MACOM Technology Solutions Holdings, Inc.MTSI

MACOM Technology Solutions Holdings, Inc. Income Taxes Disclosure

10-KFiled Nov 14, 20255 min read
INCOME TAXES
The domestic and foreign income from operations before taxes were as follows (in thousands):
Fiscal Years
202520242023
United States$(37,245)$58,090 $82,297 
Foreign8,220 33,436 32,861 
Income from operations before income taxes$(29,025)$91,526 $115,158 
The components of the provision (benefit) for income taxes are as follows (in thousands):
Fiscal Years
202520242023
Current:
  Federal$15,372 $4,530 $80 
  State794 1,588 781 
  Foreign4,524 3,710 2,570 
           Current provision20,690 9,828 3,431 
Deferred:
  Federal(334)11,165 30,608 
  State(3,698)(1,417)(405)
  Foreign(1,603)(1,294)1,998 
  Change in valuation allowance10,130 (3,615)(12,051)
           Deferred provision (benefit)4,495 4,839 20,150 
Total provision (benefit)$25,185 $14,667 $23,581 
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making this determination, we consider available positive and negative evidence and factors that may impact the valuation of our deferred tax asset including results of recent operations, future reversals of existing taxable temporary differences, projected future taxable income, and tax-planning strategies. During the year ended September 29, 2023, based upon an increase in our estimated future taxable income, we reduced our partial valuation allowance by $12.1 million, primarily related to California NOL and tax credit carryforwards resulting in a benefit from income taxes. During the fiscal year ended September 27, 2024, we reassessed the valuation allowance related to certain state NOLs as a result of the deferral and extension of the California NOL carryforward period. This resulted in a benefit from income taxes of $3.6 million. During the fiscal year ended October 3, 2025, we increased our valuation allowance by $10.1 million. This increase primarily relates to the assessment that certain foreign NOLs were not recoverable, resulting in an allowance of $9.2 million, as well as refinements to the estimate of future California taxable income.
Our effective tax rates differ from the federal and statutory rate as follows:
 
Fiscal Years
202520242023
Federal statutory rate21.0%21.0%21.0%
Debt exchange(139.2)——
Benefit from income taxes attributable to valuation allowances
(35.6)(4.0)(10.6)
Global intangible low taxed income(37.7)12.715.7
Foreign-derived intangible income deduction35.7(4.5)—
Research and development credits45.0(9.4)(4.8)
Foreign rate differential14.2(4.5)(2.8)
Share-based compensation7.80.1(1.3)
Provision to return adjustments15.50.20.8
State taxes net of federal benefit(9.8)3.02.2
Other permanent differences(3.7)1.40.3
Effective income tax rate(86.8)%16.0%20.5%
For fiscal year 2025, the effective tax rate on $29.0 million of pre-tax loss from continuing operations was (86.8)%. For fiscal years 2024 and 2023, the effective tax rates on $91.5 million and $115.2 million, respectively, of pre-tax income from continuing operations were 16.0% and 20.5%, respectively. The effective income tax rates for fiscal years 2025, 2024 and 2023 were primarily impacted by a lower income tax rate in many foreign jurisdictions in which our foreign subsidiaries operate, changes in valuation allowance, research and development tax credits and the inclusion of Global Intangible Low Taxed Income. The effective tax rate of fiscal year 2025 was also impacted by non-deductible losses on debt exchange.
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The components of our deferred tax assets and liabilities are as follows (in thousands):
 
October 3,
2025		September 27,
2024
Deferred tax assets:
Net operating loss and credit carryforward$127,854 $151,397 
Intangible assets25,761 27,022 
Section 174 R&D Cost Capitalization51,417 35,465 
Accrued expenses29,066 20,309 
Lease obligations20,820 13,791 
Minority equity investments566 576 
Gross deferred tax asset255,484 248,560 
  Less valuation allowance(25,168)(15,038)
Deferred tax asset, net of valuation allowance230,316 233,522 
Deferred tax liabilities:
Right of use lease asset(21,066)(14,507)
Property and equipment(1,251)(6,520)
Deferred tax liabilities(22,317)(21,027)
Net deferred tax asset$207,999 $212,495 
As of October 3, 2025, we had $50.6 million of tax-effected federal NOL carryforwards, primarily related to acquisitions made in prior fiscal years. The federal NOL carryforwards will expire at various dates through 2038 for losses generated prior to the tax period ended September 27, 2019. For losses generated during the tax period ended September 27, 2019 and future years, the NOL carryforward period is indefinite but the loss utilization will be limited to 80% of taxable income. The reported NOL carryforward includes any limitation under Sections 382 and 383 of the Internal Revenue Code (“IRC”) of 1986, as amended, which applies to an ownership change as defined under Section 382.
As of October 3, 2025, we had $33.6 million tax-effected state NOL carryforwards which will expire starting in fiscal year 2029 through fiscal year 2044, and $6.3 million in Canadian deferred tax assets, offset primarily by a partial valuation allowance of $9.7 million and $5.8 million related to U.S. state NOL carryforwards and Canadian tax credits, respectively. As of October 3, 2025, we had federal R&D tax credit carryforwards of $8.9 million and state R&D tax credit carryforwards of $25.2 million. Federal and state credits will expire starting in fiscal year 2025 through fiscal year 2045. We also have R&D tax credit carryforwards of $19.2 million that have an indefinite life.
IRC Section 174 R&D amortization rules, amended as part of the Tax Cuts and Jobs Act of 2017, require capitalization and amortization of all R&D costs incurred in tax years beginning after December 31, 2021. This change was effective for the Company beginning in fiscal year 2023. Capitalized costs relating to R&D performed within the U.S. are to be amortized over five years. Costs relating to R&D performed outside the U.S. are to be amortized over 15 years. As of October 3, 2025 and September 27, 2024, the deferred tax asset related to IRC Section 174 was $51.4 million and $35.5 million, respectively.
The liability for unrecognized tax benefits was zero as of October 3, 2025, September 27, 2024 and September 29, 2023, respectively, and for the fiscal years then ended, we reported no change in unrecognized tax benefits.
A summary of the fiscal tax years that remain subject to examination, as of October 3, 2025, for the Company’s significant tax jurisdictions are:
JurisdictionFiscal Years Subject to Examination
United States—federal
Fiscal Year 2022- forward
United States—various states
Fiscal Year 2021 - forward
Ireland
Fiscal Year 2021 - forward
We are no longer subject to federal income tax examinations for fiscal years before 2022, except to the extent of loss and tax credit carryforwards from those years.
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Historical Timeline

Fiscal YearFiled
2025Nov 14, 2025Showing above
2024Nov 12, 2024
2023Nov 13, 2023
2022Nov 14, 2022
2021Nov 15, 2021
2020Nov 18, 2020
2019Nov 26, 2019
2018Nov 16, 2018
2017Nov 15, 2017
2016Nov 17, 2016
2015Nov 24, 2015

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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