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Income Taxes
 9 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income tax provision differed from the amounts computed by applying the U.S. federal income tax rate of 21% to income before income tax for the reasons set forth below (dollars in thousands):
Three months ended September 30,
20252024
U.S. federal statutory tax rate$1,626 21.0 %$523 21.0 %
State income taxes, net of federal benefit(651)(8.4)%37 1.5 %
Non-U.S. income taxed at different rates34 0.4 %144 5.8 %
Reduction in tax expense related to stock-based awards(271)(3.5)%(9)(0.3)%
Change in valuation allowance(13,243)(171.0)%(756)(30.4)%
Non-deductible expenses(107)(1.4)%98 3.9 %
Income tax (benefit) expense and effective rate$(12,612)(162.9)%$37 1.5 %
Nine months ended September 30,
20252024
U.S. federal statutory tax rate$3,144 21.0 %$1,320 21.0 %
State income taxes, net of federal benefit(571)(3.8)%293 4.7 %
Non-U.S. income taxed at different rates(86)(0.6)%(10)(0.2)%
Increase (reduction) in tax expense related to stock-based awards(460)(3.1)%30 0.5 %
Change in valuation allowance(14,885)(99.4)%(1,481)(23.6)%
Non-deductible expenses327 2.2 %141 2.3 %
Income tax (benefit) expense and effective rate$(12,531)(83.7)%$293 4.7 %
As of September 30, 2025, the Company had U.S. net operating loss carryforwards (“NOLs”) of $190.1 million, including $40.6 million expiring in various amounts from 2029 through 2037, which can offset 100% of taxable income, and $149.5 million that has an indefinite carryforward period, which can offset 80% of taxable income per year. Additionally, the Company has an estimated $78.7 million in certain state NOL carryforwards and $3.8 million in tax credit carryforwards.
As a result of the ownership change experienced in 2023, the Company’s ability to use NOLs to reduce taxable income is generally limited by Section 382 of the Internal Revenue Code of 1986 to an annual amount of $3.5 million plus net unrealized built in gain of $24.5 million. The Company’s use of NOLs arising after the date of the ownership change are not impacted by the Section 382 limitation. NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward periods, then the ability to apply those NOLs as offsets to future taxable income is lost. Based on an analysis of the Section 382 limitation, the Company estimates that all carryforwards with the exception of $0.9 million of the state NOL carryforwards and $3.8 million of the tax credit carryforwards will be available for utilization if there is sufficient taxable income in subsequent periods. Although the ownership change will significantly limit the ability of the Company to utilize the pre-change net operating losses and credits, the Company does not expect a significant impact to its financial statements.
On July 4, 2025, the U.S. enacted H.R. 1 “A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14”, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation. ASC 740, “Income Taxes,” requires the effects of changes in tax rates and laws to be recognized in the period in which the legislation is enacted. Changes in tax laws may affect recorded deferred tax assets and deferred tax liabilities and our effective tax rate in the future, and the Company recognized those changes in tax laws in the quarter ended September 30, 2025.
Valuation Allowance
The Company considered both positive and negative evidence and determined that as of September 30, 2025 a full valuation allowance was no longer required for certain deferred tax assets. Positive evidence included our results of operations reaching an adjusted three-year cumulative income position on a rolling twelve-quarter basis during the quarter ended September 30, 2025, that indicates a trend of profitability; future reversals of existing taxable temporary differences; and an evaluation of currently available information about future years forecasted taxable income, specifically, the forecasted future income based
on existing contracts including the ProFrac Agreement (discussed below in Note 17, “Related Party Transactions”) and the Lease Agreement with ProFrac (see Note 3, “Asset Acquisition”). The Company’s assessment of profitability considered the impact of unusual and non-recurring items on historical book income or losses. However, because of the lack of objectively verifiable information in years after the expiration of the ProFrac Agreement and Lease Agreement, it was determined that forecasted future income may not be sufficient to realize all the deferred tax assets. Therefore, a partial release of valuation allowance for federal deferred tax assets was recorded during the three and nine months ended September 30, 2025 totaling $29.7 million and $31.1 million, respectively, of which $16.3 million during the three and nine months ended September 30, 2025 was recorded to equity as a change to intraperiod tax allocation in interim periods within the same year related to a deferred tax asset arising from a basis difference in connection with the Asset Acquisition. In addition, a partial release of valuation allowance for state deferred tax assets was recorded during both the three and nine months ended September 30, 2025 totaling $1.9 million, of which $1.2 million during the three and nine months ended September 30, 2025 was recorded to equity.
We intend to continue maintaining a valuation allowance on a substantial portion of our deferred tax assets until there is sufficient evidence to support a reversal of such allowances. The federal and state valuation allowances currently estimated to be necessary at December 31, 2025 are $41.3 million The timing and amount of future valuation allowance reductions are subject to future levels of profitability being achieved.