Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 12. INCOME TAXES

The components of income (loss) before income taxes are as follows:

	Years Ended December 31,
(in thousands)	2024			2023		2022
U.S. Federal & State	$	(563,863	)	$	93,357	$	65,899
Foreign		706,675			1,009		7,030
Income (loss) before taxes	$	142,812		$	94,366	$	72,929

The components of income tax expense (benefit) are as follows:

	Years Ended December 31,
(in thousands)	2024			2023			2022
Current tax expense
U.S. Federal & State	$	1,551		$	25,975		$	13,730
Foreign		5,531			1,871			2,632
Total current	$	7,082		$	27,846		$	16,362
Deferred tax expense (benefit)
U.S Federal & State	$	9,724		$	(7,941	)	$	(6,711	)
Foreign		(14,319	)		535			—
Total deferred	$	(4,595	)	$	(7,406	)	$	(6,711	)
Total income taxes	$	2,487		$	20,440		$	9,651

The reconciliation of income tax expense (benefit) computed using the US statutory income tax rate of 21% to the actual income tax expense and resulting effective tax rate is as follows:

	Years Ended December 31,
(in thousands)	2024			2023			2022
U.S. statutory income tax rate	$	29,991		$	19,817		$	15,295
Increase (decrease) in income taxes resulting from:
Nondeductible expenses		(547	)		258			160
Global intangible low-taxed income and foreign derived    intangible income		(1,093	)		(1,420	)		(109	)
Dividends received deduction		(6,413	)		(1,570	)		(2,115	)
Bargain Purchase Gain		(18,021	)		—			—
Equity Method Investment Gain		(1,688	)		—			—
Transaction Costs		3,552			—			—
Research & development credit		(283	)		(407	)		(329	)
Valuation allowance		(11,298	)		(1,495	)		(8,459	)
State taxes		1,589			2,650			1,458
Prior year true up		(213	)		853			1,690
Foreign rate differential		5,296			1,990			1,198
Foreign withholding tax		1,647			(236	)		816
Uncertain Tax Positions		(33	)		—			—
Other		1			—			46
Effective income tax expense	$	2,487		$	20,440		$	9,651
Effective income tax rate		1.7	%		21.7	%		13.2	%

We recorded a tax expense of $2.5 million, $20.4 million and $9.7 million for the years ended December 31, 2024, 2023 and 2022, respectively. For the years ended December 31, 2024, 2023 and 2022, our effective tax rate was 1.7%, 21.7% and 13.2%, respectively.

As of December 31, 2024, the Company had federal net operating losses of $298.8 million, of which $149.2 million are limited under Section 382 of the Internal Revenue Code. Of the federal net operating losses, $76.9 million are set to begin expiring in 2030 if unused, and $221.9 million are available to be carried forward indefinitely. The Company also had $64.3 million of foreign net operating losses generally expiring within 10 or 20 years from the year of generation and state net operating loss carryforwards of $22.7 million beginning to expire in 2025, of which $22.6 million are limited by Section 382 of the Internal Revenue Code.

	Year Ended December 31,
(in thousands)	2024			2023
Deferred income tax assets:
Impairment and excess amortization of intangible assets	$	9,657		$	4,768
Uniform capitalization of inventory		3,113			4,283
Inventory reserves		32,678			4,796
Net operating loss carryforward		79,500			49,208
Lease liability		13,851			7,733
Deferred revenue		7,103			—
Allowance for doubtful accounts		13,876			—
Capitalized R&D costs		7,310			—
Income tax credit carryforward		29,677			—
Property and equipment		4,590			—
Other		4,122			5,774
Total deferred income tax assets	$	205,477		$	76,562
Valuation allowance		(53,268	)		(46,886	)
Total deferred tax assets, net	$	152,209		$	29,676
Deferred tax liability:
Property and equipment		—			(4,607	)
Withholding tax		(3,192	)		(726	)
GAAP to STAT Deferred		(1,601	)		(2,903	)
Right of use asset		(13,500	)		(7,423	)
Total deferred tax liabilities	$	(18,293	)	$	(15,659	)
Net deferred income tax asset (liability)	$	133,916		$	14,017

As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2024, it was determined that there is sufficient positive evidence to conclude that it is more likely than not that $133.9 million of deferred taxes are realizable. The valuation allowance was $53.3 million and $46.9 million at December 31, 2024 and December 31, 2023 respectively. The change in valuation allowance of $6.4 million primarily included $18.1 million established as part of the Merger offset with a $13.2 million release in foreign jurisdictions where we now believe we can use our deferred tax assets.

The changes in valuation allowance during the years ended December 31, 2024, 2023 and 2022 were as follows:

	Years Ended December 31,
(in thousands)	2024			2023			2022
Balance at January 1	$	46,886		$	46,466		$	54,925
Adjustments pertaining to deferred tax assets acquired as part of the Merger (1)		18,084			-			-
Charges to costs and expenses (2)		1,398			2,359			-
Reversals (3)		(13,192	)		(1,179	)		(7,934	)
Adjustments (4)		92			(760	)		(525	)
Balance at December 31	$	53,268		$	46,886		$	46,466

(1)The Company has adjusted certain valuation allowances as a result of the Merger and purchase price accounting.

(2)The Company has recorded valuation allowances on deferred tax assets attributable to net operating losses and tax credits in certain jurisdictions due to uncertainty of its ability to utilize these assets in future periods. During 2024, the Company recorded valuation allowances of $0.4 million and $1.0 million related to domestic deferred tax assets and foreign deferred tax assets, respectively.

(3)The Company reverses valuation allowances on deferred tax assets in the period in which, based on the weight of available evidence, it is more-likely-than-not that the deferred tax asset will be realized. In 2024, reversals were primarily driven by release in foreign jurisdictions where we now believe we will utilize deferred tax assets.

(4)The Company has adjusted certain valuation allowances as a result of changes in tax rates in certain jurisdictions, the expiration of carryforward periods for net operating loss carryforwards, and foreign exchange rate movements.

As of December 31, 2024, the 2023, 2022, and 2021 federal income tax returns remain open for examination. The foreign and state statute of limitations vary per jurisdiction but are generally open after 2019.

The Company has $20.7 million of excess foreign tax credits of which $17.8 million will expire in years ending 2024 to 2032 while $2.9 million are carried forward indefinitely. The Company has $9.0 million of general business credits which expire in tax years ending 2037 to 2043.

The Company has recorded $0.2 million in uncertain tax positions in 2024 primarily related to uncertain tax positions acquired in the merger with Dril-Quip.

	Year Ended December 31,
(in thousands)	2024			2023
Uncertain tax positions:
Balance at beginning of year	$	-		$	-
Additions for tax positions related to current year		273			-
Reduction for tax positions related to the prior year		(33	)		-
Balance at end of year	$	240		$	-

The amounts above exclude accrued interest and penalties of $0.1 million at December 31, 2024. The Company classifies interest and penalties relating to uncertain tax positions within Income tax expense, net in the Consolidated Statements of Operations and Comprehensive Income.

The Company no longer asserts permanent reinvestment. We maintain a deferred foreign tax liability, which had a balance of $3.2 million as of December 31, 2024. It is primarily related to estimated foreign withholding tax associated with repatriating non-U.S. earnings back to the United States.

The Inflation Reduction Act (“IRA”) was signed into law in August 2022. The Company has evaluated the provisions of the IRA and does not expect any material impact to its consolidated provision for income taxes.

The Organization for Economic Co-operation and Development (“OECD”) recently enacted model rules for a new global minimum tax framework, also known as Pillar Two, and certain governments globally have enacted, or are in the process of enacting, legislation considering these model rules. We have considered the possible implication of the legislation passed or in consideration of being passed, and we do not believe these rules will have a material impact on our taxes in the near future.