EXACT SCIENCES CORPEXAS
EXACT SCIENCES CORP Income Taxes Disclosure
INCOME TAXES
Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or benefit represents the change in the deferred tax assets or liabilities from period to period. At December 31, 2025, the Company had federal net operating loss, state net operating loss, and foreign net operating loss carryforwards of approximately $418.6 million, $66.9 million, and $10.9 million, respectively, for financial reporting purposes, which may be used to offset future taxable income. The Tax Cuts and Jobs Act (H.R. 1) of 2017 limits the deduction for net operating losses to 80% of current year taxable income and provides for an indefinite carryover period for federal net operating losses. Both provisions are applicable for losses arising in tax years beginning after December 31, 2017. As of December 31, 2025 the Company has $310.4 million of federal net operating loss carryovers incurred after December 31, 2017 with an unlimited carryover period and $108.2 million of federal net operating loss carryovers expiring at various dates through 2037. State and foreign net operating loss carryovers expire at various dates through 2045. All net operating loss carryforwards are subject to review and possible adjustment by federal, state, and foreign taxing jurisdictions. The Company also had federal and state research tax credit carryforwards of $93.4 million and $43.2 million, respectively, which may be used to offset future income tax liability. The federal credit carryforwards expire at various dates through 2045 and are subject to review and possible adjustment by the Internal Revenue Service. The state credit carryforwards expire at various dates through 2040 with the exception of $25.9 million of California research and development tax credits that have an indefinite carryforward period. All state tax credits are subject to review and possible adjustment by local tax jurisdictions. In the event of a change of ownership, the federal and state net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.
Loss before provision for taxes consisted of the following:
| Year Ended December 31, | ||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Income (loss) before income taxes: | ||||||||||||||||||||
| Domestic | $ | (220,010) | $ | (1,036,306) | $ | (204,128) | ||||||||||||||
| Foreign | 16,122 | 145 | 2,382 | |||||||||||||||||
| Total loss before income taxes | $ | (203,888) | $ | (1,036,161) | $ | (201,746) | ||||||||||||||
The expense (benefit) for income taxes consists of:
| Year Ended December 31, | ||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current expense (benefit): | ||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | ||||||||||||||
| State | 1,516 | 933 | 2,266 | |||||||||||||||||
| Foreign | 3,909 | 1,882 | 2,561 | |||||||||||||||||
| Deferred tax expense (benefit): | ||||||||||||||||||||
| Federal | 498 | (4,775) | 2,395 | |||||||||||||||||
| State | (334) | (5,145) | (1,829) | |||||||||||||||||
| Foreign | (1,528) | (199) | (2,990) | |||||||||||||||||
| Total income tax expense (benefit) | $ | 4,061 | $ | (7,304) | $ | 2,403 | ||||||||||||||
The Company recorded an income tax expense for the year ended December 31, 2025 of $4.1 million primarily related to current foreign and state tax expense.
The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows:
| December 31, | ||||||||||||||
| (In thousands) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Operating loss carryforwards | $ | 496,415 | $ | 452,410 | ||||||||||
| Tax credit carryforwards | 137,617 | 121,635 | ||||||||||||
| Compensation related differences | 82,350 | 72,349 | ||||||||||||
| Lease liabilities | 46,764 | 47,199 | ||||||||||||
| Capitalized research and development | 186,957 | 251,760 | ||||||||||||
| Other temporary differences | 9,497 | 7,271 | ||||||||||||
| Tax assets before valuation allowance | 959,600 | 952,624 | ||||||||||||
| Less - Valuation allowance | (735,979) | (708,788) | ||||||||||||
| Total deferred tax assets | 223,621 | 243,836 | ||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Amortization | $ | (174,182) | $ | (205,764) | ||||||||||
| Property, plant and equipment | (15,430) | (7,160) | ||||||||||||
| Lease assets | (30,216) | (31,266) | ||||||||||||
| Other temporary differences | (9,599) | (6,816) | ||||||||||||
| Total deferred tax liabilities | (229,427) | (251,006) | ||||||||||||
| Net deferred tax liabilities | $ | (5,806) | $ | (7,170) | ||||||||||
A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income and the realization of deferred tax liabilities, management has determined that a valuation allowance of $736.0 million and $708.8 million at December 31, 2025 and 2024, respectively, is necessary to reduce the tax assets to the amount that is more likely than not to be realized. Given the future limitations on and expiration of certain federal and state deferred tax assets, the recording of a valuation allowance resulted in a deferred tax liability of approximately $5.8 million remaining as of December 31, 2025, which is included in other long-term liabilities on the Company's consolidated balance sheet. The overall change in valuation allowance for December 31, 2025 and 2024 was an increase of $27.2 million and an increase of $243.0 million, respectively.
Activity associated with the Company's valuation allowance is as follows:
| December 31, | ||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Balance as of January 1, | $ | (708,788) | $ | (465,832) | $ | (419,356) | ||||||||||||||
| Valuation allowances established | (32,224) | (241,849) | (44,759) | |||||||||||||||||
| Changes to existing valuation allowances | 5,033 | (1,107) | (1,242) | |||||||||||||||||
| Acquisition and purchase accounting | — | — | (475) | |||||||||||||||||
| Balance as of December 31, | $ | (735,979) | $ | (708,788) | $ | (465,832) | ||||||||||||||
The effective tax rate differs from the statutory tax rate due to the following:
| December 31, 2025 | ||||||||||||||
| Amount | Percent | |||||||||||||
| U.S. Federal statutory rate | $ | (42,817) | 21.0 | % | ||||||||||
State and local taxes, net of federal income tax effect (1) | 768 | (0.4) | ||||||||||||
| Foreign tax effects | (376) | 0.2 | ||||||||||||
| Effect of cross border laws | ||||||||||||||
| Subpart F | 38 | 0.0 | ||||||||||||
| Tax credits | ||||||||||||||
| Research and development | (10,861) | 5.3 | ||||||||||||
| Other | (107) | 0.1 | ||||||||||||
| Changes in valuation allowance | 29,385 | (14.4) | ||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Stock-based compensation expense | (6,906) | 3.4 | ||||||||||||
| Non-deductible executive compensation | 22,552 | (11.1) | ||||||||||||
| Transaction costs | 2,987 | (1.5) | ||||||||||||
| Meals and entertainment | 3,326 | (1.6) | ||||||||||||
| Contingent consideration | 5,568 | (2.7) | ||||||||||||
| Other non-deductible items | 574 | (0.3) | ||||||||||||
| Other adjustments | (70) | — | ||||||||||||
| Effective tax rate | $ | 4,061 | (2.0) | % | ||||||||||
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(1)The majority of taxes in the state and local income tax category are reported in Wisconsin and California.
| December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| U.S. Federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State taxes | 3.0 | 3.9 | ||||||||||||
| Federal and state tax rate changes | — | 1.1 | ||||||||||||
| Foreign tax rate differential | 0.1 | — | ||||||||||||
| Research and development tax credits | 1.6 | 7.6 | ||||||||||||
| Stock-based compensation expense | (1.0) | (4.4) | ||||||||||||
| Non-deductible executive compensation | (0.5) | (3.5) | ||||||||||||
| Loss on extinguishment - convertible debt | — | (0.7) | ||||||||||||
| Other adjustments | (0.1) | (2.5) | ||||||||||||
| Valuation allowance | (23.5) | (23.7) | ||||||||||||
| Effective tax rate | 0.6 | % | (1.2) | % | ||||||||||
For the year ended December 31, 2025, the Company recognized an income tax benefit, representing an effective tax rate of (2.0)%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of (2.0)% for the year ended December 31, 2025, was primarily attributable to the valuation allowance established against the Company's current period losses.
For the year ended December 31, 2024, the Company recognized an income tax benefit, representing an effective tax rate of 0.6%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of 0.6% for the year ended December 31, 2024, was primarily attributable to the valuation allowance established against the Company's current period losses.
For the year ended December 31, 2023, the Company recognized an income tax expense, representing an effective tax rate of (1.2)%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of (1.2)% for the year ended December 31, 2023, was primarily attributable to the valuation allowance established against the Company's current period losses.
The Company had unrecognized tax benefits related to federal and state research and development tax credits of $47.5 million, $43.3 million, and $36.4 million as of December 31, 2025, 2024, and 2023, respectively. These amounts have been recorded as a reduction to the Company's deferred tax asset, if recognized they would not have an impact on the effective tax rate due to the existing valuation allowance. Certain of the Company's unrecognized tax benefits could change due to activities of various tax authorities, including possible settlement of audits, or through normal expiration of various statutes of limitations. The Company does not expect a material change in unrecognized tax benefits in the next twelve months.
The following is a tabular reconciliation of the amounts of unrecognized tax benefits:
| December 31, | ||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| January 1, | $ | 43,344 | $ | 36,399 | $ | 28,270 | ||||||||||||||
| Increase due to current year tax positions | 5,166 | 7,322 | 7,447 | |||||||||||||||||
| Increase due to prior year tax positions | — | — | 1,108 | |||||||||||||||||
| Decrease due to prior year tax positions | (1,051) | (377) | (426) | |||||||||||||||||
| December 31, | $ | 47,459 | $ | 43,344 | $ | 36,399 | ||||||||||||||
As of December 31, 2025, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. federal income tax examinations for the tax years 2005 through 2025, and to state income tax examinations for the tax years 2005 through 2025. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2025, 2024, and 2023.
The Organization for Economic Co-operation and Development has endorsed a framework (“Pillar Two”) with model rules introducing a global minimum corporate tax rate via a system where multinational groups with consolidated revenue over €750.0 million are subject to a minimum effective tax rate of 15% on income arising in low-tax jurisdictions on a country-by-country basis. Many countries have implemented laws based on these model rules, with effective dates beginning January 1, 2024. These rules do not have a material impact on the Company for the current period and, as currently designed, are not expected to materially increase the Company’s global tax costs. The Company will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 21, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 22, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 24, 2016 | |
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.