Innovex International, Inc. Income Taxes Disclosure
NOTE 12. INCOME TAXES
The components of income before income taxes are as follows:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
U.S. Federal & State |
|
$ |
118,066 |
|
|
$ |
(563,863 |
) |
|
$ |
93,357 |
|
Foreign |
|
|
10,463 |
|
|
|
706,675 |
|
|
|
1,009 |
|
Income before income taxes |
|
$ |
128,529 |
|
|
$ |
142,812 |
|
|
$ |
94,366 |
|
The components of income tax expense, presented in accordance with ASU 2023-09 for the year ended December 31, 2025, are as follows:
|
|
Year Ended December 31, |
|
|
(in thousands) |
|
2025 |
|
|
Current |
|
|
|
|
U.S. Federal |
|
$ |
4,383 |
|
U.S. State and local |
|
|
(178 |
) |
Foreign |
|
|
6,735 |
|
Total current income tax expense |
|
|
10,940 |
|
Deferred |
|
|
|
|
U.S. Federal |
|
|
24,425 |
|
U.S. State and local |
|
|
1,230 |
|
Foreign |
|
|
8,636 |
|
Total deferred income tax expense |
|
|
34,291 |
|
Total income tax expense |
|
|
|
|
U.S. Federal |
|
|
28,808 |
|
U.S. State and local |
|
|
1,052 |
|
Foreign |
|
|
15,371 |
|
Total income tax expense |
|
$ |
45,231 |
|
The components of income tax expense for the years ended December 31, 2024 and 2023 in accordance with guidance prior to the adoption of ASU 2023-09 were as follows:
|
|
Year Ended December 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Current |
|
|
|
|
|
|
||
U.S. Federal & State |
|
$ |
1,551 |
|
|
$ |
25,975 |
|
Foreign |
|
|
5,531 |
|
|
|
1,871 |
|
Total current income tax expense |
|
|
7,082 |
|
|
|
27,846 |
|
Deferred |
|
|
|
|
|
|
||
U.S. Federal & State |
|
$ |
9,724 |
|
|
$ |
(7,941 |
) |
Foreign |
|
|
(14,319 |
) |
|
|
535 |
|
Total deferred income tax benefit |
|
|
(4,595 |
) |
|
|
(7,406 |
) |
Total income tax expense |
|
$ |
2,487 |
|
|
$ |
20,440 |
|
Upon adoption of ASU 2023-09, the reconciliation of income tax expense computed using the US statutory income tax rate of 21% to the actual income tax expense and resulting effective tax rate for the year ended December 31, 2025 is as follows:
|
|
Year Ended December 31, 2025 |
|
|||||
(in thousands) |
|
Amount |
|
|
Percent |
|
||
U.S. federal statutory tax rate |
|
$ |
26,991 |
|
|
|
21.0 |
% |
Effect of cross-border tax laws |
|
|
226 |
|
|
|
0.2 |
% |
Tax credits |
|
|
1,672 |
|
|
|
1.3 |
% |
Nontaxable or nondeductible items |
|
|
1,910 |
|
|
|
1.5 |
% |
Valuation allowance |
|
|
(1,267 |
) |
|
|
(1.0 |
)% |
Other |
|
|
416 |
|
|
|
0.3 |
% |
State and local income taxes, net of federal income tax effect (a) |
|
|
1,085 |
|
|
|
0.8 |
% |
Foreign tax effects |
|
|
12,289 |
|
|
|
9.6 |
% |
Brazil |
|
|
6,336 |
|
|
|
4.9 |
% |
Valuation allowance |
|
|
6,796 |
|
|
|
5.3 |
% |
Other |
|
|
(460 |
) |
|
|
(0.4 |
)% |
Ecuador |
|
|
1,953 |
|
|
|
1.5 |
% |
Valuation allowance |
|
|
2,453 |
|
|
|
1.9 |
% |
Other |
|
|
(500 |
) |
|
|
(0.4 |
)% |
Saudi Arabia |
|
|
2,872 |
|
|
|
2.2 |
% |
Foreign withholding tax |
|
|
3,194 |
|
|
|
2.5 |
% |
Other |
|
|
(322 |
) |
|
|
(0.3 |
)% |
Other foreign jurisdictions |
|
|
1,128 |
|
|
|
0.9 |
% |
Worldwide changes in unrecognized tax benefits |
|
|
1,909 |
|
|
|
1.5 |
% |
Effective income tax |
|
$ |
45,231 |
|
|
|
35.2 |
% |
(a) The states that contribute to the majority (greater than 50%) of the tax effect in this category include North Dakota and New Mexico for 2025.
The reconciliation of income tax expense computed using the US statutory income tax rate of 21% to the actual income tax expense and resulting effective tax rate for the years ended December 31, 2024 and 2023 in accordance with guidance prior to the adoption of ASU 2023-09 was as follows:
|
|
Year Ended December 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
U.S. statutory income tax rate |
|
$ |
29,991 |
|
|
$ |
19,817 |
|
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
||
Nondeductible expenses |
|
|
(547 |
) |
|
|
258 |
|
Global intangible low-taxed income and foreign derived intangible income |
|
|
(1,093 |
) |
|
|
(1,420 |
) |
Dividends received deduction |
|
|
(6,413 |
) |
|
|
(1,570 |
) |
Bargain purchase gain |
|
|
(18,021 |
) |
|
|
— |
|
Equity method investment gain |
|
|
(1,688 |
) |
|
|
— |
|
Transaction costs |
|
|
3,552 |
|
|
|
— |
|
Research & development credit |
|
|
(283 |
) |
|
|
(407 |
) |
Valuation allowance |
|
|
(11,298 |
) |
|
|
(1,495 |
) |
State taxes |
|
|
1,589 |
|
|
|
2,650 |
|
Prior year true up |
|
|
(213 |
) |
|
|
853 |
|
Foreign rate differential |
|
|
5,296 |
|
|
|
1,990 |
|
Foreign withholding tax |
|
|
1,647 |
|
|
|
(236 |
) |
Uncertain tax positions |
|
|
(33 |
) |
|
|
— |
|
Other |
|
|
1 |
|
|
|
— |
|
Effective income tax expense |
|
$ |
2,487 |
|
|
$ |
20,440 |
|
Effective income tax rate |
|
|
1.7 |
% |
|
|
21.7 |
% |
We recorded tax expense of $45.2 million, $2.5 million and $20.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. For the years ended December 31, 2025, 2024 and 2023, our effective tax rate was 35.2%, 1.7% and 21.7%, respectively.
Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds, for the year ended December 31, 2025 is as follows:
|
|
Year Ended December 31, |
|
|
(in thousands) |
|
2025 |
|
|
U.S. Federal |
|
$ |
(46 |
) |
U.S. State |
|
|
|
|
TX |
|
|
970 |
|
Other |
|
|
48 |
|
Foreign |
|
|
|
|
Brazil |
|
|
1,124 |
|
Ecuador |
|
|
550 |
|
Mexico |
|
|
634 |
|
Saudi Arabia |
|
|
3,194 |
|
UK |
|
|
1,182 |
|
Other |
|
|
2,391 |
|
Total cash paid for income taxes (a) |
|
$ |
10,047 |
|
(a) Cash taxes paid includes withholding taxes withheld by vendors and submitted to the foreign government on our behalf in lieu of income taxes.
Cash paid for income taxes, net of refunds, during the years ended December 31, 2024 and 2023 was $5.6 million and $28.4 million, respectively.
As of December 31, 2025, we had federal net operating losses of $343.2 million, of which $149.3 million are limited under Section 382 of the Internal Revenue Code. Of the federal net operating losses, $76.9 million are set to begin expiring in 2030 if unused, and $266.3 million are available to be carried forward indefinitely. We also had $86.8 million of foreign net operating losses, generally expiring within 5, 10, or 20 years from the year of generation and state net operating loss carryforwards of $27.3 million beginning to expire in 2036, of which $17.2 million are limited by Section 382 of the Internal Revenue Code.
|
|
Year Ended December 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Intangible assets |
|
$ |
7,353 |
|
|
$ |
9,657 |
|
Uniform capitalization of inventory |
|
|
2,577 |
|
|
|
3,113 |
|
Inventory reserves |
|
|
21,278 |
|
|
|
32,678 |
|
Net operating loss carryforward |
|
|
94,525 |
|
|
|
79,500 |
|
Lease liability |
|
|
17,884 |
|
|
|
13,851 |
|
Allowance for doubtful accounts |
|
|
4,736 |
|
|
|
13,876 |
|
Capitalized R&D costs |
|
|
— |
|
|
|
7,310 |
|
Income tax credit carryforward |
|
|
26,421 |
|
|
|
29,677 |
|
Property and Equipment |
|
|
5,000 |
|
|
|
4,590 |
|
Other |
|
|
3,124 |
|
|
|
4,122 |
|
Gross deferred tax assets |
|
$ |
182,898 |
|
|
$ |
198,374 |
|
Valuation allowance |
|
|
(60,615 |
) |
|
|
(53,268 |
) |
Total deferred tax assets |
|
$ |
122,283 |
|
|
$ |
145,106 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Deferred revenue |
|
|
(752 |
) |
|
|
7,103 |
|
Withholding tax |
|
|
(2,253 |
) |
|
|
(3,192 |
) |
GAAP to STAT deferred |
|
|
(557 |
) |
|
|
(1,601 |
) |
Right-of-use asset |
|
|
(16,846 |
) |
|
|
(13,500 |
) |
Total deferred tax liabilities |
|
$ |
(20,408 |
) |
|
$ |
(11,190 |
) |
Net deferred tax assets |
|
$ |
101,875 |
|
|
$ |
133,916 |
|
As of each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of deferred tax assets. As of December 31, 2025, it was determined that there is sufficient positive evidence to conclude that it is more likely than not that $101.9 million of deferred taxes are realizable. The valuation allowance was $60.6 million and $53.3 million at December 31, 2025 and December 31, 2024, respectively. The change in valuation allowance of $7.3 million was primarily driven by an $8.3 million valuation allowance established in foreign jurisdictions where we do not believe we will be able to realize the deferred tax assets, offset by releases in jurisdictions where we believe we can realize our deferred tax assets.
The changes in valuation allowance during the years ended December 31, 2025, 2024 and 2023 were as follows:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at January 1 |
|
$ |
53,268 |
|
|
$ |
46,886 |
|
|
$ |
46,466 |
|
Adjustments pertaining to deferred tax assets acquired as part of the Merger (1) |
|
|
— |
|
|
|
18,084 |
|
|
|
— |
|
Charges to costs and expenses (2) |
|
|
8,300 |
|
|
|
1,398 |
|
|
|
2,359 |
|
Reversals (3) |
|
|
(884 |
) |
|
|
(13,192 |
) |
|
|
(1,179 |
) |
Adjustments (4) |
|
|
(69 |
) |
|
|
92 |
|
|
|
(760 |
) |
Balance at December 31 |
|
$ |
60,615 |
|
|
$ |
53,268 |
|
|
$ |
46,886 |
|
(1) We have adjusted certain valuation allowances as a result of the Merger and purchase price accounting.
(2) We have recorded valuation allowances on deferred tax assets attributable to net operating losses in certain jurisdictions due to uncertainty of our ability to utilize these assets in future periods. During 2025, we recorded valuation allowances of $1.4 million and $9.5 million related to domestic deferred tax assets and foreign deferred tax assets, respectively.
(3) We reverse valuation allowances on deferred tax assets in the period in which, based on the weight of available evidence, it is more-likely-than-not that the deferred tax asset will be realized. In 2025, reversals were primarily driven by release in foreign jurisdictions where we now believe we will utilize deferred tax assets or restructuring changes.
(4) We have adjusted certain valuation allowances as a result of changes in tax rates in certain jurisdictions, the expiration of carryforward periods for net operating loss carryforwards, and foreign exchange rate movements.
As of December 31, 2025, federal income tax returns for 2022 through 2024 remain open for examination. The foreign and state statute of limitations vary by jurisdiction but are generally open for examination after 2019.
We have $19.3 million of excess foreign tax credits, of which $16.6 million will expire in years ending 2029 to 2035, while $2.7 million are carried forward indefinitely. We have $8.7 million of general business credits which expire in years ending 2037 to 2045.
We have recorded $2.1 million in uncertain tax positions in 2025, primarily related to uncertainty around federal tax credits. Uncertain tax positions of $0.2 million, if recognized, would affect our effective tax rate. A tabular reconciliation of the total amounts of uncertain tax positions at the beginning and end of the period were as follows:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of year |
|
$ |
240 |
|
|
$ |
— |
|
|
$ |
— |
|
Additions for tax positions related to current year |
|
|
2,058 |
|
|
|
273 |
|
|
|
— |
|
Reduction for tax positions related to the prior year |
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
Balance at end of year |
|
$ |
2,298 |
|
|
$ |
240 |
|
|
$ |
— |
|
The amounts above exclude accrued interest and penalties of $0.1 million at December 31, 2025. We classify interest and penalties relating to uncertain tax positions within Income tax expense, net in our Consolidated Statements of Operations and Comprehensive Income.
Except in Brazil, we no longer assert permanent reinvestment. We maintain a deferred foreign tax liability, which had a balance of $2.2 million as of December 31, 2025 and is primarily related to estimated foreign withholding tax associated with repatriating non-U.S. earnings back to the United States. For the earnings we intend to indefinitely reinvest, no deferred tax liabilities for foreign withholding or other taxes have been recorded.
The OECD recently enacted model rules for a new global minimum tax framework, also known as "Pillar Two", and certain governments globally have enacted, or are in the process of enacting, legislation considering these model rules. We have considered the possible implication of the legislation passed or in consideration of being passed, and we do not believe these rules will have a material impact on our taxes in the near future.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We have included provisions effective in 2025 in our calculations and will continue to monitor future administrative guidance and regulations that clarify the legislative text of the OBBBA and the bill’s potential effect on our income taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 25, 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.