ORTHOPEDIATRICS CORPKIDS

ORTHOPEDIATRICS CORP Income Taxes Disclosure

10-KFiled Mar 4, 20265 min read
INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 2025, 2024 and 2023 was allocated as follows:
202520242023
Total income tax expense (benefit)$460 $(4,107)$(338)

For the years ended December 31, 2025, 2024 and 2023 loss before taxes of the Company consists of the following:
202520242023
Domestic$(37,060)$(27,327)$(12,582)
Foreign(2,128)(14,602)(8,730)
Total$(39,188)$(41,929)$(21,312)

The components of income tax expense (benefit) for the years ended December 31, 2025, 2024 and 2023 are as follows:
202520242023
Current:
Federal $— $— $— 
State116 104 85 
Foreign497 525 740 
613 629 825 
Deferred:
Federal$— $— $— 
State— — — 
Foreign(153)(2,107)(1,163)
Decrease in valuation allowance— (2,629)— 
Total income tax expense (benefit)$460 $(4,107)$(338)
The reconciliation between the effective tax rate and the statutory tax rate is as follows:

Year Ended December 31, 2025
AmountPercent
U.S. Federal Statutory Tax Rate$(8,258)21.0 %
State and Local Income Taxes, Net of Federal Income Tax Effect (a)$92 (0.2)%
Foreign Tax Effects
Canada
Current non-cash Tax Adjustments$593 (1.5)%
Other$(94)0.2 %
Israel$1,277 (3.3)%
Other Foreign Jurisdictions$(293)0.7 %
Tax Credits
Foreign Tax Credits$426 (1.1)%
Changes in Valuation Allowance$8,170 (20.8)%
Nontaxable or Nondeductible Items
Excess tax benefits from stock plans$1,069 (2.7)%
Elimination$(657)1.7 %
Other$190 (0.5)%
Other Adjustments
Unborn foreign tax deduction$(1,895)4.8 %
Other$(160)0.4 %
Effective Tax Rate$460 (1.2)%

(a) State taxes in Massachusetts, New York, New York City and Texas made up the majority of the tax effect in this category.


December 31,
20242023
Federal statutory rate21.0 %21.0 %
State statutory rate, net of federal benefit1.8 %1.2 %
Effect of foreign rates different from statutory0.5 %0.2 %
Change in state rate0.4 %(0.3)%
Excess tax benefits from stock plans(1.2)%(0.2)%
Nondeductible/nontaxable or other items9.3 %(3.3)%
Unborn foreign tax deduction(1.7)%(0.5)%
US benefit of foreign branches8.0 %8.6 %
Nondeductible executive compensation(.1)%(1.0)%
Change in valuation allowance(28.2)%(24.1)%
Income tax benefit9.8 %1.6 %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary temporary differences that give rise to the deferred tax assets and liabilities are certain inventory adjustments, depreciation and amortization, interest expense, stock-based compensation and net operating loss carryforwards.
The deferred tax assets and liabilities consisted of the following at December 31, 2025 and 2024:
20252024
Deferred tax assets:
Inventories, net$3,562 $4,236 
Stock-based compensation6,482 4,996 
Loss carryforwards63,587 50,831 
Credit carryforwards176 176 
Interest carryforward1,181 534 
Lease liabilities3,012 2,103 
Other1,761 1360 
Total deferred tax assets79,761 64,236 
Valuation allowance(65,313)(53,742)
Net deferred tax assets14,448 10,494 
Deferred tax liabilities:
Intangibles(12,074)(8,726)
Property and equipment(2,929)(2,933)
Right-of-use assets(3,027)(2,216)
       Total deferred tax liabilities(18,030)(13,875)
Deferred tax liabilities, net$(3,582)$(3,381)

The deferred tax assets were fully offset by a valuation allowance at December 31, 2025 and 2024, with the exception of certain deferred tax liabilities in Canada in 2025 and 2024. The Company has recorded tax expense during the year ended December 31, 2025, and tax benefit during the year ended December 31, 2024, for losses generated in certain foreign jurisdictions.

As of December 31, 2025, we had available federal, state and foreign tax loss carryforwards of $172,205, $103,707 and $37,770, respectively. We had available federal tax credits of $176. Net operating losses ("NOLs") generated prior to December 31, 2017 will begin to expire in 2028. Federal net operating losses generated after January 1, 2018 will have an indefinite carryforward period. An ownership change under Section 382 of the Internal Revenue Code was deemed to occur on May 30, 2014. Given the limitation calculation, we anticipate approximately $23,920 in losses generated prior to the ownership change date will be available to be utilized after applying the limitation. The estimated annual limitation is $1,062. A second ownership change under Section 382 was deemed to occur on December 11, 2018. The estimated annual limitation is $9,736, which is increased by $22,430 over the first five years as a result of an unrealized built in gain. NOLs sustained prior to May 30, 2014 will still be constricted by the lower limitation.

Management assesses 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 piece of objective negative evidence evaluated was the 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. As a result, a full valuation continues to be recorded against the Company's net deferred tax assets, with the exception of Canada.

We are subject to taxation in the United States, Indiana and various other state and international jurisdictions. As of December 31, 2025, all tax years from 2008 remain open to examination by the major taxing jurisdictions to which we are subject due to our net operating loss and credit carryforwards from those years. We believe that the income tax filing positions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Therefore, no reserve for uncertain income tax positions has been recorded. Interest and penalties, if any, associated with income tax examinations will be recorded as a component of income taxes.

At December 31, 2025, our foreign operations held cash totaling $4,368. We have not provided for foreign withholding tax on the undistributed earnings from our non-U.S. subsidiaries that are considered to be indefinitely reinvested. If such earnings were to be distributed, any foreign withholding tax would not be significant.
Income Taxes Paid
202520242023
Federal$— $— $— 
New York29 — 43 
Texas40 — 28 
Canada57 513 223 
Other Jurisdictions45 79 27 
Total Income Taxes Paid$171 $592 $321 

Listed jurisdictions represents those whose income taxes paid exceeds 5% of total income taxes paid, net of refunds.

Historical Timeline

Fiscal YearFiled
2025Mar 4, 2026Showing above
2024Mar 5, 2025
2023Mar 8, 2024
2022Mar 1, 2023
2021Mar 3, 2022
2020Mar 11, 2021
2019Mar 5, 2020
2018Mar 7, 2019
2017Mar 15, 2018

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.

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