Powerfleet, Inc.AIOT
Powerfleet, Inc. Income Taxes Disclosure
INCOME TAXES
Loss before income taxes consists of the following (in thousands):
| Year Ended December 31, | Three Months Ended March 31, | Year Ended March 31, | |||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | ||||||||||||||||||||
| U.S. operations | $ | (16,494) | $ | (7,990) | $ | (46,935) | $ | (41,764) | |||||||||||||||
| Foreign operations | 11,443 | (162) | 483 | 30,508 | |||||||||||||||||||
| $ | (5,051) | $ | (8,152) | $ | (46,452) | $ | (11,256) | ||||||||||||||||
The provision for income taxes consists of the following for the periods presented (in thousands):
| Year Ended December 31, | Three Months Ended March 31, | Year Ended March 31, | |||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | ||||||||||||||||||||
| Current: | |||||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| State | 68 | 25 | 110 | 86 | |||||||||||||||||||
| Foreign | 519 | 220 | 6,174 | 10,339 | |||||||||||||||||||
| Total current provision | $ | 587 | $ | 245 | $ | 6,284 | $ | 10,425 | |||||||||||||||
| Deferred: | |||||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| State | — | — | (85) | — | |||||||||||||||||||
| Foreign | 2 | 107 | (1,682) | (1,737) | |||||||||||||||||||
| Total deferred provision | $ | 2 | $ | 107 | $ | (1,767) | $ | (1,737) | |||||||||||||||
| Total provision for income taxes | $ | 589 | $ | 352 | $ | 4,517 | $ | 8,688 | |||||||||||||||
Upon adoption of ASU 2023-09, the reconciliation of taxes at the statutory U.S. federal income tax rate to the Company’s effective income tax rate is as follows:
| Year Ended March 31, | ||||||||
| 2026 | ||||||||
| Income tax benefit at the federal statutory rate | $ | (2,364) | 21.0 | % | ||||
| State and local income taxes, net of federal taxes | 355 | (3.2) | % | |||||
| Increase (decrease) in valuation allowance | 7,310 | (64.9) | % | |||||
| Over (under) provision prior years | (1,219) | 10.8 | % | |||||
| Cross-border tax effect - GILTI inclusion | 1,793 | (15.9) | % | |||||
| Permanent differences and other | 748 | (6.6) | % | |||||
| Foreign tax effects: | ||||||||
| South Africa | ||||||||
| Statutory tax rate difference | 354 | (3.1) | % | |||||
| Non-deductible (non-taxable) foreign exchange movements | (1,482) | 13.2 | % | |||||
| Permanent differences and other | 687 | (6.1) | % | |||||
| Australia | ||||||||
Statutory tax rate difference | 338 | (3.0) | % | |||||
Permanent differences and other | 218 | (1.9) | % | |||||
| Israel | ||||||||
| Statutory tax rate difference | 204 | (1.8) | % | |||||
| Israel CFC Income | 348 | (3.1) | % | |||||
| Over (Under) provision prior years | 621 | (5.5) | % | |||||
| Permanent differences and other | (174) | 1.5 | % | |||||
| Mexico | ||||||||
| Statutory tax rate difference | (12) | 0.1 | % | |||||
Over (Under) provision prior years | 689 | (6.1) | % | |||||
Permanent differences and other | 404 | (3.6) | % | |||||
| Canada | ||||||||
Statutory tax rate difference | 274 | (2.4) | % | |||||
| Increase (decrease) in valuation allowance | (1,759) | 15.6 | % | |||||
| Brazil | ||||||||
Statutory tax rate difference | 245 | (2.2) | % | |||||
Permanent differences and other | (226) | 2.0 | % | |||||
| Other foreign jurisdictions | ||||||||
Statutory tax rate difference | 21 | (0.2) | % | |||||
| Foreign tax paid | 393 | (3.5) | % | |||||
Over (Under) provision prior years | 316 | (2.8) | % | |||||
Permanent differences and other | 606 | (5.4) | % | |||||
| Effective Income tax rate | $ | 8,688 | (77.2) | % | ||||
The difference between income taxes at the statutory federal income tax rate and income taxes reported in the consolidated statements of operations for the year ended December 31, 2023, the three months ended March 31, 2024, and the year ended March 31, 2025 is attributable to the following (in thousands):
| Year Ended December 31, | Three Months Ended March 31, | Year Ended March 31, | |||||||||||||||
| 2023 | 2024 | 2025 | |||||||||||||||
| Income tax benefit at the federal statutory rate | $ | (1,061) | $ | (1,712) | $ | (9,755) | |||||||||||
| State and local income taxes, net of federal taxes | (298) | (145) | (1,094) | ||||||||||||||
| Increase (decrease) in valuation allowance | 1,488 | 1,570 | 7,173 | ||||||||||||||
| Remeasurement of deferred tax adjustments | 4 | 8 | 542 | ||||||||||||||
| Permanent differences and other | 678 | 222 | 6,343 | ||||||||||||||
| Non-deductible (non-taxable) foreign exchange movements | — | — | (509) | ||||||||||||||
| Over (Under) provision prior years | — | — | 378 | ||||||||||||||
| Foreign rate differential | (1,924) | 396 | 819 | ||||||||||||||
| GILTI inclusion | 1,586 | — | 120 | ||||||||||||||
| Foreign tax paid | — | — | 381 | ||||||||||||||
| Other | 57 | 13 | 119 | ||||||||||||||
| Acquisition fees | 59 | — | — | ||||||||||||||
| $ | 589 | $ | 352 | $ | 4,517 | ||||||||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2025 and 2026 are presented below (in thousands):
| March 31, 2025 | March 31, 2026 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 48,572 | $ | 46,608 | |||||||
| Capital loss carryforwards | 9,388 | 10,465 | |||||||||
| Deferred revenue | 4,184 | 3,197 | |||||||||
| Stock-based compensation | 306 | 1,499 | |||||||||
| Federal research and development tax credits | 1,058 | 1,058 | |||||||||
| Capitalized research | 1,832 | 1,164 | |||||||||
| Inventories | 1,062 | 466 | |||||||||
| Bad debt reserve | 1,588 | 965 | |||||||||
| Deferred lease liability | 167 | 6 | |||||||||
| Acquisition costs | 1,004 | 930 | |||||||||
Interest limitation | 4,831 | 9,688 | |||||||||
| Other deductible temporary differences | 8,818 | 10,148 | |||||||||
| Total gross deferred tax assets | 82,810 | 86,194 | |||||||||
| Set-off of deferred tax balances | (25,569) | (22,799) | |||||||||
| Net deferred tax assets before valuation allowance | 57,241 | 63,395 | |||||||||
| Less: valuation allowance | (53,307) | (58,858) | |||||||||
| Net deferred tax assets | $ | 3,934 | $ | 4,537 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangible amortization | (65,025) | (61,859) | |||||||||
Right-of-use assets | (650) | (545) | |||||||||
Deferred foreign currency gains | (8,031) | (7,258) | |||||||||
Deferred commissions | (1,623) | (2,796) | |||||||||
| Other deductible temporary differences | (7,952) | (10,404) | |||||||||
| Total deferred tax liabilities | (83,281) | (82,862) | |||||||||
| Set-off of deferred tax balances | 25,569 | 22,799 | |||||||||
| Net deferred tax liabilities | (57,712) | (60,063) | |||||||||
| Net deferred tax liabilities | $ | (53,778) | $ | (55,526) | |||||||
A reconciliation of the beginning and ending amount of unrecognized tax positions for the periods ended March 31, 2025 and 2026 is as follows (in thousands):
| Balance at March 31, 2024 | $ | 321 | |||
Additions based on tax provisions taken related to current period | 116 | ||||
Reductions related to expiration of statute of limitations | (119) | ||||
| Balance at March 31, 2025 | $ | 318 | |||
| Additions based on tax provisions taken related to current period | 110 | ||||
| Reductions related to expiration of statute of limitations | (33) | ||||
| Balance at March 31, 2026 | $ | 395 | |||
The unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate. The Company does not expect any significant changes to its unrecognized tax positions during the next 12 months.
At March 31, 2026, the Company had an aggregate net operating loss (“NOL”) carryforward of approximately $101,703 for U.S. federal income tax purposes. At March 31, 2026, the Company had an aggregate NOL carryforward of approximately $59,482 for state income tax purposes and a foreign NOL carryforwards of approximately $104,126. Substantially all of the NOL carryforwards expire from 2026 through 2037 for pre-2018 federal NOL carryforwards and from 2026 through 2044 for state purposes. The NOL carryforwards may be limited to use in any particular year based on Section 382 of the Internal Revenue Code of 1986, as amended (“IRC”), related to change of ownership restrictions. Section 382 of the IRC imposes an annual limitation on the utilization of NOL carryforwards based on long-term bond rates and the value of the corporation at the time of a change in ownership as defined by Section 382 of the IRC. In 2019 and 2024, the Company incurred a change in ownership under Section 382 of the IRC and this change of ownership is not expected to materially impact the Company’s ability to utilize its NOL carryforward amounts in the future. In addition, future stock issuances may subject the Company to further limitations on the utilization of its NOL carryforwards under the same IRC provision.
At March 31, 2026, the Company has New Jersey NOL carryforwards included above in the approximate amount of $7,921, expiring through 2044, which are available to reduce future earnings which would otherwise be subject to state income tax.
The Company is asserting permanent reinvestment of all accumulated undistributed earnings of its foreign subsidiaries as of March 31, 2026, in excess of annual debt service costs requirements.
For the year ended March 31, 2026, the Company’s valuation allowance increased to $58,858, compared to $53,307 as of March 31, 2025, primarily due to the increase of NOLs and other timing differences. The Company has provided a valuation allowance against the full amount of its domestic net deferred tax assets and the majority of the foreign net deferred tax assets. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to lack of sufficient history of generating taxable income. Realization is dependent upon generating sufficient taxable income prior to the expiration of the NOL carryforwards in future periods. The valuation allowance increased in 2026 by $5,551.
Audits for federal income tax returns are closed for the years through 2020. However, the Internal Revenue Service (“IRS”) can audit the NOLs generated during those years in the years that the NOLs are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Jun 15, 2026 | Showing above |
| 2025 | Jun 26, 2025 | |
| 2023 | May 9, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 16, 2022 | |
| 2020 | Mar 22, 2021 | |
| 2019 | Apr 8, 2020 | |
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.