Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The (benefit) provision for income taxes includes estimated federal, state and foreign income taxes.

The (benefit) provision for income taxes and the effective income tax rates were as follows (dollars in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
(Benefit) provision for income taxes	$	(2,455	)	$	1,038		$	2,832		$	4,716
Effective income tax rate		(27.0	)%		5.9	%		(222.8	)%		9.5	%

For the three months ended September 30, 2024, the Company calculated the U.S. income tax provision using the discrete method as this was more appropriate given the facts and circumstances. The Company determined that the application of the estimated annual effective tax rate method generally required by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes, results in a disproportionate tax provision (benefit) for income taxes for the quarter relative to the expected provision for the full year.

The effective tax rates differ from the statutory tax rates for the three and nine months ended September 30, 2024 and 2023 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The (benefit) provision for

income taxes for the three and nine months ended September 30, 2024 and 2023 included estimated federal, state and foreign income taxes in jurisdictions in which the Company does not have sufficient tax attributes.

The Company’s tax expense and rate for the three months and nine months ended September 30, 2024 continues to be negatively impacted by the capitalization of research and development expenses under Section 174 in the U.S., which given the Company’s close to breakeven performance, is having an outsized impact on the rate by effectively moving from a book loss to a taxable income position, which causes a significant tax expense. This is further compounded by the Company not recording a deferred tax benefit from temporary differences due to the full valuation allowance on domestic deferred tax assets.

As of September 30, 2024, 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. The Company faces uncertainties in forecasting its operating results due to supply and factory capacity constraints, certain process issues with the production of Advanced Products and the unpredictability in certain markets. 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 September 30, 2024, 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 September 30, 2024. 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, 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. 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 Condensed Consolidated Statements of Operations, the effect of which would be an increase in reported net income.

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 has closed examination of the 2019 tax year with no material adjustments. There are no other audits or examinations in process in any other jurisdiction.