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Income taxes | 6 Months Ended
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Jun. 30, 2024
Income Tax Disclosure [Abstract] |
Income taxes | 9. Income taxes The following table provides the income tax expense (benefit) amount:
| Three months ended June 30, |  | Six months ended June 30,
(dollars in thousands) | 2024 |  | 2023 |  | 2024 |  | 2023
Income tax expense (benefit) | $ | 1,333 |  |  | $ | (3,998) |  |  | $ | 299,542 |  |  | $ | (12,251) |
The Company recorded an income tax expense of $1.3 million for the three months ended June 30, 2024, on pre-tax net loss of $46.5 million. The Company’s income tax expense for the three months ended June 30, 2024 primarily resulted from a tax expense of $1.5 million on pre-tax book income in certain tax jurisdictions, and discrete items that included $0.5 million of nondeductible equity tax expense for employee stock-based compensation and a net increase in the valuation allowance of $0.2 million, partially offset by an income tax benefit of $0.6 million related to restructuring charges, and an income tax benefit related to the foreign provision to income tax return adjustments of $0.3 million. The Company recorded an income tax expense of $299.5 million for the six months ended June 30, 2024 on pre-tax net loss of $87.4 million. The Company’s income tax expense for the six months ended June 30, 2024 primarily resulted from a tax expense of $2.9 million on pre-tax book income in certain jurisdictions, and discrete items that included $295.1 million of net tax expense from the valuation allowance on United States federal and state net deferred tax assets, and nondeductible equity tax expense for employee stock-based compensation of $3.0 million, partially offset by an income tax benefit of $1.1 million related to restructuring charges, and an income tax benefit related to the foreign provision to income tax return adjustments of $0.4 million. Each quarter, the Company assesses the realizability of its existing deferred tax assets under ASC Topic 740. The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize its deferred tax assets. In the assessment for the period ended March 31, 2024, the Company concluded based on the introduction of negative evidence resulting from developments in the first quarter of 2024, such as increased and accelerated costs associated with the Company’s future product strategy and roadmap, an increased competitive environment, integration and product development costs related to the recent acquisition of Forcite Helmet Systems, restructuring costs and other negative factors, that it was more likely than not that its United States federal and state deferred tax assets would not be realizable. Therefore, in the period ended March 31, 2024, after consideration of the Company’s deferred tax liabilities and recent developments, the Company provided a valuation allowance of $294.9 million on United States federal and state deferred tax assets. That determination was also based, in part, on the Company’s revised expectation that its projections of pre-tax losses in 2024 and future years will cause the Company to be in a cumulative GAAP loss for ASC Topic 740 purposes in 2024 and forward. In the assessment for the period ended June 30, 2024, the Company concluded that it remains more likely than not that the Company will not be able to realize its deferred tax assets. The Company will continue to monitor its future financial results, expected projections and their potential impact on the Company’s assessment regarding the recoverability of its deferred tax asset balances and in the event there is a need to release the valuation allowance, a tax benefit would be recorded. The Company’s foreign deferred tax assets in each jurisdiction are supported by taxable income or in the case of acquired companies, by the future reversal of deferred tax liabilities. It is more likely than not that the Company’s foreign deferred tax assets will be realized and thus, a valuation allowance is not required on its foreign deferred tax assets. For the three months ended June 30, 2023 the Company recorded an income tax benefit of $4.0 million on a pre-tax net loss of $21.2 million. The Company’s income tax benefit for the three months ended June 30, 2023 was composed of $4.6 million of tax benefit incurred on pre-tax loss, and discrete items that primarily included $0.3 million of nondeductible equity tax expense for employee stock-based compensation, $0.1 million of tax expense related to the foreign provision to income tax return adjustments, and $0.1 million of tax expense related to restructuring charges. The Company recorded an income tax benefit of $12.3 million for the six months ended June 30, 2023 on a pre-tax net loss of $59.3 million. The Company’s income tax benefit for the six months ended June 30, 2023 was composed of $13.4 million of tax benefit incurred on pre-tax loss, and discrete items that primarily included $0.6 million of net nondeductible equity tax expense for employee stock-based compensation, $0.2 million of tax expense related to the foreign provision to income tax return adjustments, and $0.2 million of tax expense related to the restructuring charges. As of June 30, 2024 and December 31, 2023, the Company’s gross unrecognized tax benefits were $28.1 million and $25.8 million, respectively. If recognized, $13.0 million of these unrecognized tax benefits (net of United States federal benefit) as of June 30, 2024 would reduce income tax expense. A material portion of the Company’s gross unrecognized tax benefits, if recognized, would increase the Company’s net operating loss carryforward, which would be offset by a full valuation allowance based on present circumstances. The Company conducts business globally and as a result, files income tax returns in the United States and foreign jurisdictions. The Company’s unrecognized tax benefits relate primarily to unresolved matters with taxing authorities. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves reflect the more likely outcome. The Company believes, primarily due to statute of limitations expiration, that within the next 12 months, it is possible that up to $3.9 million of uncertain tax positions could be released. It is also reasonably possible that additional uncertain tax positions will be added. It is not reasonably possible at this time to quantify the net effect. In 2021, the Organization for Economic Co-operation and Development (OECD) established an inclusive framework on base erosion and profit shifting and agreed on a two-pillar solution (Pillar Two) to global taxation, focusing on global profit allocation and a 15% global minimum effective tax rate. On December 15, 2022, the EU member states agreed to implement the OECD’s global minimum tax rate of 15%. The OECD issued Pillar Two model rules and continues to release guidance on these rules. The inclusive framework calls for tax law changes by participating countries to take effect in 2024 and 2025. Various countries have enacted or have announced plans to enact new tax laws to implement the global minimum tax. The Company assessed the impact of Pillar Two and there is no material impact to the provision for income taxes for the three and six months ended June 30, 2024. The Company will continue to monitor future guidance issued and assess the potential impact to the Company’s condensed consolidated financial statements.

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