Arteris, Inc.AIP
Arteris, Inc. Income Taxes Disclosure
INCOME TAXES
For financial reporting purposes, loss before provision for income taxes, includes the following components (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Domestic | $ | (21,342) | $ | (25,729) | |||||||
Foreign | (11,929) | (5,409) | |||||||||
Loss before provision for income taxes | $ | (33,271) | $ | (31,138) | |||||||
Income Taxes Paid
Income taxes paid, net of refunds received consists of the following (in thousands):
Year Ended December 31, 2025 | |||||
| US Federal | $ | 291 | |||
US State and Local: | |||||
Other | 15 | ||||
Total State and Local | 15 | ||||
Foreign: | |||||
China | 1,104 | ||||
South Korea | 1,172 | ||||
Israel | 152 | ||||
Other | 85 | ||||
Total Foreign | 2,513 | ||||
Total income taxes paid | $ | 2,819 | |||
Provision for Income Taxes
The provision for income taxes consists of the following (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Current: | |||||||||||
Federal tax (benefit) expense | $ | (381) | $ | 119 | |||||||
State | 27 | 12 | |||||||||
Foreign | 1,920 | 2,369 | |||||||||
Total current | 1,566 | 2,500 | |||||||||
Deferred: | |||||||||||
Federal | — | — | |||||||||
State | — | — | |||||||||
Foreign | (91) | — | |||||||||
Total deferred tax expense (benefit) | (91) | — | |||||||||
Total: | |||||||||||
Federal tax (benefit) expense | (381) | 119 | |||||||||
State | 27 | 12 | |||||||||
Foreign | 1,829 | 2,369 | |||||||||
Provision for income taxes | $ | 1,475 | $ | 2,500 | |||||||
Income tax provision related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows (amounts in thousands):
Year Ended December 31, 2025 | |||||||||||
Amount | Percent | ||||||||||
US Federal Statutory Tax Rate | $ | (6,987) | 21.0 | % | |||||||
Changes in income taxes resulting from: | |||||||||||
State Income Taxes, net of Federal Effect | (130) | 0.4 | % | ||||||||
| Foreign Tax Effects | |||||||||||
France | |||||||||||
Nondeductible items | 443 | (1.3) | % | ||||||||
Impact of Tax Credits | (1,232) | 3.7 | % | ||||||||
Tax Rate Differential | (521) | 1.6 | % | ||||||||
Change in Valuation Allowance | 4,091 | (12.3) | % | ||||||||
Other | (48) | 0.1 | % | ||||||||
South Korea | |||||||||||
Foreign Withholding Tax | 350 | (1.1) | % | ||||||||
Other | (293) | 0.9 | % | ||||||||
China | |||||||||||
Foreign Withholding Tax | 1,276 | (3.9) | % | ||||||||
Other | (237) | 0.7 | % | ||||||||
Hong Kong | 366 | (1.1) | % | ||||||||
Other | 140 | (0.4) | % | ||||||||
Changes in Tax Laws or Rates | — | 0.0 | % | ||||||||
Cross-Border Tax Laws | |||||||||||
Foreign-Derived Intangible Income | (427) | 1.3 | % | ||||||||
Other Cross-Border Tax Laws | 8 | 0.0 | % | ||||||||
Tax Credits | |||||||||||
Adjustment to Foreign Tax Credits | 1,154 | (3.5) | % | ||||||||
Federal R&D Credits | (1,079) | 3.2 | % | ||||||||
Change in Valuation Allowance | 3,704 | (11.1) | % | ||||||||
Nontaxable or Nondeductible Items | 482 | (1.4) | % | ||||||||
Changes in Unrecognized Tax Benefits | 377 | (1.1) | % | ||||||||
Other | 38 | (0.1) | % | ||||||||
Total | $ | 1,475 | (4.4) | % | |||||||
Year Ended December 31, 2024 | |||||
Income Tax (provision) benefit | |||||
At Statutory Rate | 21.0 | % | |||
State Taxes | 1.6 | % | |||
Valuation Allowance | (26.3) | % | |||
Foreign Tax Differential | (2.7) | % | |||
Tax Credits | 4.1 | % | |||
Stock Based Compensation | (2.3) | % | |||
Foreign Earnings and Adjustments | 2.2 | % | |||
Foreign Withholding Tax | (5.4) | % | |||
Other | (0.2) | % | |||
Total | (8.0) | % | |||
For the year ended December 31, 2025, state and local income taxes in California comprise the majority of the state and local income taxes, net of federal effect category.
Deferred Tax Assets and Liabilities
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Deferred Tax Assets: | |||||||||||
Federal & State NOL carryforward | $ | 3,258 | $ | 1,632 | |||||||
Research & Other credits | 9,480 | 9,238 | |||||||||
| Capitalized R&D | 17,362 | 16,561 | |||||||||
Deferred revenue | 18,070 | 12,150 | |||||||||
Reserves and accruals | 1,889 | 1,493 | |||||||||
Stock-based compensation | 857 | 1,188 | |||||||||
Other intangibles | 903 | 681 | |||||||||
Lease liabilities | 477 | 491 | |||||||||
Total Gross Deferred tax asset | 52,296 | 43,434 | |||||||||
Less: Valuation allowance | (50,385) | (41,505) | |||||||||
Total Deferred tax assets | $ | 1,911 | $ | 1,929 | |||||||
Deferred Tax Liabilities: | |||||||||||
| Other intangibles | $ | (293) | $ | (354) | |||||||
Property and equipment | (367) | (585) | |||||||||
Prepaid expenses | (734) | (544) | |||||||||
Right-of-use assets | (426) | (446) | |||||||||
Total Gross Deferred tax liabilities | $ | (1,820) | $ | (1,929) | |||||||
Net Deferred tax assets | $ | 91 | $ | — | |||||||
The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. For the years ended December 31, 2025 and 2024, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was not more likely than not that the net deferred tax assets were fully realizable. Accordingly, the Company determined that a full valuation allowance against its U.S. (federal and state) and French deferred tax assets is appropriate. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. During the years ended December 31, 2025, and 2024, the valuation allowance was $50.4 million and $41.5 million, respectively.
The valuation allowance increased by $8.9 million and $7.7 million during the years ended December 31, 2025, and 2024, respectively, primarily due to changes in foreign deferred revenue and capitalized research and experimental expenses, respectively.
As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the "change in valuation allowance" line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance (in thousands):
Year Ended December 31, 2025 | |||||
Beginning balance | $ | 41,505 | |||
Change charged to income tax expense | 8,880 | ||||
Changes charged to other comprehensive loss | — | ||||
Changes charged to goodwill | — | ||||
Ending balance | $ | 50,385 | |||
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2025, the Company had $7.0 million net operating loss carryforward for federal income tax purposes which can be carried forward indefinitely. The Company had a total state net operating loss carryforward of approximately $20.1 million, which will begin to expire in 2030. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization.
The Company has federal research and development tax credits of approximately $8.2 million, which will begin to expire in 2036 and California research and development tax credits of approximately $5.2 million which can be carried forward indefinitely. These tax credits are subject to the same limitations discussed above.
Unrecognized Tax Benefits
The Company adopted the provisions of ASC 740, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, classification, and interest and penalties related to uncertain tax positions.
The Company has the following activity relating to unrecognized tax benefits (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Beginning balance | $ | 3,569 | $ | 3,480 | |||||||
Gross increases—Tax Positions in Prior Periods | 39 | — | |||||||||
Gross decreases—Tax Positions in Prior Periods | — | (356) | |||||||||
Gross increases—Tax Positions in Current Period | 375 | 445 | |||||||||
Ending balance | $ | 3,983 | $ | 3,569 | |||||||
During the years ended December 31, 2025, and 2024, an insignificant amount of interest or penalties were required to be recognized relating to unrecognized tax benefits.
As of December 31, 2025, the total amount of gross unrecognized tax benefits was $4.0 million, of which $0.1 million, if recognized, would impact the Company’s effective tax rate.
The Company files federal and state income tax returns. For U.S. federal and state income tax purposes, the statute of limitations currently remains open for the years ending December 31, 2022 to present and December 31, 2021 to present, respectively. In addition, all of the net operating losses and research and development credit carryforwards since inception that could be utilized in future years may be subject to examination. There are currently no pending income tax examinations.
Undistributed earnings of our foreign subsidiaries are considered to be permanently reinvested and accordingly, no deferred taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we could be subject to various income and withholding taxes. At the present time the amount of taxes that might be payable if these earnings were repatriated is not material.
On July 4, 2025, the U.S. enacted a budget reconciliation package, One Big Beautiful Bill Act of 2025. In accordance with GAAP, the Company accounted for the tax effects of changes in tax law in the period of enactment, which is the third quarter of calendar year 2025, and the impact was not material to the Company’s consolidated financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 7, 2022 | |
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.