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Income Taxes | 9 Months Ended
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Sep. 30, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision for income taxes consists of the following:
| Three Months Ended |  | Nine Months Ended
| September 30, 2025 |  | September 30, 2024 |  | September 30, 2025 |  | September 30, 2024
| (in thousands)
Current | $ | (17,798) |  |  | $ | 16,038 |  |  | $ | (8,166) |  |  | $ | 38,568 |
Deferred | 25,458 |  |  | (4,153) |  |  | 23,035 |  |  | (4,112) |
Income tax provision | $ | 7,660 |  |  | $ | 11,885 |  |  | $ | 14,869 |  |  | $ | 34,456 |
The provision for income taxes differs from the amount computed by applying the Federal statutory income tax rate before the provision for income taxes. The reconciliation of the Federal statutory income tax rate to the effective income tax rate is as follows:
| Three Months Ended |  | Nine Months Ended
| September 30, 2025 |  | September 30, 2024 |  | September 30, 2025 |  | September 30, 2024
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of Federal benefit | 3.1 |  |  | 4.9 |  |  | 4.2 |  |  | 5.0 |
Excess tax benefits related to share-based compensation (Note 14) | (2.2) |  |  | (7.9) |  |  | (10.9) |  |  | (6.6) |
Return to provision | (0.5) |  |  | (0.3) |  |  | 0.3 |  |  | (0.2) |
Non-deductible executive compensation | (0.1) |  |  | 1.9 |  |  | 3.4 |  |  | 1.5 |
Research and development credits | (0.9) |  |  | (1.1) |  |  | (2.1) |  |  | (1.2) |
Other | (0.5) |  |  | (0.1) |  |  | 0.5 |  |  | (0.2) |
Effective tax rate | 19.9 | % |  | 18.4 | % |  | 16.4 | % |  | 19.3 | %
The Company recorded an excess tax benefit of $0.9 million and $5.1 million for the three months ended September 30, 2025 and 2024, respectively, and $9.9 million and $11.7 million for the nine months ended September 30, 2025 and 2024, respectively. The excess tax benefit is related to the timing of stock option exercises and the vesting of restricted stock as well as performance stock units along with our high stock price during the nine months ended September 30, 2025 and 2024. In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 162(m), the tax deduction for covered executives of public companies is limited to $1.0 million per individual. Because of the increase in our stock price and timing of executive stock option exercises this resulted in a nominal change to the income tax provision for the three months ended September 30, 2025 and $1.2 million for the three months ended September 30, 2024. For the nine months ended September 30, 2025 and 2024, the tax provision increased $3.0 million and $2.6 million, respectively. We also earn research and development tax credits as defined under Section 41 of the Internal Revenue Code. To qualify for the research and development tax credits, we perform annual studies that identify, document, and support eligible expenses related to qualified research and development activities. Eligible expenses include but are not limited to supplies, materials, contractor expenses and internal employee wages. In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 174, foreign research and development expenses (“R&D”), including software development, incurred after December 31, 2021, are required to be capitalized and amortized over fifteen years. The amortization requirements for tax purposes is a mid-year convention, resulting in tax amortization of 3.33% in the year of acquisition, 6.67% in each of the following fourteen years, and 3.33% in the final year. See the OBBBA section below for more information regarding the change for domestic R&D and software development costs. The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions. These deductions can vary from year to year and, consequently, the amount of income taxes paid in future years will vary from the amounts paid in prior years. The Company's estimated annual 2025 effective tax rate, excluding discrete events, is approximately 24.1%. We file income tax returns in the U.S., state and foreign income tax jurisdictions. We are subject to U.S. income tax examinations for the tax years 2022 to present, and to non-U.S. income tax examinations for the tax years 2021 to present. In addition, we are subject to state and local income tax examinations for tax years 2021 to present. The Company continues to evaluate its need to file returns in various state jurisdictions. Any interest or penalties would be recognized as a component of income tax expense. Tax Law Changes On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, introducing significant amendments to the Internal Revenue Code. In accordance with ASC 740, Income Taxes, the Company recognized the tax effects of the enacted legislation in the period that includes the enactment date. Impact of Tax Law Changes The Company measured the effects of the tax law change using the beginning-of-year approach, with no remeasurement of its deferred tax assets (“DTAs”) or deferred tax liabilities (“DTLs”) required because the tax law changes are effective as of January 1, 2025 and do not affect prior years. The measurement resulted in an increase in DTLs (credit) of $30.9 million, a decrease in current income tax payable (debit) of $30.6 million, and an increase in provision expense (debit) of $0.4 million due to the bonus depreciation change effect on Texas Franchise tax and the reduced R&D Tax Credit allowed with the §174A change. Significant provisions of OBBBA affecting the Company include: •100% Bonus Depreciation: Effective for qualified property acquired after January 19, 2025, including manufacturing equipment, which reverses the previously scheduled phase-down of the bonus depreciation deduction to 40% for 2025 under prior law. This provision increased DTLs by $11.9 million, decreased current payable by $11.8 million, and increased provision expense due to the accelerated tax deductions for capital expenditures made in 2025 and the small provision effect from the change in Texas Franchise Tax. This adjustment also affected the state bonus depreciation (increased the DTA) and UNICAP (increased the DTL) calculations by $1.5 million and $0.6 million, respectively, with offsetting entries to current income tax payable. •Permanent Expensing of Domestic R&E Costs (Section 174A): Retroactive to January 1, 2025, resulting in decreased DTAs due to immediate tax deductibility of qualified domestic R&E costs as incurred. This provision decreased DTAs by $0.8 million, decreased current payables by $0.5 million, and increased provision expense by $0.3 million due to the reduction in the R&D tax credit (the Company will revert to the reduced credit method for calculation of the tax credit under the new law). •Accelerated Deduction of Unamortized Domestic R&E Cost Originally Capitalized in Tax Years 2022, 2023, and 2024 (Section 174A): The Company has elected to deduct the unamortized amounts of Section 174 Costs as of December 31, 2024, fully in tax year 2025, which decreased DTAs and current payables by $19.3 million. Net Operating Loss Due to the favorable changes in tax law related to the OBBBA, as of September 30, 2025, the Company generated Federal and State net operating loss (NOL) carryforwards of approximately $48.6 million. The Federal NOLs have an indefinite carryforward period but are limited to offsetting 80% of taxable income in any given year under current tax law. The State NOLs have varying expiration dates. The Company has recorded deferred tax assets of $10.2 million (Federal) and $2.3 million (State) related to these NOL carryforwards. Management has evaluated the positive and negative evidence in assessing the need for a valuation allowance (historical operating results, cumulative losses in recent years, and projected future taxable income) and we believe it is more likely than not that we will recognize the DTA reversals in tax year 2026, if not in Q4 of 2025.

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