Income Taxes

12 Months Ended

Dec. 31, 2024

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,
	2024		2023		2022
Current tax expense
Federal	$	10,629	$	8,796	$	12,474
State	1,604		1,095		1,023
Foreign	633		390		428
	12,866		10,281		13,925
Deferred tax (benefit) expense
Federal	(6,242)		(7,857)		(8,624)
State	(1,212)		(1,973)		(768)
	(7,454)		(9,830)		(9,392)
Income tax expense	$	5,412	$	451	$	4,533

We recognized net income tax benefits from deductions of share-based payments in excess of compensation cost recognized for financial reporting purposes of less than $0.1 million, $0.2 million, and $0.2 million for the years ended December 31, 2024, 2023, and 2022, respectively.

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

	(In thousands) December 31,
	2024		2023
Deferred tax assets:
Accrued expenses	$	547	$	889
Allowance for credit losses	642		501
Contract overrun reserves	1,145		1,323
Deferred compensation	590		526
Deferred revenue	—		—
Employment-related accruals	4,883		5,022
Environmental reserves	496		501
Federal tax credit carryforwards	—		133
Inventory reserves	3,907		4,628
Operating lease liabilities	6,983		7,318
Pension obligation	143		553
Federal and state net operating loss carryforwards	1,764		2,560
Research expenses	29,956		21,822
State tax credit carryforwards	7,992		7,582
Stock-based compensation	1,753		1,852
Other	1,918		1,798
Total gross deferred tax assets	62,719		57,008
Valuation allowance	(7,216)		(7,464)
Total gross deferred tax assets, net of valuation allowance	55,503		49,544
Deferred tax liabilities:
Deferred revenue	(2,374)		(2,794)
Depreciation	(11,533)		(11,622)
Goodwill	(13,149)		(10,973)
Intangibles	(14,167)		(16,265)
Interest rate hedge	(4,129)		(3,659)
Operating lease right-of-use assets	(6,702)		(7,087)
Prepaid insurance	(755)		(770)
Other	(455)		(499)
Total gross deferred tax liabilities	(53,264)		(53,669)
Net deferred tax assets (liabilities)	$	2,239	$	(4,125)

We have federal and state tax net operating losses of $4.2 million and $15.0 million, respectively, as of December 31, 2024. The federal net operating losses acquired from the acquisition of Nobles Worldwide, Inc. 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 $2.3 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 state tax credit carryforwards of $12.5 million as of December 31, 2024, of which $2.4 million offsets uncertain tax positions, resulting in a deferred tax asset of $10.1 million ($8.0 million, net of Federal tax effect). A valuation allowance of $9.0 million ($7.1 million, net of Federal tax effect) has been provided on state tax credit carryforwards that are not expected to be realized under ASC Subtopic 740-10. Most of the state tax credit carryforwards do not expire. If not realized, the remaining state tax credit carryforwards, depending on the tax jurisdiction, will begin to expire between 2025 and 2039.

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,
	2024	2023	2022
Statutory federal income tax rate	21.0%	21.0%	21.0%
State income taxes (net of federal benefit)	4.1	4.3	4.0
Tax impact of foreign operations	1.3	2.8	1.0
Foreign derived intangible income deduction	(2.6)	(3.2)	(0.9)
Stock-based compensation expense	—	(1.5)	(0.6)
Research and development tax credits	(18.8)	(36.7)	(14.8)
Other tax credits	(0.2)	(0.3)	(0.1)
Changes in valuation allowance	(0.7)	(0.5)	(0.5)
Non-deductible book compensation expenses	9.8	14.8	4.4
Changes in deferred tax assets	0.8	0.8	(0.2)
Changes in tax reserves	—	1.0	—
Other	—	0.3	0.3
Effective income tax rate	14.7%	2.8%	13.6%

Our total amount of unrecognized tax benefits was $4.5 million, $4.5 million, and $4.9 million at December 31, 2024, 2023, and 2022, 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, 2024, 2023, and 2022 were not significant. If recognized, $2.5 million would affect the effective income tax rate. As a result of statute of limitations set to expire in 2025, we expect decreases to our unrecognized tax benefits of $0.5 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,
	2024		2023		2022
Balance at January 1,	$	4,493	$	4,944	$	4,435
Additions for tax positions related to the current year	748		646		1,177
Additions for tax positions related to prior years	142		220		15
Reductions for tax positions related to prior years	—		(600)		(13)
Reductions for lapse of statute of limitations	(850)		(717)		(670)
Balance at December 31,	$	4,533	$	4,493	$	4,944

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 2020 and by state taxing authorities for tax years after 2019. 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, 2024, we recorded an increase to income taxes payable of $8.1 million and an increase to net deferred tax assets of a similar amount. We are monitoring legislation for any further changes to Section 174 and the potential impact to our financial statements in 2025.

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.