DMC Global Inc.BOOM
DMC Global Inc. Income Taxes Disclosure
INCOME TAXES
The domestic and foreign components of (loss) income before income taxes for our operations consist of the following for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (18,988) | $ | (161,340) | $ | 16,181 | |||||||||||
| Foreign | 11,309 | 20,350 | 33,698 | ||||||||||||||
| (Loss) income before income taxes | $ | (7,679) | $ | (140,990) | $ | 49,879 | |||||||||||
The components of the provision for income taxes consist of the following for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current – Federal | $ | (421) | $ | 484 | $ | 3,522 | |||||||||||
| Current – State | 326 | 571 | 733 | ||||||||||||||
| Current – Foreign | 3,930 | 5,696 | 9,895 | ||||||||||||||
| Current income tax expense | 3,835 | 6,751 | 14,150 | ||||||||||||||
| Deferred – Federal | (62) | 3,230 | 87 | ||||||||||||||
| Deferred – State | 278 | 877 | 587 | ||||||||||||||
| Deferred – Foreign | 15 | 112 | 296 | ||||||||||||||
| Deferred income tax expense | 231 | 4,219 | 970 | ||||||||||||||
| Income tax provision | $ | 4,066 | $ | 10,970 | $ | 15,120 | |||||||||||
Incomes taxes paid, net of refunds, exceeds 5 percent of total income taxes paid, net of refunds, in the following jurisdictions for the year ended December 31:
| 2025 | |||||
Federal | $ | 459 | |||
State | 228 | ||||
Foreign | |||||
Germany | 9,480 | ||||
All other foreign | 368 | ||||
Total income taxes paid, net of refunds | $ | 10,535 | |||
Our deferred tax assets and liabilities consist of the following at December 31:
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforward | $ | 10,693 | $ | 5,589 | |||||||
| Inventory differences | 1,001 | 1,127 | |||||||||
| Equity compensation | 765 | 1,231 | |||||||||
| Investment in joint venture | 19,558 | 20,254 | |||||||||
| Restructuring | 69 | 206 | |||||||||
| Purchased intangible assets and goodwill | 137 | 243 | |||||||||
| Accrued employee compensation and benefits | 2,831 | 3,881 | |||||||||
| Lease liabilities | 2,772 | 3,204 | |||||||||
| Interest expense | 2,386 | 2,249 | |||||||||
| Research and development costs | 645 | 1,239 | |||||||||
| Other, net | 2,251 | 1,603 | |||||||||
| Gross deferred tax assets | 43,108 | 40,826 | |||||||||
| Less valuation allowances | (35,323) | (32,121) | |||||||||
| Total deferred tax assets | 7,785 | 8,705 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and amortization | (3,966) | (4,481) | |||||||||
| Right-of-use assets | (2,115) | (2,813) | |||||||||
| Other, net | (1,346) | (892) | |||||||||
| Total deferred tax liabilities | (7,427) | (8,186) | |||||||||
| Net deferred tax assets | $ | 358 | $ | 519 | |||||||
As of December 31, 2025, we had loss carryforwards for tax purposes totaling approximately $68,322, comprised of $36,395 foreign, $19,469 domestic federal, and $12,458 domestic state loss carryforwards, which will be available to offset future taxable income in certain jurisdictions. Federal and most foreign losses can be carried forward indefinitely, while all other losses generally have carryforward periods of 5 to 20 years, depending on jurisdiction. We have analyzed the net operating losses and established valuation allowances on those where we have determined the realization is not more likely than not to occur.
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Additionally, a three-year cumulative loss at a consolidated financial statement level may be viewed as negative evidence impacting a jurisdiction that by itself is not in a three-year cumulative loss position. As of December 31, 2025, we were in a three-year cumulative loss position at the consolidated financial statement level, driven by losses in the U.S. primarily related to the impairment of Arcadia Products’ goodwill in 2024. Accordingly, we have maintained the previously established valuation allowance against the corresponding net deferred tax assets in the U.S as of December 31,
2025. The Company will continue to monitor the realizability of deferred tax assets and the need for valuation allowances and will record adjustments in the period in which facts support such changes.
The changes in valuation allowances were as follows for the years ended December 31:
| 2025 | 2024 | 2023 | |||||||||||||||
Balance at January 1 | $ | 32,121 | $ | 6,167 | $ | 6,277 | |||||||||||
Charged (credited) to expenses | 2,538 | 26,282 | (299) | ||||||||||||||
Charged (credited) to other comprehensive loss | 664 | (328) | 189 | ||||||||||||||
Balance at December 31 | $ | 35,323 | $ | 32,121 | $ | 6,167 | |||||||||||
The table below provides the updated requirements of ASU 2023-09 for the year ended December 31, 2025. See Note 2 “Significant Accounting Policies - Recent Accounting Pronouncements” for additional details on the adoption of ASU 2023-09. A reconciliation of our income tax provision computed by applying the Federal statutory income tax rate of 21% to income (loss) before taxes is as follows for the year ended December 31:
| 2025 | |||||||||||
(in thousands, except percentages) | |||||||||||
$ | % | ||||||||||
Income tax benefit at statutory federal rate | $ | (1,613) | 21.0 | % | |||||||
State and local taxes, net of federal income tax effect (1) | 477 | (6.2) | % | ||||||||
| Foreign tax effects | |||||||||||
| Germany | |||||||||||
Statutory tax rate difference between Germany and United States | 1,313 | (17.1) | % | ||||||||
Change in valuation allowance | (144) | 1.9 | % | ||||||||
| Nontaxable or nondeductible items | 331 | (4.3) | % | ||||||||
| Other | (24) | 0.3 | % | ||||||||
Other foreign | 82 | (1.1) | % | ||||||||
| Other | 32 | (0.4) | % | ||||||||
Change in valuation allowance | 2,523 | (32.8) | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
Income attributable to noncontrolling interest | (364) | 4.7 | % | ||||||||
| Permanent items | (113) | 1.5 | % | ||||||||
| Equity compensation | 749 | (9.8) | % | ||||||||
Executive compensation limitations | 670 | (8.7) | % | ||||||||
Change in unrecognized tax benefits | (3) | — | % | ||||||||
| Other | 150 | (1.9) | % | ||||||||
| Income tax provision | $ | 4,066 | (52.9) | % | |||||||
(1) State taxes in California and Texas contributed to the majority (greater than 50%) of the tax effect in this line item.
As previously disclosed prior to the adoption of ASU 2023-09, the reconciliation of our income tax provision computed by applying the Federal statutory income tax rate of 21% to (loss) income before income taxes is as follows for the years ended December 31:
| 2024 | 2023 | ||||||||||
| Statutory U.S. federal income tax | $ | (29,608) | $ | 10,475 | |||||||
| Foreign rate differential | 2,086 | 3,562 | |||||||||
| Permanent items | 566 | 975 | |||||||||
| U.S. state income tax, net of federal benefit | (1,665) | 1,275 | |||||||||
Loss (income) attributable to noncontrolling interest | 12,072 | (1,793) | |||||||||
| Equity compensation | 413 | 1,080 | |||||||||
| Return to provision adjustments | 195 | (247) | |||||||||
| Deemed repatriation of foreign earnings | 463 | 90 | |||||||||
| Other | 166 | 2 | |||||||||
| Change in valuation allowances | 26,282 | (299) | |||||||||
Income tax provision | $ | 10,970 | $ | 15,120 | |||||||
DMC files income tax returns in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. In 2024, tax audits in Germany of both our NobelClad and DynaEnergetics subsidiaries commenced for the years 2019 through 2021. Our tax provisions reflect our best estimate of state, local, federal, and foreign taxes. While the audits are not unexpected, the outcome cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with our expectations, the Company could be required to adjust its provisions for income taxes in the period such resolution occurs.
DMC’s U.S. federal tax returns are open for examination for the tax years 2022 onward. Most of DMC’s state tax returns remain open to examination for the tax years 2021 onward. DMC’s foreign tax returns generally remain open to examination for the tax years 2021 onward, depending on jurisdiction.
At December 31, 2025 and 2024, the balance of unrecognized tax benefits was $5,725 and $5,240, respectively. Included in the balance of unrecognized tax benefits as of December 31, 2025, are $4,968 of tax benefits that, if recognized, would affect the effective tax rate. We recognize interest and penalties related to uncertain tax positions in operating expense. As of December 31, 2025, and 2024, our accrual for interest and penalties related to uncertain tax positions were $74, and $81, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits, beginning balance | $ | 5,240 | $ | 5,017 | $ | 2,106 | |||||||||||
(Reductions) additions based on tax positions related to the current year | (227) | 558 | 2,841 | ||||||||||||||
Additions (reductions) based on tax positions related to prior years | 712 | (335) | 70 | ||||||||||||||
| Settlements | — | — | — | ||||||||||||||
| Unrecognized tax benefits, ending balance | $ | 5,725 | $ | 5,240 | $ | 5,017 | |||||||||||
The Tax Cuts and Jobs Act (“TCJA”), enacted in December 2017, provides that foreign earnings generally can be repatriated to the U.S. without federal tax consequence; however, if any such earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of our international subsidiaries were sold or transferred, we could be subject to additional U.S. federal and state income taxes, as well as foreign withholding taxes. We continually reassess the assertion that cumulative earnings by our foreign subsidiaries are indefinitely reinvested. The simultaneous downturns in two of our businesses in 2024 led to the determination that we may need to access previously reinvested earnings of our international subsidiaries. As such, in 2024, we recorded a deferred tax liability of $168, representing potential taxes that could result from the distribution of foreign earnings to the U.S. parent. The balance of this deferred tax liability at December 31, 2025, was $470.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA includes significant tax provisions, such as the permanent extension of certain expiring provisions of the TCJA, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates through 2027. The OBBBA did not have a material impact on our tax provision, but we anticipate a reduction to cash taxes paid in future years primarily due to favorable provisions related to depreciation and interest deductions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 27, 2023 | |
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.