SkinHealth Systems Inc.SKIN
SkinHealth Systems Inc. Income Taxes Disclosure
Income Taxes
The following table presents domestic and foreign components of loss before income taxes as follows for the periods indicated:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Domestic | $ | (12,462) | $ | (28,332) | $ | (104,161) | ||||||||||||||
| Foreign | 6,524 | (1,218) | 2,272 | |||||||||||||||||
| Loss before taxes | $ | (5,938) | $ | (29,550) | $ | (101,889) | ||||||||||||||
The federal, state and foreign components of the income tax expense (benefit) are summarized as follows for the periods indicated:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 146 | $ | 9 | $ | 34 | ||||||||||||||
| State | 224 | 133 | 216 | |||||||||||||||||
| Foreign | 1,332 | 3,001 | 3,793 | |||||||||||||||||
| Total current income tax expense | 1,702 | 3,143 | 4,043 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | — | — | (4,137) | |||||||||||||||||
| State | — | — | (633) | |||||||||||||||||
| Foreign | 1,879 | (3,595) | (1,046) | |||||||||||||||||
| Total deferred tax expense (benefit) | 1,879 | (3,595) | (5,816) | |||||||||||||||||
| Total income tax expense (benefit) | $ | 3,581 | $ | (452) | $ | (1,773) | ||||||||||||||
The Company adopted ASU 2023-09 on a prospective basis beginning December 31, 2025. The following table presents the required disclosure pursuant to ASU 2023-09 and is a reconciliation of the Company's income tax expense at the statutory federal tax rate to the Company's effective tax rate for the year ended December 31, 2025:
| Year Ended December 31, | |||||||||||
| (in thousands) | 2025 | ||||||||||
| U.S. federal statutory income tax rate | $ | (1,247) | 21.0 | % | |||||||
State and local taxes, net of federal benefit (1) | 227 | (3.8) | |||||||||
| Foreign tax effects | |||||||||||
| China | |||||||||||
| Statutory tax rate difference between China and U.S. | (217) | 3.7 | |||||||||
| Changes in valuation allowance | 2,745 | (46.2) | |||||||||
| Other | (916) | 15.4 | |||||||||
| United Kingdom | |||||||||||
| Statutory tax rate difference between United Kingdom and U.S. | 189 | (3.2) | |||||||||
| Other | 388 | (6.5) | |||||||||
| Other foreign jurisdictions | 111 | (1.9) | |||||||||
| Tax credits - research and development | (108) | 1.8 | |||||||||
| Change in valuation allowance | (1,871) | 31.5 | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Officer compensation | 700 | (11.8) | |||||||||
| Share-based compensation | 1,870 | (31.5) | |||||||||
| Change in fair value of warrants | (102) | 1.7 | |||||||||
| Other | 729 | (12.3) | |||||||||
| Changes in worldwide unrecognized tax benefits | 208 | (3.5) | |||||||||
| Other provision adjustments | 875 | (14.7) | |||||||||
| Income tax expense | $ | 3,581 | (60.3) | % | |||||||
(1) State taxes in Texas comprise the majority (greater than 50%) of the tax effect in this category.
The following table presents the required disclosures prior to the adoption of ASU 2023-09 and is a reconciliation of the Company's income tax benefit at the statutory federal tax rate to the Company's effective tax rate for the years ended December 31, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | |||||||||||||||||||||
| Federal statutory income tax rate | $ | (6,206) | 21.0 | % | $ | (21,398) | 21.0 | % | |||||||||||||||
| State taxes, net of federal benefit | 475 | (1.6) | (3,083) | 3.0 | |||||||||||||||||||
| Officer compensation | 905 | (3.1) | 844 | (0.8) | |||||||||||||||||||
| Change in fair value of warrants | (644) | 2.2 | (2,503) | 2.5 | |||||||||||||||||||
| Share-based compensation | 5,130 | (17.4) | 2,922 | (2.9) | |||||||||||||||||||
| Foreign rate differential | (64) | 0.2 | 338 | (0.3) | |||||||||||||||||||
| R&D credit | (289) | 1.0 | (824) | 0.8 | |||||||||||||||||||
| Permanent differences | 296 | (1.0) | 2,183 | (2.1) | |||||||||||||||||||
| Change in valuation allowance | 1,006 | (3.4) | 18,400 | (18.1) | |||||||||||||||||||
| Other | (1,061) | 3.6 | 1,348 | (1.3) | |||||||||||||||||||
| Income tax benefit | $ | (452) | 1.5 | % | $ | (1,773) | 1.7 | % | |||||||||||||||
The following table presents cash paid for income taxes, net of refunds received, by jurisdiction during the year ended December 31, 2025:
| (in thousands) | ||||||||
| Federal | ||||||||
Aggregated state and local jurisdictions (2) | $ | 84 | ||||||
| Foreign | ||||||||
| United Kingdom | 3,218 | |||||||
| Germany | 275 | |||||||
| Australia | 249 | |||||||
| China | 245 | |||||||
All other foreign (2) | (121) | |||||||
| Total cash paid for income taxes, net of refunds | $ | 3,950 | ||||||
(2) The amount of income taxes paid during the year ended December 31, 2025 does not meet the 5% disaggregation threshold.
Cash paid for income taxes, net of refunds, during the years ended December 31, 2024 and 2023 was $2.8 million and $2.3 million, respectively.
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. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized. The components of the deferred tax assets are as follows for the periods indicated:
| (in thousands) | December 31, 2025 | December 31, 2024 | |||||||||
| Deferred income tax assets | |||||||||||
| State taxes | $ | 28 | $ | 20 | |||||||
| Accrued expenses | 4,029 | 3,497 | |||||||||
| Inventories | 4,848 | 6,226 | |||||||||
| Accounts receivable | 821 | 1,840 | |||||||||
| Section 163(j) limitation | 7,427 | 6,822 | |||||||||
| Net operating loss carryforwards | 15,499 | 11,722 | |||||||||
| Share-based compensation | 2,421 | 2,927 | |||||||||
| Lease liabilities | 3,572 | 3,983 | |||||||||
| Capitalized research | 2,592 | 5,249 | |||||||||
| Property and equipment | 1,119 | — | |||||||||
| Other | 2,580 | 3,480 | |||||||||
| Total deferred income tax assets | 44,936 | 45,766 | |||||||||
| Deferred income tax liabilities | |||||||||||
| Goodwill and intangibles | (2,260) | (3,710) | |||||||||
| Prepaid expenses | — | (283) | |||||||||
| Convertible debt premium | (3,415) | — | |||||||||
| Right-of-use assets | (2,889) | (3,401) | |||||||||
| Property and equipment | — | (630) | |||||||||
| Total deferred tax liabilities | (8,564) | (8,024) | |||||||||
| Valuation allowance | (34,840) | (34,244) | |||||||||
| Net deferred income tax assets | $ | 1,532 | $ | 3,498 | |||||||
The Company’s net deferred income tax assets as presented on the Consolidated Balance Sheets consists of the following items as of the dates indicated:
| (in thousands) | December 31, 2025 | December 31, 2024 | |||||||||
| Deferred income tax assets | $ | 1,925 | $ | 3,894 | |||||||
| Deferred income tax liabilities | (393) | (396) | |||||||||
| Net deferred income tax assets | $ | 1,532 | $ | 3,498 | |||||||
The Company increased the valuation allowance on the net deferred tax assets by $0.6 million for the year ended December 31, 2025. In determining whether deferred tax assets are realizable, the Company considered numerous factors including historical profitability, the amount of future taxable income and the existence of taxable temporary differences that can be used to realize the deferred tax assets. The Company has provided a full valuation allowance against the China and U.S. federal and state net deferred tax assets that management believes is not more likely than not to be realized.
If the Company were to release the valuation allowance upon management determining that it is more likely than not the deferred tax assets could be recognized, $34.8 million of income tax benefit would be recorded to continuing operations.
At December 31, 2025, the Company had gross federal and state net operating loss carryforwards of $46.3 million and $20.8 million, respectively, that can be carried forward indefinitely, subject to an 80% taxable income limitation, and state net operating loss carryforward of $39.1 million, which will expire in varying amounts beginning in 2028.
The Company has federal and state research and development credit carryforwards of $1.1 million and $0.9 million, respectively. The federal credits will expire in 2042 and the state credits are available indefinitely.
As of December 31, 2025 and December 31, 2024, the Company had recorded gross unrecognized tax benefits of $1.7 million and $1.2 million, respectively. As of December 31, 2025, the Company has $0.7 million of unrecognized tax benefits that, if recognized and realized, will affect the effective tax rate. The Company recognizes interest expense and penalties associated with uncertain tax positions as a component of income tax expense. Accruals for interest and penalties related to income tax matters were not material as of December 31, 2025.
A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
| (in thousands) | December 31, 2025 | December 31, 2024 | |||||||||
| Unrecognized tax benefits at beginning of period | $ | 1,194 | $ | 1,104 | |||||||
| Increases for tax positions in prior periods | 422 | — | |||||||||
| Decreases for tax positions in prior periods | — | (54) | |||||||||
| Increases for tax positions in current period | 121 | 261 | |||||||||
| Settlements/statute expirations | — | (117) | |||||||||
| Unrecognized tax benefits at end of period | $ | 1,737 | $ | 1,194 | |||||||
The Company is subject to taxation and files income tax returns in the U.S. federal and various state and foreign jurisdictions. The Company’s tax returns remain open for examination in the United States for years 2021 through 2024, while tax returns in the foreign jurisdictions in which the Company operates are generally subject to examination up to three years following the year in which the tax obligation originated. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions.
APB 23 (codified as FASB ASC 740-10-25-3) allows an exception to the general rule that a U.S. multinational company must accrue U.S. taxes on foreign earnings of its controlled non-U.S. subsidiaries. Under this exception, a U.S. multinational company is not required to accrue U.S. taxes on foreign earnings that are indefinitely reinvested in its foreign subsidiaries. The Company will continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not significant.
On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was signed into law. The Act includes significant changes to U.S. tax and related laws. Some of the provisions of the Act affecting corporations include the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income international tax provisions, an increase in the limit of the deduction of interest expense to thirty percent of earnings before interest, taxes, depreciation, and amortization, and reinstatement of one hundred percent bonus depreciation deduction from the Tax Cuts and Jobs Act for eligible property acquired after January 19, 2025. The Act has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Act's financial reporting implications have been recognized in the Company's income tax provision for the year ended December 31, 2025, which did not have a material impact on the U.S. effective tax rate and net deferred tax assets as the Company maintains a full valuation allowance in the United States.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 18, 2021 | |
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.