Income Taxes

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The tax (benefit) provision is based on the estimated annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s projected pre-tax income.

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
(Benefit) provision for income taxes	$	(406	)	$	113		$	(900	)	$	539
Effective income tax rate		(17.9	)%		4.2	%		(2,195.1	)%		7.3	%

The effective tax rates were lower than the statutory tax rates for the three and six months ended June 30, 2020 and 2019 due primarily to the utilization of tax credits in 2020 and the combination of utilizing net operating loss carryforwards and tax credits in 2019. The net tax benefit for the three and six months ended June 30, 2020 was primarily due to the impact of excess benefits (and shortfalls) for stock options exercised during those periods. The (benefit) provision for income taxes in the three and six months ended June 30, 2020 and 2019 also included estimated foreign income taxes and estimated state taxes in jurisdictions in which the Company does not have net operating loss carryforwards.

As of June 30, 2020, the Company had a valuation allowance of approximately $30,363,000 against all 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. While positive operating results in 2018 and 2019 caused the Company to be in a cumulative income position as of June 30, 2020, its overall profitability has been declining since the third quarter of 2018 and the Company recorded an operating loss in the first quarter of 2020, primarily due to overall reduced bookings for both Advanced and Brick products, reflecting U.S.-China trade/tariff dynamics and elements of macro uncertainty. While the Company recorded modest operating income and bookings increased in the second quarter of 2020, the continued uncertain impact of the COVID-19 pandemic on the Company’s supply chain, and certain process issues with the production of Advanced Products are still contributing to near-term uncertainty. As a result, management has concluded a full valuation allowance against all net domestic deferred tax assets is still warranted as of June 30, 2020. 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 quarterly earnings continue, and the Company’s concerns about industry uncertainty and world events, the impact of the COVID-19 pandemic on the Company’s supply chain, process issues with the production of Advanced Products, and order volumes are resolved or alleviated to the point that the Company believes future profits 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 continue to require a 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.