

$

13,305

 

 

$

11,861

 

 

$

41,202

 

 

$

18,962

 

Income tax expense (benefit)

 

 

(7,603

)

 

 

4,217

 

 

 

(1,532

)

 

 

9,309

 

Effective tax rate

 

 

(57.1

)%

 

 

35.6

%

 

 

(3.7

)%

 

 

49.1

%

The Company calculates its interim tax provision using its best estimate of the annual effective tax rate. During the three months ended September 30, 2026, the Company completed two years of a multi-year study of its U.S. federal research and development (“R&D”) tax credits, identifying additional qualifying R&D expenditures that resulted in a $7.8 million net income tax benefit attributed to prior years, net of associated uncertain tax position reserve. Additionally, based on the same study, the Company revised its current year estimate of R&D tax credits by an additional $7.4 million, net of unrecognized tax benefits, to update its best estimate of the annual effective tax rate for the year ending December 31, 2026. As a result, the Company’s effective income tax rate is (57.1)% and (3.7)% for the three and nine months ended September 30, 2026, respectively.

The Company is currently in the process of completing U.S. federal and state R&D tax credit studies for 2023 and 2024 tax years, as well as completing its 2025 state R&D study, which is expected to be completed in the fourth quarter of 2026. While timing of completion is uncertain, the Company expects the resulting income tax benefits recognized to be material to its financial statements. The Company expects to record these income tax benefits within the next twelve months as the studies are completed.

For the nine months ended September 30, 2026, in addition to the aforementioned benefit related to incremental R&D credits, the effective tax rate included a benefit related to the revaluation of the Company’s state deferred tax liabilities arising from the changes in the combined state tax rate following the Seemann Acquisition.

As a result of the Walker Acquisition, the Company is subject to U.S. federal income tax on certain earnings of its foreign subsidiaries that are treated as controlled foreign corporations (“CFCs”) under the Global Intangible Low-Taxed Income (GILTI) regime, which was amended and renamed as Net CFC Tested Income (NCTI) under the One Big Beautiful Bill Act (Public Law 119-21), enacted July 4, 2025. The Company has elected to treat the tax effects of NCTI as a period cost in accordance with ASC 740, Income Taxes, and accordingly, recognizes any related tax expense in the period in which the tax arises, and no deferred tax assets or liabilities will be recognized for temporary differences that are expected to affect future NCTI calculations. No NCTI expense was recorded in the three and nine months ended September 30, 2026.

Additionally, the Company has not recognized a deferred tax liability on the excess of book over tax basis in its investment in the foreign subsidiaries acquired in the Walker Acquisition, as the Company intends to reinvest those earnings indefinitely outside the United States. It is not practicable to determine the unrecognized deferred tax liability related to this difference.