Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

v3.25.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not more likely than not to be realized.
The components of income (loss) before provision for (benefit from) income taxes are as follows:
(In thousands) 2025 2024 2023
United States $ 22,956  $ (17,426) $ (32,809)
Foreign 8,989  9,559  6,498 
Income (Loss) Before Provision for (Benefit from) Income Taxes $ 31,945  $ (7,867) $ (26,311)
The provision for (benefit from) income taxes at December 31 consists of the following:
(In thousands) 2025 2024 2023
Current
U.S. Federal $ 1,190  $ 6,026  $ (2,573)
State 1,398  985  937 
Foreign 1,360  1,357  1,600 
Current 3,948  8,368  (36)
Deferred
U.S. Federal (449) (14) (336)
State (502) (98) 583 
Foreign (411) 92  (101)
Deferred (1,362) (20) 146 
Total $ 2,586  $ 8,348  $ 110 
The following table summarizes the Company’s income tax payments net of tax refunds by jurisdiction:
(In thousands) 2025 2024 2023
U.S. Federal $ 8,903 
U.S. State and Local 742 
Foreign:
Canada 2,177 
Other1
(217)
Foreign 1,960 
Total Cash Paid for Income Taxes, Net of Refunds $ 11,605 
Total Cash Paid for Income Taxes, Net of Refunds (Prior to ASU 2023-09) $ 3,537  $ 1,964 
1 Includes jurisdictions below the threshold for the period presented
The company adopted ASU 2023-09 prospectively in 2025. The 2025 reconciliation between U.S. Federal tax rate and the effective tax rate under ASU 2023-09 is below. The reconciliation for 2024 and 2023 under the prior guidance follows.
The effective tax rates differ from the statutory federal income tax rate as follows:
Amount
(in thousands)		 Percent
Statutory Federal Income Tax Rate $ 6,708  21.0  %
State and Local Income Taxes, Net of Federal Income Tax Effect1
707  2.2  %
Foreign Tax Effects
France
Change in Valuation Allowance (1,243) (3.9) %
Other 37  0.1  %
Other Foreign Jurisdictions 267  0.8  %
Effect of Cross-Border Tax Laws
Global Intangible Low-taxed Income 2,307  7.2  %
Foreign-derived Intangible Income (513) (1.6) %
Tax Credits
Research and Development Tax Credits (4,291) (13.4) %
Change in Valuation Allowance (8,711) (27.2) %
Nontaxable or Nondeductible Items
Stock Compensation Expense (822) (2.6) %
Nondeductible Premium on Bond Repurchase 4,491  14.1  %
162(m) Limitation2
2,675  8.4  %
Other 539  1.7  %
IRS Audit Adjustments 361  1.1  %
Other 74  0.2  %
Effective Tax Rate $ 2,586  8.1  %
1 State taxes in California for 2025 make up the majority (greater than 50%) of the tax effect in this category
2 Approximately $0.7 million of the line item relates to current year 162(m) limitations and the remaining amount relates to anticipated limitations of the existing deferred tax asset upon reversal
The table below includes a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective tax rate for the years ended December 31, 2024 and 2023, prior the adoption of ASU 2023-09:
2024 2023
Statutory Federal Income Tax Rate 21.0  % 21.0  %
Permanent Items
Stock Compensation Expense (2.0) % (1.4) %
Meals and Entertainment (1.7) % —  %
Parking Expenses (1.4) % —  %
Other (7.4) % (1.4) %
Foreign Tax Rate Differential 7.1  % (0.4) %
State Income Tax, Net of Federal Income Tax Effect (8.9) % (4.6) %
Research and Development Tax Credits 47.4  % 14.1  %
Change in Valuation Allowance (172.7) % (26.1) %
Net GILTI and FDII Tax Expense (Benefit) 16.4  % (1.0) %
Penalties (3.1) % —  %
Other (0.8) % (0.6) %
Effective Tax Rate (106.1) % (0.4) %
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as tax attributes.
Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows:
(In thousands) 2025 2024
Deferred Tax Assets:
Asset Reserves $ 22,450  $ 22,293 
Deferred Compensation 5,835  6,096 
Financing Costs 5,699  — 
Section 163(j) - Interest Expense Limitation 43  2,982 
State Investment and Research and Development Tax Credit Carryforwards, Net of Federal Tax 4,684  1,093 
Customer Advanced Payments and Deferred Revenue 697  257 
Net Operating Loss Carryforwards and Other 18,139  10,060 
Goodwill and Intangible Assets 575  890 
ASC 606 Revenue Recognition 428  374 
Research & Development Costs 18,754  35,061 
Lease Liabilities 10,753  6,059 
Other 4,455  6,941 
Total Gross Deferred Tax Assets 92,512  92,106 
Valuation Allowance (74,451) (78,659)
Deferred Tax Assets 18,061  13,447 
Deferred Tax Liabilities:
Depreciation 8,559  7,771 
ASC 606 Revenue Recognition - Section 481(a) Adjustment —  113 
Lease Assets 8,024  5,695 
Earnout Income Accrual 104  102 
Other 1,392  1,041 
Deferred Tax Liabilities 18,079  14,722 
Net Deferred Tax Liabilities $ (18) $ (1,275)
The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:
(In thousands) 2025 2024
Other Assets — Long-term $ 622  $ 159 
Deferred Tax Liabilities — Long-term (640) (1,434)
Net Deferred Tax Liabilities $ (18) $ (1,275)
The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. After considering the losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, the Company determined that projections of future taxable income could not be relied upon as a source of income to realize its deferred tax assets. However, the Company is relying on a significant portion of its existing deferred tax liabilities for the realizability of deferred tax assets. As a result, the Company has valuation allowances against its deferred tax assets of approximately $74.5 million, $78.7 million, and $65.6 million during the years ended December 31, 2025, 2024 and 2023, respectively, for the portion of deferred tax assets not realizable by the Company’s existing deferred tax liabilities.
During the year ended December 31, 2025, the company recorded a deferred tax asset of approximately $6.3 million as an increase to additional paid-in capital with an offsetting valuation allowance of approximately $6.3 million as a decrease to additional paid-in capital. Any subsequently recognized tax benefits associated with this $6.3 million valuation allowance are expected to be credited directly to contributed capital.
During the year ended December 31, 2025, the Company reversed approximately $1.4 million of valuation allowances against certain foreign deferred tax assets as a result of no longer having cumulative pre-tax losses in the respective foreign jurisdictions during the three-year period ending with the current year.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. The OBBBA permanently extends and modifies significant provisions enacted in 2017 as part of the Tax Cuts and Jobs Act (“TCJA”) that were originally set to expire at the end of 2025. In addition, the OBBBA makes changes to certain U.S. corporate tax provisions, many of which are not in effect until 2026. Key provisions of the Tax Act relevant to the Company’s operations include immediate expensing of certain domestic research and development expenses and domestic capital expenditures beginning in 2025 as well as changes to various U.S. international tax provisions going forward. The Company anticipates it will elect to deduct the remaining previously capitalized domestic research and development costs equally between 2025 and 2026 and expense domestic research and development costs as incurred for the 2025 tax year. As a result of this provision of the OBBBA, deferred tax assets related to capitalized research expenses decreased by approximately $16.3 million during the year ended December 31, 2025. The Company maintains a full valuation allowance against this deferred tax asset.
At December 31, 2025, gross federal net operating losses amounted to approximately $41.8 million, of which, $1.1 million are subject to annual limitations under Internal Revenue Code Section 382. Of these net operating losses, $0.7 million expire in 2038 and the remaining $0.4 million will carryforward indefinitely. The remaining $40.7 million of federal net operating losses, which are not subject to Internal Revenue Code Section 382 will carryforward indefinitely. The Company maintains a full valuation allowance against this deferred tax asset.
At December 31, 2025, gross state net operating loss carryforwards amounted to approximately $146.5 million. Of these state net operating loss carryforwards, $127.3 million begin to expire at various dates from 2025 through 2045 and the remaining $19.2 million will carryforward indefinitely. The Company maintains a full valuation allowance against this deferred tax asset.
At December 31, 2025, federal income tax credit carryforwards amounted to approximately $3.4 million and will expire in 2045. State income tax credit carryforwards amounted to approximately $1.4 million and begin to expire at various dates from 2025 to 2044. Additionally, the Company has approximately $0.2 million of foreign tax credits that it can carry forward through 2027. The Company maintains a full valuation allowance against these credits.
The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax
benefits, any interest and penalties associated with that liability would be recorded as income tax expense. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
(in thousands) 2025 2024 2023
Balance at Beginning of the Year $ —  $ 100  $ 443 
Decreases as a Result of Tax Positions Taken in Prior Years —  (100) (343)
Balance at End of the Year $ —  $ —  $ 100 
There are no material penalties or interest liabilities accrued as of December 31, 2025, 2024, or 2023, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2025, 2024 and 2023. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2019, 2020, and 2022 through 2024 for federal purposes and 2021 through 2024 for state purposes.
Pretax income from the Company’s foreign subsidiaries amounted to approximately $9.0 million, $9.6 million and $6.5 million for 2025, 2024 and 2023, respectively. The balance of pretax earnings or loss for each of those years were domestic.
Historically, we have asserted that the unremitted earnings of our foreign subsidiaries were indefinitely reinvested. However, for the years ended December 31, 2025, 2024 and 2023, we determined that we could no longer assert indefinite reinvestment on approximately $7.0 million, $3.0 million and $1.9 million of the unremitted earnings of Luminescent Systems Canada Inc., respectively. As a result, we have recorded a deferred tax liability of approximately $0.3 million, $0.2 million, and $0.1 million at December 31, 2025, 2024 and 2023, respectively, related to local country withholding taxes that are expected to be incurred upon ultimate repatriation of such earnings. All other foreign unremitted earnings, which total approximately $17.3 million, continue to be indefinitely reinvested. We continue to be permanently reinvested in outside basis differences other than unremitted earnings as we have no plans to liquidate or sell any foreign subsidiaries. In addition, we have not provided deferred taxes on any outside basis differences of our domestic subsidiaries as we have the ability and intent to recover these basis differences in a tax-free manner. It is not practicable to determine the amount of unrecognized deferred tax related to these basis differences.
The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax imposed on certain large corporations and the extension and expansion of clean energy tax incentives. There were no impacts related to the IRA recorded for the years ending December 31, 2025, 2024, and 2023.
Under an Organization for Economic Co-operation and Development Inclusive Framework, countries that agreed to enact a two-pillar solution aim to address the challenges arising from the digitalization of the world economy (“Pillar Two”). Pillar Two sets out global minimum Effective Tax Rate (“ETR”) rules to ensure that large multinational businesses with consolidated revenue over €750 million are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions. Rules under Pillar Two generally became effective beginning January 1, 2024 in most jurisdictions that have issued legislation. The Company will continue to monitor the impact of Pillar Two; however, Pillar Two is currently not applicable as the Company does not meet the threshold of having consolidated revenue over €750 million in two out of the four preceding years.