Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

15. 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 versus. 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:

	2024			2023			2022
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal income tax benefit		9.6			(0.6	)		(2.4	)
Increase in valuation allowance		87.5			7.4			14.5
Stock-based compensation		(25.9	)		(3.3	)		(3.8	)
Foreign derived intangible income		(14.0	)		(6.0	)		(11.9	)
Other permanent items		4.7			0.8			1.9
Tax credits		(32.5	)		(5.9	)		(9.9	)
Provision vs. tax return differences		(5.5	)		(1.9	)		2.1
Foreign rate differential and deferred items		0.2			0.1			(0.2	)
Other		(3.6	)		(0.6	)		0.1
		41.5	%		11.0	%		11.4	%

In 2024, the Company utilized tax credits to partially offset federal income tax expense. In 2023 and 2022, the Company utilized net operating loss carryforwards and tax credits to partially offset federal income tax expense.

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

	2024		2023		2022
Domestic	$	10,006	$	59,528	$	29,157
Foreign		481		716		(470	)
	$	10,487	$	60,244	$	28,687

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

	2024		2023			2022
Current:
Federal	$	3,229	$	4,814		$	2,105
State		905		1,655			955
Foreign		208		209			298
		4,342		6,678			3,358
Deferred:
Foreign		6		(34	)		(97	)
		6		(34	)		(97	)
	$	4,348	$	6,644		$	3,261

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

	2024			2023
Deferred tax assets:
Research and development tax credit carryforwards	$	27,721		$	29,619
Stock-based compensation		8,613			5,709
Inventory reserves		2,628			3,363
Investment tax credit carryforwards		1,290			2,659
UNICAP		2,833			1,139
Vacation accrual		1,344			1,319
Lease liabilities		1,331			1,388
Capitalized research and development		27,043			22,621
Other		8,738			3,235
Total deferred tax assets		81,541			71,052
Less: Valuation allowance for deferred tax assets		(61,531	)		(52,291	)
Net deferred tax assets		20,010			18,761
Deferred tax liabilities:
Depreciation		(17,345	)		(16,139	)
ROU assets		(1,096	)		(1,201	)
Prepaid expenses		(1,239	)		(1,048	)
Other		(69	)		(77	)
Total deferred tax liabilities		(19,749	)		(18,465	)
Net deferred tax assets	$	261		$	296

As of December 31, 2024, the Company had a valuation allowance of approximately $61,531,000 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 the unpredictability of customer orders 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, 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 December 31, 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, the Company’s concerns about industry uncertainty, product transitions, new program introductions and adoption times of new technology offerings are resolved, and 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, 2024, the Company had no federal net operating loss carryforwards available, and had state net operating losses of approximately $4,000, which will begin to expire in 2030. The Company has federal and state research and development tax credit carryforwards of $12,344,000 and $21,892,000, which will begin to expire in 2039 and 2025, respectively.

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

	2024			2023			2022
Balance on January 1	$	4,184		$	3,474		$	3,246
Additions based on tax positions related to the current year		698			650			319
Additions (reductions) for tax positions of prior years		35			86			(54	)
Lapse of statute		(332	)		(26	)		(37	)
Balance on December 31	$	4,585		$	4,184		$	3,474

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, 2024, 2023, and 2022 of $4,585,000, $4,184,000, and $3,474,000, 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, 2024 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, 2024, 2023, and 2022, the Company recognized approximately $36,000, $23,000, and $17,000, respectively, in net interest expense. As of December 31, 2024 and 2023, the Company had accrued approximately $52,000 and $67,000, 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 2021 through 2023 and 2020 through 2023, respectively. In addition, the Company generated federal research and development credits in tax years 2005 through 2020. 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 has closed the examination of the 2019 tax year with no material adjustments. There are no other audits or examinations in process in any other jurisdiction.

As of December 31, 2024 and 2023, the Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from unremitted earnings for non-U.S. subsidiaries, which were not significant, and were permanently reinvested outside of the U.S. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to immaterial withholding taxes payable to the various foreign countries.