Absci CorpABSI
Absci Corp Income Taxes Disclosure
Income taxes
Provision for income taxes:
The Company incurred net losses for the years ended December 31, 2024 and 2023.
The significant components of income tax expense (benefit) are as follows (in thousands):
| Years Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Current | ||||||||||||||
| Federal | $ | — | $ | — | ||||||||||
| State | 2 | 4 | ||||||||||||
| Foreign | 133 | 148 | ||||||||||||
| Total current | 135 | 152 | ||||||||||||
| Deferred expense/(benefit) | ||||||||||||||
| Federal | (65) | (52) | ||||||||||||
| State | — | — | ||||||||||||
| Total deferred | (65) | (52) | ||||||||||||
| Total | $ | 70 | $ | 100 | ||||||||||
The components of income (loss) before income taxes by tax jurisdiction for the years ended December 31, 2024 and 2023 are as follows (in thousands):
| 2024 | 2023 | |||||||||||||
| United States | $ | (104,682) | $ | (112,788) | ||||||||||
| Foreign | 1,646 | 2,322 | ||||||||||||
| Loss before income taxes | $ | (103,036) | $ | (110,466) | ||||||||||
The income tax expense for the years ended December 31, 2024 and 2023 primarily relate to state taxes and taxes in foreign jurisdictions, offset by the change in valuation allowance.
The provision for income taxes results in effective tax rates which are different than the federal income tax statutory rate. The following include the nature of the differences for the years ended December 31, 2024 and 2023:
| 2024 | 2023 | |||||||||||||
| Statutory federal income tax rate | 21.0 | % | 20.6 | % | ||||||||||
| State income taxes, net of federal benefits | 0.1 | 5.1 | ||||||||||||
| Rate adjustment | (2.1) | — | ||||||||||||
| Tax contingencies, net of reversals | (0.5) | (0.5) | ||||||||||||
| Section 162(m) limitation | (1.5) | (0.4) | ||||||||||||
| Stock-based compensation | 0.1 | (1.4) | ||||||||||||
| Research and development credits | 2.0 | 1.9 | ||||||||||||
| Return-to-provision | (2.7) | (0.7) | ||||||||||||
| Change in valuation allowance | (16.1) | (19.8) | ||||||||||||
| Goodwill impairment | — | (4.1) | ||||||||||||
| Deemed foreign inclusion | (0.3) | (0.4) | ||||||||||||
| Other | (0.1) | (0.4) | ||||||||||||
| Effective tax rate | (0.1) | % | (0.1) | % | ||||||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and amounts used for income tax purposes.
Significant components of the Company’s deferred income tax assets and liabilities as of December 31, 2024 and 2023 are as follows (in thousands):
| 2024 | 2023 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating losses | $ | 49,467 | $ | 43,952 | ||||||||||
| Research and development credits | 7,357 | 6,014 | ||||||||||||
| Capitalized research and development expenses | 26,904 | 21,867 | ||||||||||||
| Stock-based compensation | 3,274 | 3,957 | ||||||||||||
| Lease liability | 1,291 | 2,146 | ||||||||||||
| Accrued expenses and other | 853 | 537 | ||||||||||||
| Gross deferred tax assets | 89,146 | 78,473 | ||||||||||||
| Less valuation allowance | (77,976) | (61,291) | ||||||||||||
| Total deferred tax assets | 11,170 | 17,182 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Property and equipment | (927) | (2,139) | ||||||||||||
| Intangibles | (9,475) | (12,880) | ||||||||||||
| Right-of-use lease asset | (889) | (2,349) | ||||||||||||
| Gross deferred tax liabilities | (11,291) | (17,368) | ||||||||||||
| Deferred tax liabilities, net | $ | (121) | $ | (186) | ||||||||||
As of December 31, 2024, the Company has remaining federal net operating losses of $205.4 million and has state net operating loss carryforwards of approximately $102.9 million to offset against future taxable income for state tax purposes. Under the Tax Cuts and Jobs Act of 2017 (“TCJA”), federal net operating losses incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of such federal NOLs is subject to an annual limitation. NOLs generated prior to 2018 are eligible to be carried forward up to 20 years. State net operating losses can be carried forward for 5 to 20 years depending on the jurisdiction and will begin to expire in years 2036-2044. The company also has Federal research credit carryforwards of approximately $9.9 million that will begin to expire in 2039.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Evaluating the need for a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available, including cumulative losses in recent years and projected future taxable income, to determine whether all or some portion of the deferred tax assets will not be realized. As of December 31, 2024, the Company has recorded a full valuation allowance to offset the net deferred tax assets as the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable. The valuation allowance increased $16.7 million during the year ended December 31, 2024 and $22.3 million during the year ended December 31, 2023.
Under the provisions of the Internal Revenue Code, certain substantial changes in the company's ownership may result in a limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable. We completed a study of our changes in ownership through December 31, 2024 and determined that no material limitations exist on the utilization of the Company’s tax attributes.
The Company maintained undistributed earnings overseas as of December 31, 2024, and the Company believed the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S. However, if these funds were repatriated to the U.S. or used for U.S. operations, the Company may be subject to withholding taxes in the foreign countries. The Company’s unrepatriated earnings are not subject to federal income tax in the U.S. when distributed.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The Company had unrecognized tax benefits of $2.6 million and $2.1 million as of December 31, 2024 and 2023, respectively.
The Company recognizes penalties and interest related to unrecognized tax benefits as a component of income tax expense. All unrecognized tax benefits would currently not have an impact on the effective rate if recognized.
The following is a reconciliation of the Company’s unrecognized tax benefits (in thousands):
| 2024 | 2023 | |||||||||||||
| Balance at January 1 | $ | 2,116 | $ | 1,390 | ||||||||||
| Additions Based On Tax Positions Related to Current Year | 507 | 537 | ||||||||||||
| Additions Based On Prior Tax Positions | (59) | 189 | ||||||||||||
| Balance at December 31 | $ | 2,564 | $ | 2,116 | ||||||||||
The Company does not anticipate any significant increases or decreases in its uncertain tax positions within the next twelve months.
As of December 31, 2024 the Company’s statutes of limitations are open for all federal and state years filed after the years ended December 31, 2021 and 2020, respectively. Net operating loss and credit carryforwards from all years are subject to examination and adjustments for the three years following the year in which the carryforwards are utilized. The Company is not currently under Internal Revenue Service or state examination.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.