Pattern Group Inc.PTRN
Pattern Group Inc. Income Taxes Disclosure
13. Provision for Income Taxes
Income tax provision (benefit) consisted of the following:
| Year Ended December 31, | |||||||||||||||||
(in thousands) | 2023 | 2024 | 2025 | ||||||||||||||
Current: | |||||||||||||||||
U.S. Federal | $ | 11,640 | $ | 19,279 | $ | 702 | |||||||||||
U.S. State | 3,381 | 4,993 | 291 | ||||||||||||||
International | 307 | 378 | 1,265 | ||||||||||||||
Total current provision | 15,328 | 24,650 | 2,258 | ||||||||||||||
Deferred: | |||||||||||||||||
U.S. Federal | (37) | (921) | (17,454) | ||||||||||||||
U.S. State | (112) | (95) | (2,133) | ||||||||||||||
International | (102) | (255) | 289 | ||||||||||||||
Total deferred benefit | (251) | (1,271) | (19,298) | ||||||||||||||
| Provision (benefit) for income taxes | $ | 15,077 | $ | 23,379 | $ | (17,040) | |||||||||||
U.S. and international components of income before income taxes are as follows:
| Year Ended December 31, | |||||||||||||||||
(in thousands) | 2023 | 2024 | 2025 | ||||||||||||||
U.S. Federal & State | $ | 62,229 | $ | 98,640 | $ | 12,513 | |||||||||||
International | (5,888) | (7,405) | (13,307) | ||||||||||||||
| Income (loss) before income taxes | $ | 56,341 | $ | 91,235 | $ | (794) | |||||||||||
Below is a tabular rate reconciliation pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025. The individual tax effect of foreign jurisdictions were not material for purposes of disaggregation for the year ended December 31, 2025:
| Year Ended December 31, 2025 | |||||||||||
(in thousands) | Amount | Percent | |||||||||
| Income taxes computed at the federal statutory rate | $ | (167) | 21.0 | % | |||||||
State taxes, net of federal benefits(1) | (1,913) | 240.9 | % | ||||||||
| Foreign tax effects | 4,348 | (547.6) | % | ||||||||
| Tax Credits | |||||||||||
| Research and development credits (net of UTBs) | (3,409) | 429.3 | % | ||||||||
| Stock-based compensation tax benefit | (26,356) | 3,319.4 | % | ||||||||
| Other | 253 | (31.9) | % | ||||||||
| Non-taxable or non-deductible items: | |||||||||||
| Stock amendment expense | 6,862 | (864.2) | % | ||||||||
| 162(m) limitation | 3,342 | (420.9) | % | ||||||||
| Benefit for income taxes | $ | (17,040) | 2,146.1 | % | |||||||
__________
(1)State taxes and local taxes in California, New York, Illinois, and Florida comprise the majority of this category.
The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes are as follows for the year ended December 31, 2023 and 2024:
| Year Ended December 31, | |||||||||||
(in thousands) | 2023 | 2024 | |||||||||
Income taxes computed at the federal statutory rate | $ | 11,819 | $ | 19,160 | |||||||
Effect of: | |||||||||||
Tax impact of foreign earnings | (236) | (490) | |||||||||
State taxes, net of federal benefits | 2,566 | 3,822 | |||||||||
Permanent differences | (61) | (554) | |||||||||
Change in valuation allowance | 1,828 | 2,092 | |||||||||
Uncertain tax positions | 184 | (15) | |||||||||
Research & development tax credit | (663) | (608) | |||||||||
Provision to return adjustments | (360) | (28) | |||||||||
Provision for income taxes | $ | 15,077 | $ | 23,379 | |||||||
Below is a summary of income taxes paid by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025:
(in thousands) | Year Ended December 31, 2025 | ||||
| U.S. Federal | $ | 13,500 | |||
| U.S. State and local | 3,716 | ||||
| Foreign: | |||||
| India | 1,115 | ||||
| Other | 137 | ||||
| Cash paid for income taxes | $ | 18,468 | |||
Deferred income tax assets consisted of the following as of:
| December 31, | |||||||||||
(in thousands) | 2024 | 2025 | |||||||||
Deferred tax assets: | |||||||||||
Net operating losses | $ | 7,303 | $ | 22,048 | |||||||
| Stock-based compensation | — | 10,862 | |||||||||
Research & development credits | 710 | 5,134 | |||||||||
Inventory (UNICAP) | 4,248 | 5,011 | |||||||||
Operating lease liabilities | 5,387 | 4,529 | |||||||||
Accrued liabilities | 3,132 | 2,439 | |||||||||
Capitalized research costs | 4,929 | — | |||||||||
| Other | 10 | 23 | |||||||||
Valuation allowance | (7,505) | (13,972) | |||||||||
Deferred tax assets | 18,214 | 36,074 | |||||||||
Deferred tax liabilities: | |||||||||||
Depreciation and amortization | (5,046) | (5,727) | |||||||||
Operating lease right-of-use asset | (5,048) | (4,118) | |||||||||
| Capitalized research costs | — | (1,482) | |||||||||
Prepaid expenses and other | (175) | (395) | |||||||||
Deferred tax liabilities | (10,269) | (11,722) | |||||||||
Net deferred tax assets | $ | 7,945 | $ | 24,352 | |||||||
The Company recorded a valuation allowance of $7.5 million and $14.0 million as of December 31, 2024 and 2025, respectively, to reduce its deferred tax assets related to foreign net operating losses and Utah state research and development tax credits to their net realizable value. The Company has determined that as a result of uncertainty related to the usability of the net operating loss and research and development benefits a valuation allowance was required. Changes in the valuation allowance are detailed in the table below:
| December 31, | |||||||||||
(in thousands) | 2024 | 2025 | |||||||||
Valuation allowance, beginning of period | $ | 5,090 | $ | 7,505 | |||||||
Additions to valuation allowance | 2,415 | 6,673 | |||||||||
Reduction to valuation allowance | — | (206) | |||||||||
Valuation allowance, ending balance | $ | 7,505 | $ | 13,972 | |||||||
The Company has net operating loss carryovers by jurisdiction as follows:
| December 31, 2025 | |||||||||||
(in thousands) | Amount | Expiration (year) | |||||||||
| Federal | $ | 40,457 | N/A | ||||||||
U.S. State | $ | 26,968 | Various | ||||||||
| Australia | $ | 1,562 | N/A | ||||||||
China | $ | 4,002 | 2026 | ||||||||
| Czech Republic | $ | 3,047 | 2026 | ||||||||
Germany | $ | 15,236 | N/A | ||||||||
Singapore | $ | 3,491 | N/A | ||||||||
United Kingdom | $ | 15,135 | N/A | ||||||||
Other | $ | 369 | Various | ||||||||
The Company has the following tax credit carryover amounts:
| December 31, 2025 | |||||||||||
(in thousands) | Amount | Expiration (year) | |||||||||
Federal research & development | $ | 3,409 | 2045 | ||||||||
Utah research & development | $ | 2,569 | 2033 | ||||||||
The Company recognizes tax benefits from uncertain tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The following table summarizes the activity related to unrecognized tax benefits:
| December 31, | |||||||||||
(in thousands) | 2024 | 2025 | |||||||||
Unrecognized tax benefits, beginning of period | $ | 505 | $ | 513 | |||||||
Increase (decrease) to unrecognized tax benefits taken in prior years | 24 | 65 | |||||||||
Increase to unrecognized tax benefits related to the current year | 116 | 684 | |||||||||
Decrease due to lapse of statute of limitations | (132) | (68) | |||||||||
Unrecognized tax benefits, end of period | $ | 513 | $ | 1,194 | |||||||
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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.