INCOME TAXES

12 Months Ended

Dec. 31, 2024

INCOME TAXES:

INCOME TAXES

10. INCOME TAXES

During the years ended December 31, 2024, 2023 and 2022, income (loss) before income tax expense from U.S. operations was $4.8 million, $3.2 million and ($1.2) million, respectively, and income before income tax expense from foreign operations was $1.8 million, $1.7 million and $1.7 million, respectively.

	Year Ended December 31,
	2024		2023		2022
	(In thousands)
U.S.
Current	$	499	$	(353)	$	1,210
Deferred		9		3		13
Foreign
Current		277		453		577
Withholding		1,699		1,770		2,111
Deferred		38		(109)		(12)
Total income tax expense	$	2,522	$	1,764	$	3,899

The reconciliation between the statutory federal income tax expense and the Company’s effective income tax expense were as follows (in thousands):

	Year Ended December 31,
	2024		2023		2022
Federal statutory income tax expense	$	1,382	$	1,016	$	106
State income tax expense		738		(65)		949
Stock compensation expense		286		(1,747)		(898)
Tax credits		(2,795)		(3,214)		(2,877)
Foreign taxes, net		1,707		1,859		2,195
Foreign-derived intangible income deduction		(2,052)		(1,612)		(830)
Change in valuation allowance		2,882		5,043		5,122
Section 162(m) limitation		148		424		92
Unrealized tax benefit reserve changes		232		99		136
Other		(6)		(39)		(96)
Total income tax expense	$	2,522	$	1,764	$	3,899

As of December 31, 2024, the Company had federal and California net operating loss carry-forwards (“NOLs”) of $4.5 million and $13.0 million, respectively. Some of the federal NOLs, acquired as part of past acquisitions, have expirations in 2025 onwards, and about $2.3 million of the federal NOLs have no expiration. The California NOLs begin expiring in 2028 onwards.

As of December 31, 2024, the Company had federal and state research and experimental and other tax credit (“R&D credits”) carry-forwards of $24.7 million and $25.5 million, respectively. The federal credits began to expire in 2022, while the California credits have no expiration. The extent to which the federal and state credit carry-forwards can be used to offset future tax liabilities, respectively, may be limited, depending on the extent of ownership changes within any three-year period as provided in the Tax Reform Act of 1986 and the California Conformity Act of 1987.

The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future. Based on all available evidence, both positive and negative, the Company determined a full valuation allowance was still appropriate for its federal and state net deferred tax assets (“DTAs”) as of December 31, 2024, primarily driven by a cumulative loss incurred over the 12-quarter period ended December 31, 2024 and the likelihood that the Company will not utilize tax attributes before they begin to expire. The valuation allowance was $67.9 million and $64.2 million as of December 31, 2024 and 2023, respectively. The increase in the valuation allowance from December 31, 2023 to December 31, 2024 was primarily driven by an increase in capitalized research and experimental expenses and credits generated in the current year which require a valuation allowance. Management will continue to evaluate the need for a

valuation allowance and may change its conclusion in a future period based on any change in facts (e.g. 12-quarter cumulative profit, significant new revenue, and other relevant factors). If the Company concludes that it is more likely than not to utilize some or all of its U.S. DTAs, it will release some or all of its valuation allowance and the Company’s income tax expense will decrease in the period in which such determination is made. Net deferred tax assets, after the U.S. valuation allowance, were immaterial as of December 31, 2024 and 2023.

The components of the net deferred tax assets and liabilities consisted of the following (in thousands):

	December 31,
	2024		2023
Deferred tax assets:
Net operating loss carry forward	$	2,414	$	3,005
Research and development and other credit carry forward		31,988		30,633
Foreign tax credit carry forward		1,977		7,611
Capitalized research and experimental expenses		26,426		20,403
Accruals deductible in different periods		6,049		4,037
Leases		1,113		1,282
Stock-based compensation		2,087		1,882
Total deferred tax assets		72,054		68,853
Less: valuation allowance		(67,946)		(64,152)
Total deferred tax assets, net of valuation allowance		4,108		4,701
Deferred tax liabilities:
Property and equipment, net		(752)		(612)
Operating lease right-of-use assets		(1,082)		(1,266)
Intangible assets		(2,366)		(2,995)
Total deferred tax liabilities		(4,200)		(4,873)
Net deferred tax liabilities	$	(92)	$	(172)

The Company classifies its liabilities for income tax exposures as long-term. The Company includes interest related to unrecognized tax benefits within the Company’s income tax expense. As of December 31, 2024 and 2023, the Company had accrued interest related to unrecognized tax benefits of $0.6 million and $0.7 million, respectively. For the years ended December 31, 2024, 2023 and 2022, the Company recognized reversal of interest related to unrecognized tax benefits of ($20,000), ($15,000) and ($61,000) respectively, in the Consolidated Statements of Comprehensive Income (Loss).

The Company’s total amount of unrecognized tax benefits, excluding interest, as of December 31, 2024 was $16.6 million, of which $2.1 million, if recognized, would impact the Company’s effective tax rate. As of December 31, 2024, the Company has recorded unrecognized tax benefits of $2.8 million, including interest of $0.6 million, as long-term income taxes payable in its Consolidated Balance Sheet. The remaining $14.4 million has been recorded within DTAs, which is subject to a full valuation allowance. The Company does not expect the change in unrecognized tax benefits over the next twelve months to materially impact its results of operations and financial position.

A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows (in thousands):

	Year Ended December 31,
	2024		2023		2022
Gross unrecognized tax benefits, beginning of year	$	15,937	$	15,109	$	14,743
Increases in tax positions for current year		1,290		1,469		988
Increases in tax positions for prior years		—		91		—
Lapse in statute of limitations		(658)		(732)		(622)
Gross unrecognized tax benefits, end of year	$	16,569	$	15,937	$	15,109

The Company does not provide deferred taxes on undistributed earnings of its foreign subsidiaries as it intends to indefinitely reinvest those earnings.

The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. federal, various state and foreign jurisdictions. For U.S. federal and California income tax purposes, the statute of limitations currently remains open for the years ended 2021 to present and 2020 to present, respectively. In addition, all of the NOLs and R&D credit carry-forwards that may be utilized in future years may be subject to federal and state examination. The Company is not currently under income tax examinations in the U.S. or in any other of its major foreign subsidiaries’ jurisdictions.

Valuation allowance for DTAs is summarized as follows (in thousands):

	Balance at		Charged to		Deductions/		Balance at
	Beginning		Income Tax		Write-offs of		End of
	of Period		Expense		Accounts		Period
2024	$	64,152	$	3,794	$	—	$	67,946
2023	$	59,215	$	4,937	$	—	$	64,152
2022	$	51,586	$	7,629	$	—	$	59,215