NCS Multistage Holdings, Inc. Income Taxes Disclosure

Note 17. Income Taxes

 

The (benefit) provision from income taxes consists of the following for the years ended December 31, 2025 and 2024 (in thousands):

 

		Year Ended December 31,
		2025				2024
Current tax expense
U.S. Federal		$	544			$	348
State			52				44
Foreign			1,152				104
Total current			1,748				496
Deferred tax (benefit) expense
U.S. Federal		$	(9,506	)		$	142
State			(652	)			(69	)
Foreign			(807	)			(453	)
Total deferred			(10,965	)			(380	)
Total income taxes		$	(9,217	)		$	116

 

The following is the domestic and foreign components of our income before income taxes for the years ended December 31, 2025 and 2024 (in thousands): 

 

		Year Ended December 31,
		2025				2024
U.S. Federal		$	10,622			$	12,706
Foreign			6,198				(4,452	)
Income before income tax		$	16,820			$	8,254

 

The following is a summary of the items that caused recorded income taxes to differ from income taxes computed using the statutory federal income tax rate for the years ended December 31, 2025 and 2024 (in thousands):

 

		Year Ended December 31,
		2025								2024
		Amount				Percent				Amount				Percent
PTBI from continuing operations		$	16,820							$	8,254
U.S. Federal Statutory Tax Rate			3,532				21.0	%			1,733				21.0	%
State and Local Income Taxes, Net of Federal Income Tax Effect (1)			(596	)			(3.5	)%			(34	)			(0.4	)%
Foreign Tax Effects
Canada
Nondeductible expenses			(64	)			(0.4	)%			78				1.0	%
Research and development tax credits			(196	)			(1.2	)%			(297	)			(3.6	)%
Changes in valuation allowances			(3,498	)			(20.8	)%			174				2.1	%
Prior period adjustment - transfer pricing			1,101				6.5	%			835				10.1	%
Foreign rate differential			300				1.8	%			16				0.2	%
Other			—				-	%			(5	)			(0.1	)%
Norway
Nondeductible expenses
Transfer pricing adjustment			(46	)			(0.3	)%			194				2.4	%
Other nondeductible expenses			(5	)			-	%			8				0.1	%
Other			14				0.1	%			(17	)			(0.2	)%
Mexico
Nondeductible expenses
Unrecognized FX gain loss			381				2.3	%			(202	)			(2.4	)%
Other nondeductible expenses			530				3.2	%			(31	)			(0.4	)%
Foreign rate differential			224				1.3	%			(30	)			(0.4	)%
Other			146				0.9	%			(30	)			(0.4	)%
Argentina
Changes in valuation allowances			7				-	%			(117	)			(1.4	)%
Foreign rate differential			(5	)			-				16				0.2	%
Other			34				0.2	%			87				1.1	%
Saudi Arabia
Foreign withholding taxes			393				2.3	%			180				2.2	%
Other			(83	)			(0.5	)%			(38	)			(0.5	)%
Oman
Foreign withholding taxes			72				0.4	%			138				1.7	%
Other			(15	)			(0.1	)%			(31	)			(0.4	)%
Other foreign jurisdictions			84				0.5	%			1				-	%
Effect of Changes in Tax Laws or Rates Enacted in the Current Period			—				-	%			—				-	%
Effect of Cross-Border Tax Laws
Global intangible low-taxed income inclusion and section 250 deduction			1,269				7.5	%			(205	)			(2.5	)%
Deductible foreign taxes			(54	)			(0.3	)%			(7	)			(0.1	)%
Foreign branch income (loss) - Norway			86				0.6	%			(155	)			(1.9	)%
Foreign branch income - United Kingdom			107				0.6	%			—				-	%
Tax Credits
Research and development tax credits			(40	)			(0.2	)%			(66	)			(0.8	)%
Changes in Valuation Allowances			(11,063	)			(65.8	)%			(2,103	)			(25.5	)%
Nontaxable or Nondeductible Items
Stock-based compensation			288				1.7	%			615				7.5	%
Other			165				1.0	%			121				1.5	%
Changes in Unrecognized Tax Benefits			(26	)			(0.2	)%			(13	)			(0.2	)%
Other Adjustments
Prior period adjustment - transfer pricing			(1,101	)			(6.5	)%			(840	)			(10.2	)%
Non-controlling interest gain/loss			(1,158	)			(6.9	)%			141				1.7	%
Total		$	(9,217	)			(54.8	)%		$	116				1.4	%

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(1)	State taxes in Texas and Oklahoma contributed to the majority of the tax effect in this category.

 

We recorded a tax (benefit) expense of $(9.2) million and $0.1 million for the years ended December 31, 2025 and 2024, respectively. The income tax (benefit) expense for the years ended December 31, 2025 and 2024 primarily relates to results generated by our businesses in the United States, Canada, and certain other foreign jurisdictions. The income tax provision for the year ended December 31, 2024, did not include the effects of losses within the United States, Canada, or other jurisdictions, as we determined at that time, these losses would provide no future benefit. However, during the year ended December 31, 2025, we reversed substantially all of the valuation allowance previously recorded against the deferred tax assets of our Canadian and U.S. operating subsidiaries due to sustained improvements in operating results, including a return to profitability and forecasts of future taxable income that are sufficient to realize the remaining deferred tax assets. During 2025, the valuation allowance decreased $15.3 million, reflecting utilization of NOLs and normal reversal of temporary differences due to timing, as well as discrete reversals in Canada and the United States of $1.6 million and $9.9 million, respectively. Management considered a variety of positive and negative evidence which provided a basis for the conclusion that it is more likely than not that the deferred tax assets will be realized in future periods. For the years ended December 31, 2025 and 2024, due to the impact and reversal of the valuation allowances on tax expense, significant variations exist in the customary relationship between income tax expense and pretax book income.

 

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31, 2025 and 2024 are as follows (in thousands):

 

		December 31,				December 31,
		2025				2024
Deferred tax assets
Accruals not currently deductible		$	2,291			$	2,546
Depreciation and amortization			6,737				7,760
R&D credits			796				1,208
Tax loss carryforward			901				2,113
Other			1,690				2,620
			12,415				16,247
Valuation allowance for deferred tax assets			(774	)			(16,009	)
Total deferred tax assets			11,641				238
Deferred tax liabilities
Foreign currency translation			(386	)			—
Total deferred tax liabilities			(386	)			—
Net deferred tax assets (liabilities)		$	11,255			$	238

 

The above are included in the accompanying consolidated balance sheet as follows (in thousands): 

 

		December 31,				December 31,
		2025				2024
Deferred income tax assets—noncurrent		$	11,653			$	424
Deferred income tax liabilities—noncurrent			(398	)			(186	)
Net deferred tax assets (liabilities)		$	11,255			$	238

 

Our valuation allowance for deferred tax assets totaled $0.8 million and $16.0 million as of December 31, 2025 and 2024, respectively, and is primarily related to the United States and Canada. A valuation allowance has been provided for $0.4 million and $12.2 million against U.S. deferred tax assets as of December 31, 2025 and 2024, respectively. Also, a valuation allowance has been provided for $0.3 million and $3.7 million against Canadian deferred tax assets as of December 31, 2025 and 2024, respectively. 

 

As of December 31, 2025, we have U.S. federal and state net operating loss (“NOL”) carryforwards of approximately $1.8 million and $4.3 million, respectively. Of these amounts, $1.8 million and $1.9 million, respectively, do not expire, and the remaining $2.4 million of state NOLs expire between 2037 and 2044. We have U.S. federal foreign tax credits of approximately $0.4 million, which expire between 2027 and 2028. However, due to the unlikelihood of future utilization under the foreign tax credit rules, the valuation allowance continues to be maintained.

 

As of December 31, 2025, we have Canadian capital NOL carryforwards of approximately $1.3 million. The capital NOLs do not expire. However, given the unlikelihood of future utilization due to the requirements of needing income capital in nature, the valuation allowance remains. We have Canadian Scientific Research and Experimental Development (“SR&ED”) credit carryforwards of approximately $0.6 million, which expire between 2044 and 2045.

 

On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S., containing several changes to U.S. federal tax law and other regulatory provisions. We evaluated the impact of the legislation and determined there was no significant impact on our effective tax rate, cash tax and financial statements. 

 

As of December 31, 2025 and 2024, there were no material amounts that had been accrued with respect to uncertain tax positions. See Canada Revenue Agency Reassessment below for further discussion. We believe there are no tax positions taken or expected to be taken as of December 31, 2025 and 2024 that would significantly increase or decrease unrecognized tax benefits within the next twelve months following the balance sheet date. We file income tax returns in the United States, Canada and various state and foreign jurisdictions. Our U.S. income tax returns for 2022 and subsequent years remain open for examination and our Canadian income tax returns for 2021 and subsequent years remain open for examination.

 

Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as below (in thousands):

 

		December 31,				December 31,
		2025				2024
U.S. Federal		$	340			$	80
U.S. State and Local
Texas			48				15
Other			11				5
Foreign
Argentina			32				51
Canada			247				—
Mexico			397				102
Norway			38				32
Oman			105				97
Saudi Arabia			393				48
Other			1				1
Total cash payments (refunds)		$	1,612			$	431

 

 

Canada Revenue Agency Reassessment

 

We are routinely subject to tax audits and reviews in various jurisdictions around the world. Tax authorities may challenge tax positions taken by us and our interpretation of the tax laws in specific jurisdictions.

 

On January 27, 2026, our Canadian subsidiary, NCS Multistage Inc. (“NCS Canada”), received a Notice of Reassessment (“NOR”) from the Canada Revenue Agency (“CRA”) for approximately $13.5 million (CAD $18.6 million), relating to the taxation years ended November 30, 2017, December 31, 2019, December 31, 2022, and December 31, 2023, including approximately $10.8 million (CAD $14.9 million) in income taxes, and approximately $2.7 million (CAD $3.7 million) in interest and penalties. The CRA disallowed certain business expenses of NCS Canada, including expenses subject to transfer pricing adjustments that are supported by annual third-party transfer pricing studies, as not deductible for income tax purposes in tax years 2022 and 2023, and further asserted that taxable income should be adjusted in those tax years and other years subject to carryback adjustments.

 

We plan to object to the NOR and have engaged external advisors, as we believe our tax positions are supportable under applicable Canadian tax laws, and we intend to pursue all available administrative and judicial remedies necessary to resolve this matter. Accordingly, NCS Canada expects to file a Notice of Objection with the CRA no later than April 2026.

 

As of December 31, 2025, we have not recorded a liability related to this matter in the consolidated financial statements in accordance with treatment prescribed for uncertain tax positions under ASC 740, “Income Taxes,”, as we believe it is more likely than not that our tax filing positions will ultimately be sustained. We cannot predict the ultimate outcome of this matter and the final disposition of any appeals, which could take years to resolve. If we are unable to successfully defend our tax positions with the CRA, we may be required to record additional tax liability and record tax expense, as well as penalty and interest. However, it is likely that NCS Canada will be required to make a cash deposit of approximately 50% of the assessed amount while the appeals process is underway. Any cash deposit would be recorded as a long-term asset on the consolidated balance sheet, with an immaterial impact on net income.