Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

14. INCOME TAXES

The tax provision includes estimated federal, state and foreign income taxes on the Company's pre-tax income. The tax provisions also may include discrete items, generally related to increases or decreases in tax reserves, tax provision vs. tax return differences and accrued interest for potential liabilities.

The reconciliation of the federal statutory rate on the income before income taxes to the effective income tax rate for the years ended December 31 is as follows:

	2023			2022			2021
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal income tax benefit		(0.6	)		(2.4	)		(4.2	)
Increase in valuation allowance		7.4			14.5			9.2
Permanent items		(8.5	)		(13.8	)		(17.9	)
Tax credits		(5.9	)		(9.9	)		(5.7	)
Provision vs. tax return differences		(1.9	)		2.1			(2.0	)
Foreign rate differential and deferred items		0.1			(0.2	)		—
Other		(0.6	)		0.1			(0.1	)
		11.0	%		11.4	%		0.3	%

In 2023 and 2022, the Company utilized net operating loss carryforwards and tax credits to offset federal income expense. In 2021, the Company was in a taxable loss position which generated net operating loss carryforwards, primarily due to tax deductions on exercises of stock-based compensation of approximately $55,300,000.

For financial reporting purposes, income before income taxes for the years ended December 31 include the following components (in thousands):

	2023		2022			2021
Domestic	$	59,528	$	29,157		$	56,620
Foreign		716		(470	)		185
	$	60,244	$	28,687		$	56,805

Significant components of the provision (benefit) for income taxes for the years ended December 31 are as follows (in thousands):

	2023			2022			2021
Current:
Federal	$	4,814		$	2,105		$	1
State		1,655			955			(14	)
Foreign		209			298			171
		6,678			3,358			158
Deferred:
Foreign		(34	)		(97	)		18
		(34	)		(97	)		18
	$	6,644		$	3,261		$	176

Significant components of the Company’s deferred tax assets and liabilities as of December 31 were as follows (in thousands):

	2023			2022
Deferred tax assets:
Research and development tax credit carryforwards	$	29,619		$	33,764
Stock-based compensation		5,709			3,940
Inventory reserves		3,363			2,303
Investment tax credit carryforwards		2,659			2,461
UNICAP		1,139			1,118
Vacation accrual		1,319			1,248
Lease liabilities		1,388			1,422
Capitalized research and development		22,621			12,142
Other		3,235			2,893
Total deferred tax assets		71,052			61,291
Less: Valuation allowance for deferred tax assets		(52,291	)		(47,413	)
Net deferred tax assets		18,761			13,878
Deferred tax liabilities:
Depreciation		(16,139	)		(11,396	)
ROU assets		(1,201	)		(1,362	)
Prepaid expenses		(1,048	)		(751	)
Other		(77	)		(89	)
Total deferred tax liabilities		(18,465	)		(13,598	)
Net deferred tax assets (liabilities)	$	296		$	280

As of December 31, 2023, the Company had a valuation allowance of approximately $52,291,000 against all net domestic deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Despite recent positive operating results, the Company faces uncertainties in forecasting its operating results due to vendor supply and factory capacity constraints, certain process issues with the production of Advanced Products, and the unpredictability in certain markets, product transitions, new program introductions and adoption times of new technology offerings. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years. As a result, management has concluded,

as of December 31, 2023, it is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets is still warranted as of December 31, 2023. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive operating results continue and the Company’s concerns about industry uncertainty and world events, supply and factory capacity constraints, program adoption and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. Certain state tax credits, though, will likely never be released by the valuation allowance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.

As of December 31, 2023, the Company had no federal net operating loss carryforwards available, and had state net operating losses of approximately $41,000, which will begin to expire in 2030. The Company has federal and state research and development tax credit carryforwards of $15,546,000 and $21,201,000, which will begin to expire in 2039 and 2024, respectively.

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

	2023			2022			2021
Balance on January 1	$	3,474		$	3,246		$	2,297
Additions based on tax positions related to the current year		650			319			625
Additions (reductions) for tax positions of prior years		86			(54	)		393
Lapse of statute		(26	)		(37	)		(69	)
Balance on December 31	$	4,184		$	3,474		$	3,246

The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. The total amount of unrecognized tax benefits, that is the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company’s financial statements, as of December 31, 2023, 2022, and 2021 of $4,184,000, $3,474,000, and $3,246,000, respectively, if recognized, may decrease the Company’s income tax provision and effective tax rate. None of the unrecognized tax benefits as of December 31, 2023 are expected to significantly change during the next twelve months.

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2023, 2022, and 2021, the Company recognized approximately $23,000, $17,000, and $19,000, respectively, in net interest expense. As of December 31, 2023 and 2022, the Company had accrued approximately $67,000 and $52,000, respectively, for the potential payment of interest.

The Company files income tax returns in the United States and various foreign tax jurisdictions. These tax returns are generally open to examination by the relevant tax authorities from three to seven years from the date they are filed. The tax filings relating to the Company’s federal and state taxes are currently open to examination for tax years 2019 through 2022 and 2015 through 2022, respectively. In addition, the Company generated federal research and development credits in tax years 2005 through 2018. These years may also be subject to examination when the credits are carried forward and utilized in future years.

The Company was informed in September 2021 by the Internal Revenue Service of their intention to examine the Company’s 2019 Federal income tax return. The IRS is in the process of closing the examination of the 2019 tax year with no material adjustments. There are no other audits or examinations in process in any other jurisdiction.