VERACYTE, INC.VCYT
VERACYTE, INC. Income Taxes Disclosure
Income Taxes
The Company generated a pre-tax income of $68.2 million and $25.7 million for the years ended December 31, 2025 and 2024, respectively, and a pre-tax loss of $76.6 million for the year ended December 31, 2023. Pre-tax income (loss) has been recorded in the following jurisdictions for the years ended December 31, 2025, 2024 and 2023 (in thousands of dollars):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | 95,477 | $ | 44,197 | $ | (15,853) | |||||||||||
| Foreign | (27,276) | (18,453) | (60,759) | ||||||||||||||
| Total | $ | 68,201 | $ | 25,744 | $ | (76,612) | |||||||||||
The Company recorded an income tax provision in 2025 of $1.8 million primarily due to state income taxes partially offset by reductions in deferred tax liabilities from acquired entities. The Company recorded an income tax provision in 2024 of $1.6 million primarily due to foreign and state income taxes partially offset by the release of certain valuation allowances on the Company's deferred tax assets upon recording of the deferred tax liabilities related to the acquisition of C2i. The Company recorded an income tax benefit in 2023 of $2.2 million primarily due to reductions in deferred tax liabilities from acquired
entities partially offset by foreign and state income taxes. The components of the provision (benefit) for income taxes are as follows for the years ended December 31, 2025, 2024 and 2023 (in thousands of dollars):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 2,314 | 1,814 | 1,520 | ||||||||||||||
| Foreign | 114 | 22 | 193 | ||||||||||||||
| Total current | 2,428 | 1,836 | 1,713 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (307) | 159 | — | ||||||||||||||
| State | (273) | (389) | (90) | ||||||||||||||
| Foreign | — | — | (3,831) | ||||||||||||||
| Total deferred | (580) | (230) | (3,921) | ||||||||||||||
| Total income tax provision (benefit) | $ | 1,848 | $ | 1,606 | $ | (2,208) | |||||||||||
ASU 2023-09, Improvements to Income Tax Disclosures was issued by FASB on December 14, 2023 which provides more transparency through enhanced income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. The Company adopted this ASU on January 1, 2025 on a prospective basis. The following table provides the updated requirements of ASU 2023-09 for 2025 (in thousands of dollars):
| Year Ended December 31, 2025 | ||||||||||||||
| U.S. federal statutory tax rate | 14,322 | 21.0 | % | |||||||||||
| Effect of cross-border tax laws | (5,570) | (8.2) | % | |||||||||||
| Tax effects of foreign branches | (5,546) | (8.1) | % | (1) | ||||||||||
| Other | (24) | — | % | |||||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | % | |||||||||||
| Tax credits | (4,560) | (6.7) | % | |||||||||||
| R&D credits | (4,560) | (6.7) | % | |||||||||||
| Non-taxable or non-deductible items | 5,334 | 7.8 | % | |||||||||||
| Veracyte SAS deconsolidation | 5,017 | 7.4 | % | |||||||||||
| Non-deductible compensation | 4,184 | 6.1 | % | |||||||||||
| Stock-based compensation | 1,065 | 1.6 | % | |||||||||||
| Excess tax benefits on stock-based compensation | (3,401) | (5.0) | % | |||||||||||
| Transaction costs | 738 | 1.1 | % | |||||||||||
| Contingent consideration | (2,424) | (3.6) | % | |||||||||||
| Other | 155 | 0.2 | % | |||||||||||
| Change in valuation allowance | (14,590) | (21.4) | % | |||||||||||
| Other adjustments | (1,456) | (2.1) | % | |||||||||||
| Federal deferred tax true-up | (1,456) | (2.1) | % | |||||||||||
| State and local income taxes, net of federal income tax effect | 801 | 1.2 | % | (2) | ||||||||||
| Foreign tax effects | 5,406 | 7.9 | % | |||||||||||
| France | 5,577 | 8.2 | % | |||||||||||
| Foreign rate differential | (1,277) | (1.9) | % | |||||||||||
| Deconsolidation loss | 5,344 | 7.8 | % | |||||||||||
| Change in valuation allowance | 811 | 1.2 | % | |||||||||||
| Other | 699 | 1.0 | % | |||||||||||
| Other foreign jurisdictions | (171) | (0.3) | % | (3) | ||||||||||
| Worldwide changes in unrecognized tax benefits | 2,161 | 3.2 | % | |||||||||||
| Grand total | 1,848 | 2.7 | % | |||||||||||
________________
(1)Primarily related to the tax effects of the Foreign Branch in France.
(2)On December 31, 2025, state taxes in Pennsylvania, Georgia, New York, Maryland and Tennessee comprise the majority (greater than 50 percent) of the state and local income taxes, net of federal effect category.
(3)None of the remaining foreign jurisdictions for which there are foreign tax effects reconciling items meet the 5% threshold in 2025. There are no additional reconciling items by nature in any of the remaining foreign jurisdictions that meet the 5% threshold in 2025.
The following table presents a reconciliation of the income tax expense computed at the statutory federal rate and the Company's income tax expense for the periods presented, as previously disclosed, prior to the adoption of ASU 2023-09 (in thousands of dollars):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. federal taxes at statutory rate | $ | 5,407 | $ | (16,088) | |||||||
| State tax (net of federal benefit) | (11,472) | (491) | |||||||||
| Foreign rate differential | 3,939 | 9,049 | |||||||||
| Non-deductible officers' compensation | 2,271 | 639 | |||||||||
| Transaction costs | 263 | 477 | |||||||||
| Permanent differences | 529 | 419 | |||||||||
| Stock based compensation - excess benefit | 381 | 739 | |||||||||
| Tax credits | (1,255) | (1,551) | |||||||||
| Foreign worthless stock deduction | (74,719) | — | |||||||||
| Other | (469) | (176) | |||||||||
| Change in valuation allowance | 76,731 | 4,775 | |||||||||
| Total | $ | 1,606 | $ | (2,208) | |||||||
For the year ended December 31, 2024, the Company made an election to treat its wholly owned French subsidiary as a disregarded entity for U.S. federal income tax purposes which resulted in a worthless stock deduction of approximately $356 million and an effective tax rate benefit of $74.7 million. This resulted in an increase to the Company’s net operating loss carryforwards. The Company has not recognized any tax benefits from the worthless stock deduction as a result of the full valuation allowance maintained on its deferred tax assets.
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. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands of dollars):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Deferred tax assets: | |||||||||||||||||
| Net operating loss carryforwards | $ | 158,191 | $ | 183,912 | $ | 110,975 | |||||||||||
| Research and development credits | 18,607 | 14,074 | 10,728 | ||||||||||||||
| Section 174 capitalization | 25,453 | 32,612 | 17,388 | ||||||||||||||
| Stock-based compensation | 2,970 | 3,722 | 4,503 | ||||||||||||||
| NanoString intangibles and goodwill | 7,016 | 8,740 | 8,778 | ||||||||||||||
| Operating lease liability | 9,898 | 10,739 | 3,335 | ||||||||||||||
| Accruals and other | 6,362 | 8,170 | 7,128 | ||||||||||||||
| Gross deferred tax assets | 228,497 | 261,969 | 162,835 | ||||||||||||||
| Valuation allowance | (197,301) | (227,984) | (139,920) | ||||||||||||||
| Net deferred tax assets | 31,196 | 33,985 | 22,915 | ||||||||||||||
| Deferred tax liabilities: | |||||||||||||||||
| Property and equipment | (1,079) | (228) | (83) | ||||||||||||||
| Other acquired intangibles | (20,080) | (20,105) | (17,358) | ||||||||||||||
| In-process research and development | (1,548) | (4,787) | (3,461) | ||||||||||||||
| ROU assets | (9,135) | (10,092) | (2,747) | ||||||||||||||
| Gross deferred tax liabilities | (31,842) | (35,212) | (23,649) | ||||||||||||||
| Net deferred tax liabilities | (31,842) | (35,212) | (23,649) | ||||||||||||||
| Net deferred taxes | $ | (646) | $ | (1,227) | $ | (734) | |||||||||||
The Company records net deferred tax assets to the extent it is more likely than not that the assets will be realized. In making such determination, the Company considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding realization of such assets. The valuation allowance decreased $30.7 million, and increased $88.1 million and $14.5 million during the years ended December 31, 2025, 2024 and 2023, respectively.
The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, a company's ability to use net operating losses and tax credits may be limited as prescribed under Internal Revenue Code Section 382 and 383, or IRC Section 382. Events which may cause limitations in the amount of the net operating losses or tax credits that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 rules and similar state provisions. In the event the Company has any changes in ownership, net operating losses and research and development credit carryforwards could be limited and may expire unutilized.
As of December 31, 2025, the Company had net operating loss carryforwards of approximately $561.9 million, $113.3 million and $298.4 million available to reduce future taxable income, if any, for federal, California and other state income tax purposes, respectively. Of the $561.9 million of U.S. federal net operating loss carryforwards, $57.5 million will begin to expire in 2036 while the remainder will carryforward indefinitely. For state purposes, the net operating losses began to expire in 2028.
As of December 31, 2025, the Company had foreign net operating loss carryforwards of approximately $65.7 million available to reduce future taxable income, if any, for Canadian income tax purposes. The Canada net operating loss carryforwards will begin to expire in 2034.
As of December 31, 2025, the Company had net research and development credit carryforwards of approximately $15.8 million and $11.0 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal credit carryforwards begin to expire in 2028. California credits have no expiration date. Other state credit carryforwards begin to expire in 2026.
As of December 31, 2025, the Company also had scientific net research and development credit carryforwards of approximately $2.7 million available to reduce future taxable income liabilities, if any, for Canadian income tax purposes. The credit carryforwards begin to expire in 2026. The Company also has deductible scientific net research and development expenditures of $7.7 million available to reduce future taxable income, if any, and these deductions can be carried forward indefinitely.
Income Tax Payments
A summary of income taxes paid (net of refunds) pursuant to the disclosure requirements of ASU 2023-09 were as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal: | |||||||||||||||||
| States: | |||||||||||||||||
| Georgia | $ | 217 | |||||||||||||||
| Maryland | 238 | ||||||||||||||||
| Missouri | 196 | ||||||||||||||||
| New York | 245 | ||||||||||||||||
| Pennsylvania | 432 | ||||||||||||||||
| Tennessee | 372 | ||||||||||||||||
| Virginia | 275 | ||||||||||||||||
| Other | 1,496 | ||||||||||||||||
| Total State | 3,471 | ||||||||||||||||
| Foreign: | |||||||||||||||||
| Israel | 169 | ||||||||||||||||
| Total Foreign | 169 | ||||||||||||||||
| Cash taxes paid during the period for income taxes (prior to ASU 2023-09) | $ | 2,236 | $ | 1,697 | |||||||||||||
| Total income taxes paid (net of refunds) | $ | 3,640 | $ | 2,236 | $ | 1,697 | |||||||||||
Uncertain Tax Positions
As of December 31, 2025, the Company had unrecognized tax benefits of $9.6 million, none of which currently would affect the Company's effective tax rate if recognized due to the Company's deferred tax assets being fully offset by a valuation allowance. The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing at December 31, 2025 will significantly increase or decrease within the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands of dollars):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits, beginning of period | $ | 7,176 | $ | 5,687 | $ | 4,888 | |||||||||||
| Gross increases—tax position in prior period | 774 | 469 | 37 | ||||||||||||||
| Gross decreases—tax position in prior period | (45) | (29) | (11) | ||||||||||||||
| Gross increases—current period tax position | 1,650 | 1,049 | 773 | ||||||||||||||
| Lapse of statute of limitations | — | — | — | ||||||||||||||
| Unrecognized tax benefits, end of period | $ | 9,555 | $ | 7,176 | $ | 5,687 | |||||||||||
It is the Company's policy to include penalties and interest expense related to income taxes as a component of other income (expense), net, and interest expense, respectively, as necessary. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2025.
The Company's major tax jurisdictions are the United States, Canada, France, and Israel. All of the Company's tax years will remain open for examination by the Federal and state tax authorities for and four years, respectively, from the date of utilization of the net operating loss or research and development credit. The Company is not currently under any tax audits in any jurisdiction, with the exception of an audit of Veracyte SAS. In light of the ongoing bankruptcy proceedings for Veracyte SAS, the audit of its Research Tax Credits by the French Tax Authorities is deemed to be without practical consequence.
On July 4, 2025, the One Big Beautiful Bill Act, or the OBBBA, was signed into law. The legislation includes a broad range of tax reform provisions affecting businesses including, but not limited to, the reinstatement of 100% bonus depreciation, immediate expensing of domestic research and development costs, and revisions to the U.S. taxation of profits derived from international operations. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company has assessed the effects of the new tax legislation, including immediate expensing of domestic research and development expenditures, and the results have been reflected in the Form 10-K for the year ended December 31, 2025.
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.