Income Taxes
Our provision (benefit) for income taxes was comprised of the following components:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2025 | | 2024 | | 2023 |
| Current | | | | | |
| Federal | $ | 3,370 | | | $ | 20,988 | | | $ | 20,168 | |
| State | 6,911 | | | 6,147 | | | 4,221 | |
| Foreign | 1,737 | | | 3,161 | | | 2,103 | |
| Deferred | | | | | |
| Federal | 19,091 | | | (5,256) | | | (5,425) | |
| State | 1,859 | | | (1,466) | | | (390) | |
| Foreign | (2,472) | | | (1,152) | | | (938) | |
| Total | $ | 30,496 | | | $ | 22,422 | | | $ | 19,739 | |
We define domestic and foreign income before income taxes as the consolidated income before income taxes that was attributable to either our subsidiaries based in the U.S. ("domestic"), or attributable to our subsidiaries outside of the U.S. ("foreign"). The percentage of consolidated income before income taxes attributable to our domestic subsidiaries was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| Domestic income before income taxes | 98 | % | | 92 | % | | 94 | % |
The following table reconciles the U.S. federal statutory income tax rate with our effective tax rate and includes both the reporting currency amounts and percentages for each category of the reconciliation:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2025 |
| (in thousands) | Amount | | Percent |
| U.S. statutory federal income tax | $ | 26,005 | | | 21.0 | % |
| Increase (decrease) resulting from: | | | |
| Tax credits | | | |
| Research and development credit | (6,921) | | | (5.6) | |
| Other | (140) | | | (0.1) | |
| Nontaxable or nondeductible items | | | |
| | | |
| Nondeductible compensation | 3,307 | | | 2.7 | |
| Other | 110 | | | 0.1 | |
| Uncertain tax positions | 1,619 | | | 1.3 | |
| Effect of cross-border tax laws | (273) | | | (0.2) | |
| | | |
| | | |
| | | |
U.S. state and local income taxes, net of federal effect(1) | 6,391 | | | 5.1 | |
| | | |
| | | |
| Foreign tax effects | 398 | | | 0.3 | |
| | | |
| Total | $ | 30,496 | | | 24.6 | % |
(1) U.S. state and local income taxes in California, New York, Illinois, Pennsylvania, and Wisconsin make up the majority (greater than 50%) of the tax effect in this category.
The following table reconciles the U.S. federal statutory income tax rate with our effective tax rate:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 |
| U.S. statutory federal income tax rate | 21.0 | % | | 21.0 | % |
| Increase (decrease) resulting from: | | | |
| U.S. state income taxes, net of federal tax effect | 5.7 | | | 5.1 | |
| Tax impact of stock activity | (4.9) | | | (5.6) | |
| Nondeductible compensation | 3.2 | | | 4.7 | |
| Research and development credit | (1.5) | | | (1.5) | |
| Foreign derived intangible income | (1.3) | | | (1.3) | |
| Other | 0.3 | | | 0.7 | |
| Effective tax rate | 22.5 | % | | 23.1 | % |
The significant components of our deferred income tax assets and liabilities were as follows: | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2025 | | 2024 |
| Deferred income tax assets | | | |
| Net operating loss and credit carryforwards | $ | 15,699 | | | $ | 10,722 | |
| Stock-based compensation expense | 5,766 | | | 7,110 | |
| Accrued expenses | 6,595 | | | 6,600 | |
| Operating lease liabilities | 1,592 | | | 2,977 | |
| Research and development capitalized | 17,686 | | | 26,788 | |
| Other deferred income tax assets | 3,579 | | | 3,026 | |
| Gross deferred income tax assets | 50,917 | | | 57,223 | |
| Less: valuation allowance | (4,343) | | | (2,965) | |
| Total net deferred income tax assets | $ | 46,574 | | | $ | 54,258 | |
| | | |
| Deferred income tax liabilities | | | |
| Deferred costs | $ | (22,811) | | | $ | (21,537) | |
| Right-of-use assets | (1,051) | | | (1,893) | |
| Depreciation and amortization | (53,768) | | | (44,556) | |
| Other deferred income tax liabilities | (1,652) | | | (1,308) | |
| Total deferred income tax liabilities | (79,282) | | | (69,294) | |
| Net deferred income tax liabilities | $ | (32,708) | | | $ | (15,036) | |
Tax loss carryforwards, net of Section 382 limitations, were as follows:
| | | | | |
| Year Ended December 31, |
| (in millions) | 2025 |
| Federal | |
| Operating loss carryforwards | $ | 36.8 | |
| Operating loss carryforwards expected to expire unused due to Section 382 limitations | 6.1 | |
| Federal operating loss carryforwards, net of Section 382 limitations | $ | 30.7 | |
| |
| Other | |
| State operating loss carryforwards | $ | 40.4 | |
| Foreign loss carryforwards | 14.9 | |
| Total loss carryforwards, net of Section 382 limitations | $ | 86.0 | |
As of December 31, 2025, our federal net operating loss carryforwards, if not used, will begin to expire in 2028. Federal net operating losses generated after December 31, 2018 will carry forward indefinitely. State operating loss carryforwards begin to expire in 2026 and all foreign loss carryforwards are indefinite in expiration.
During the year ended December 31, 2025, we recorded an uncertain tax position. The activity for the uncertain tax position was as follows:
| | | | | |
| Year Ended December 31, |
| (in thousands) | 2025 |
| Balance, beginning of year | $ | — | |
| |
| Changes from uncertain tax positions taken in current period | 1,619 | |
| |
| |
| Balance, end of year | $ | 1,619 | |
Income taxes paid (net of refunds received), by jurisdiction, were as follows:
| | | | | |
| Year Ended December 31, |
| (in thousands) | 2025 |
| Federal | $ | 16,600 | |
| State | |
| California | 1,610 | |
| Other | 5,070 | |
| Foreign | |
| Canada | 4,919 | |
| Other | 693 | |
| $ | 28,892 | |
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.