Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our pre-tax income attributable to foreign operations was not material. The provision for income tax expense consisted of the following:

	(In thousands) Years Ended December 31,
	2023		2022		2021
Current tax expense
Federal	$	8,796	$	12,474	$	31,112
State	$	1,095	$	1,023	$	2,829
Foreign	390		428		59
	10,281		13,925		34,000
Deferred tax (benefit) expense
Federal	(7,857)		(8,624)		107
State	(1,973)		(768)		841
	(9,830)		(9,392)		948
Income tax expense	$	451	$	4,533	$	34,948

We recognized net income tax benefits from deductions of share-based payments in excess of compensation cost recognized for financial reporting purposes of $0.2 million, $0.2 million, and $0.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Deferred tax (liabilities) assets were comprised of the following:

	(In thousands) December 31,
	2023		2022
Deferred tax assets:
Accrued expenses	$	889	$	627
Allowance for credit losses	501		152
Contract overrun reserves	1,323		952
Deferred compensation	526		234
Deferred revenue	—		943
Employment-related accruals	5,022		3,932
Environmental reserves	501		501
Federal tax credit carryforwards	133		133
Inventory reserves	4,628		3,572
Operating lease liabilities	7,318		8,672
Pension obligation	553		28
Federal and state net operating loss carryforwards	2,560		3,397
Research expenses	21,822		10,620
State tax credit carryforwards	7,582		6,974
Stock-based compensation	1,852		2,420
Other	1,798		1,525
Total gross deferred tax assets	57,008		44,682
Valuation allowance	(7,464)		(7,548)
Total gross deferred tax assets, net of valuation allowance	49,544		37,134
Deferred tax liabilities:
Deferred revenue	(2,794)		—
Depreciation	(11,622)		(11,286)
Goodwill	(10,973)		(8,630)
Intangibles	(16,265)		(18,310)
Interest rate hedge	(3,659)		(3,359)
Operating lease right-of-use assets	(7,087)		(8,346)
Prepaid insurance	(770)		(609)
Other	(499)		(547)
Total gross deferred tax liabilities	(53,669)		(51,087)
Net deferred tax liabilities	$	(4,125)	$	(13,953)

We have federal and state tax net operating losses of $7.6 million and $16.5 million, respectively, as of December 31, 2023. The federal net operating losses acquired from the acquisition of Nobles are subject to an annual limitation under Internal Revenue Code Section 382; however, we expect to fully realize them under ASC Subtopic 740-10 before they begin to expire in 2038. The state net operating loss carryforwards include $2.5 million that is not expected to be realized due to various limitations and has been reduced by a valuation allowance. If not realized, the state net operating loss carryforwards, depending on the tax jurisdiction, will begin to expire between 2027 and 2038.

We have federal and state tax credit carryforwards of $0.1 million and $11.8 million, respectively, as of December 31, 2023. A valuation allowance of $9.3 million has been provided on state tax credit carryforwards that are not expected to be realized under ASC Subtopic 740-10. If not realized, the federal tax carryforwards will begin to expire in 2032 and state tax credit carryforwards, depending on the tax jurisdiction, will begin to expire between 2024 and 2038.

We believe it is more likely than not that we will generate sufficient taxable income to realize the benefit of the remaining deferred tax assets.

The principal reasons for the variation between the statutory and effective tax rates were as follows:

	Years Ended December 31,
	2023	2022	2021
Statutory federal income tax rate	21.0%	21.0%	21.0%
State income taxes (net of federal benefit)	3.2	4.0	3.1
Tax impact of foreign operations	2.8	1.0	—
Foreign derived intangible income deduction	(3.2)	(0.9)	—
Stock-based compensation expense	(1.5)	(0.6)	(0.5)
Research and development tax credits	(36.3)	(14.8)	(3.0)
Other tax credits	(0.3)	(0.1)	—
Changes in valuation allowance	(0.5)	(0.5)	(1.0)
Non-deductible book compensation expenses	14.8	4.4	0.7
Changes in deferred tax assets	0.8	(0.2)	—
Changes in tax reserves	1.0	—	0.2
Other	1.0	0.3	—
Effective income tax rate	2.8%	13.6%	20.5%

Our total amount of unrecognized tax benefits was $4.5 million, $4.9 million, and $4.4 million at December 31, 2023, 2022, and 2021, respectively. We record interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of December 31, 2023, 2022, and 2021 were not significant. If recognized, $2.6 million would affect the effective income tax rate. As a result of statute of limitations set to expire in 2024, we expect decreases to our unrecognized tax benefits of $0.8 million in the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

	(In thousands) Years Ended December 31,
	2023		2022		2021
Balance at January 1,	$	4,944	$	4,435	$	4,069
Additions for tax positions related to the current year	646		1,177		562
Additions for tax positions related to prior years	220		15		180
Reductions for tax positions related to prior years	(600)		(13)		—
Reductions for lapse of statute of limitations	(717)		(670)		(376)
Balance at December 31,	$	4,493	$	4,944	$	4,435

We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2019 and by state taxing authorities for tax years after 2018. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.

The Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into U.S. law in December 2017, eliminated the option to immediately deduct research and development expenditures in the year incurred under Section 174 effective January 1, 2022. The amended provision under Section 174 requires us to capitalize and amortize these expenditures over five years (for U.S.-based research). For the year ended December 31, 2023, we recorded an increase to income taxes payable of $9.7 million and a decrease to net deferred tax liabilities of a similar amount. We are monitoring legislation for any further changes to Section 174 and the potential impact to our financial statements in 2024.

In August 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which aims to curb inflation by reducing the deficit, lowering prescription drug prices, and investing in domestic energy production while promoting clean energy. We considered the provisions in the IRA and determined they have no or minimal impact to our overall income taxes.

In August 2022, the U.S. enacted the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (“CHIPS Act”) which provides new funding to boost domestic research and manufacturing of semiconductors in the United States. We considered the provisions in the CHIPS Act and determined they have no or minimal impact to our overall income taxes.