ARDELYX, INC.ARDX
ARDELYX, INC. Income Taxes Disclosure
INCOME TAXES
The components of our provision for income taxes were as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Loss before provision for income taxes | |||||||||||||||||
| U.S. | $ | (60,630) | $ | (38,870) | $ | (65,520) | |||||||||||
| Provision for income taxes | |||||||||||||||||
Current | |||||||||||||||||
| State | $ | 469 | $ | 266 | $ | 47 | |||||||||||
| Foreign | 500 | — | 500 | ||||||||||||||
| Total current | 969 | 266 | 547 | ||||||||||||||
Deferred | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| Total deferred | — | — | — | ||||||||||||||
| Total provision for income taxes | $ | 969 | $ | 266 | $ | 547 | |||||||||||
A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Income tax at the federal statutory rate | $ | (12,732) | 21.0 | % | $ | (8,163) | 21.0 | % | $ | (13,759) | 21.0 | % | |||||||||||||||||||||||
State and local income taxes, net of federal effect(1) | 401 | (0.7) | % | 191 | (0.5) | % | 13 | — | % | ||||||||||||||||||||||||||
| Foreign tax effects | 500 | (0.8) | % | — | — | % | 500 | (0.8) | % | ||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Research and development tax credits | (936) | 1.5 | % | — | — | % | (215) | 0.3 | % | ||||||||||||||||||||||||||
| Other | (500) | 0.8 | % | — | — | % | (500) | 0.8 | % | ||||||||||||||||||||||||||
| Changes in valuation allowance | 9,367 | (15.4) | % | 8,023 | (20.6) | % | 13,601 | (20.8) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Section 162(m) limitation | 1,322 | (2.2) | % | 2,247 | (5.8) | % | 1,217 | (1.9) | % | ||||||||||||||||||||||||||
| Stock-based compensation | 3,672 | (6.1) | % | (2,003) | 5.2 | % | (65) | 0.1 | % | ||||||||||||||||||||||||||
| Other | (125) | 0.2 | % | (29) | 0.1 | % | (245) | 0.4 | % | ||||||||||||||||||||||||||
| Effective tax rate | $ | 969 | (1.7) | % | $ | 266 | (0.6) | % | $ | 547 | (0.9) | % | |||||||||||||||||||||||
(1)State and local income taxes that made up the majority (greater than 50%) of the tax effect in this category included: Kentucky in 2025 and 2024; and South Carolina and Kentucky in 2023.
The following table presents our income taxes paid, net of refunds, which are all attributable to state and local:
| Year Ended December 31, | |||||||||||||||||
(in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Kentucky | $ | 391 | $ | 50 | * | ||||||||||||
| Texas | 41 | 18 | 5 | ||||||||||||||
| South Carolina | * | 105 | 18 | ||||||||||||||
| New Jersey | * | * | 8 | ||||||||||||||
| New York | * | 40 | 7 | ||||||||||||||
| Massachusetts | * | 20 | * | ||||||||||||||
| Other | 53 | 33 | 13 | ||||||||||||||
| Total | $ | 485 | $ | 266 | $ | 51 | |||||||||||
*Jurisdiction below the threshold for the period presented.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their income tax bases, as well as from net operating loss and tax credit carryforwards. Significant components of our deferred tax assets were as follows:
| December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets | |||||||||||
| Net operating loss carryforwards | $ | 124,100 | $ | 103,643 | |||||||
| Amortization and depreciation | 44,703 | 64,237 | |||||||||
| Tax credits | 17,109 | 15,529 | |||||||||
| Stock-based compensation | 13,446 | 11,226 | |||||||||
| Deferred royalty obligation | 6,497 | 6,409 | |||||||||
| Other | 14,941 | 8,122 | |||||||||
| Deferred tax assets | 220,796 | 209,166 | |||||||||
| Valuation allowance | (219,592) | (208,568) | |||||||||
| Deferred tax assets net of valuation allowance | 1,204 | 598 | |||||||||
| Deferred tax liabilities | |||||||||||
| Right-of-use asset | (1,204) | (598) | |||||||||
| Deferred tax liabilities | (1,204) | (598) | |||||||||
| Net deferred taxes | $ | — | $ | — | |||||||
Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant component of objective negative evidence evaluated was our cumulative loss incurred over the three-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2025, 2024 and 2023, a full valuation allowance has been recorded against our deferred tax assets. The valuation allowance increased by $11.0 million in 2025, primarily attributable to net operating loss carryforwards and stock-based compensation. The amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence, such as cumulative losses, are no longer present. In such cases, additional weight may be given to subjective evidence, such as our projections for growth.
As of December 31, 2025, we had net operating loss carryforwards for federal income tax purposes of approximately $572.8 million, of which approximately $422.7 million can be carried forward indefinitely and the remaining net operating losses begin to expire in 2030, if not utilized. We had approximately $19.5 million of federal research and development tax credit carryforwards and approximately $2.2 million of foreign tax credit carryforwards that begin to expire in 2027, if not utilized.
In addition, we had net operating loss carryforwards for California income tax purposes of approximately $101.6 million that begin to expire in 2030, if not utilized, and state research and development tax credit carryforwards of approximately $9.4 million that do not expire. We had approximately $0.1 million of minimum tax credit carryovers for California income tax purposes that do not expire. We had other state net operating losses of approximately $128.6 million that begin to expire in 2031.
The future utilization of net operating loss and tax credit carryforwards may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future. Due to the existence of the valuation allowance, limitations under Section 382 and 383 will not impact our effective tax rate.
In July 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into law. The OBBBA makes permanent many of the expired and expiring tax provisions of the Tax Cuts and Jobs Act and restores certain business provisions, including the immediate expensing of domestic research and development costs. In addition, the OBBBA allows for an accelerated deduction of the unamortized domestic research and development costs capitalized during the 2022 through 2024 tax years. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The enactment of the OBBBA did not have a material impact on our financial statements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
Balance as of January 1, | $ | 22,919 | $ | 23,625 | $ | 24,075 | |||||||||||
| Additions based on tax positions related to current year | 864 | 105 | 262 | ||||||||||||||
| Additions based on tax positions related to prior year | — | — | 99 | ||||||||||||||
| Subtractions based on tax positions related to prior year | (811) | (811) | (811) | ||||||||||||||
Balance as of December 31, | $ | 22,972 | $ | 22,919 | $ | 23,625 | |||||||||||
We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition at the effective date to be recognized. None of our unrecognized tax benefits would impact the effective tax rate if recognized, because the benefit would be offset by an increase in the valuation allowance.
We have elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2025, 2024 and 2023, we did not recognize accrued interest and penalties related to unrecognized tax benefits.
We file a U.S. federal income tax return and income tax returns in various state and local jurisdictions. Due to our net operating loss and tax credit carryforwards, the income tax returns remain open to U.S. federal and state tax examinations. We are not currently under examination in any tax jurisdiction.
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.