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INCOME TAXES | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of (loss) income before income taxes were as follows:
| Years Ended December 31,
| 2024 |  | 2023
| (In thousands)
Domestic | $ | (40,372) |  |  | $ | 70,912 |
Foreign | 2,225 |  |  | (3,486) |
Total | $ | (38,147) |  |  | $ | 67,426 |
For purposes of reconciling the Company’s provision for income taxes at the statutory rate a notional 21% tax rate was applied as follows:
| Years Ended December 31,
| 2024 |  | 2023
Statutory federal tax rate | 21 | % |  | 21 | %
Foreign rate differential | (5) | % |  | 3 | %
Noncontrolling interests in operating subsidiaries | 1 | % |  | (1) | %
Nondeductible permanent items | (1) | % |  | (1) | %
Expired tax attributes | (15) | % |  | 6 | %
Foreign tax credits | — | % |  | (3) | %
Derivative fair value adjustment | — | % |  | (3) | %
Transaction Costs | (2) | % |  | — | %
Valuation allowance | 13 | % |  | (27) | %
Other | (3) | % |  | 1 | %
Effective income tax rate | 9 | % |  | (2) | %
Acacia’s income tax benefit (expense) for the periods presented consisted of the following:
| Years Ended December 31,
| 2024 |  | 2023
| (In thousands)
Current: |  |  |
Federal | $ | (191) |  |  | $ | (215) |
State | (111) |  |  | 37 |
Foreign | (2,812) |  |  | (1,975) |
Total current | (3,114) |  |  | (2,153) |
Deferred: |  |  |
Federal | 1,239 |  |  | (14,041) |
State | 107 |  |  | (925) |
Foreign | 376 |  |  | 593 |
Total deferred | 1,722 |  |  | (14,373) |
Change in valuation allowance | 4,841 |  |  | 18,030 |
Income tax benefit | $ | 3,449 |  |  | $ | 1,504 |
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
| December 31,
| 2024 |  | 2023
| (In thousands)
Deferred tax assets: |  |  |
Net operating loss and capital loss carryforwards and credits | $ | 50,453 |  |  | $ | 34,595 |
Unrealized loss on investments held at fair value | 1,025 |  |  | 146 |
Compensation expense for share-based awards | 693 |  |  | 1,095 |
Accrued expenses | 3,677 |  |  | 1,453 |
Lease liability | 2,010 |  |  | 689 |
State taxes | 17 |  |  | 37 |
Total deferred tax assets | 57,875 |  |  | 38,015 |
Valuation allowance | (26,250) |  |  | (30,219) |
Total deferred tax assets, net of valuation allowance | 31,625 |  |  | 7,796 |
Deferred tax liabilities: |  |  |
ROU Asset | (1,956) |  |  | (680) |
Fixed assets and intangibles | (8,062) |  |  | (1,841) |
Basis of investment in affiliates | (3,983) |  |  | (2,360) |
Other | — |  |  | — |
Total deferred tax liabilities | (14,001) |  |  | (4,881) |
Net deferred tax assets | $ | 17,624 |  |  | $ | 2,915 |
As of December 31, 2024 and 2023, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, “Income Taxes,” wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company’s deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company’s deferred tax assets, management considers all available evidence, both positive and negative. Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2024 a valuation allowance of $26.3 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2023, the Company recorded a partial valuation allowance of $30.2 million. The valuation allowance decreased by $4.0 million for the year ended December 31, 2024. The $4.0 million decrease included a decrease of $5.1 million for expired foreign tax credits, an increase of $800,000 recorded in purchase accounting for state net operating losses and an increase of $300,000 for state net operating losses generated in the current year. The valuation allowance decreased by $18.0 million for the year ended December 31, 2023 as a result of the use of tax attributes against 2023 earnings and the release of valuation allowance on the remaining federal net operating losses for which positive evidence supported the realization as of December 31, 2023. At December 31, 2024, Acacia had U.S. federal, foreign and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $104.0 million, $4.9 million and $56.8 million, respectively. Pursuant to the Tax Cuts and Jobs Act (“TCJA”) enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. $2.2 million of our foreign NOLs, $1.9 million of our state NOLs and all of our federal losses can be carried forward indefinitely. The remaining $2.7 million of foreign NOLs and $56.8 million of state NOLs will expire in varying amounts through 2044. Pursuant to Section 382 and 383 of the Internal Revenue Code (“IRC”), annual use of the Company’s NOL and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the tax attributes including the Company’s NOL and credit carryforwards are subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, which could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization. The Company has completed an analysis through December 31, 2024 and no such ownership change has occurred however ownership changes may occur in the future. An ownership change did occur for Deflecto upon Acacia’s acquisition on October 18, 2024. Approximately $48.8 million of pre-acquisition tax attributes including NOLs are subject to annual limitations under Section 382. The federal NOLs can be carried forward indefinitely but will be subject to a taxable income limitation. The limitation on these attributes have been considered in the Company’s valuation allowance. As of December 31, 2024, Acacia had approximately $23.4 million of foreign tax credits, expiring between 2025 and 2034. In general, foreign taxes withheld may be claimed as a deduction on U.S. corporate income tax returns, or as a credit against U.S. income tax liabilities, subject to certain limitations. The following changes occurred in the amount of unrecognized tax benefits:
| Years Ended December 31,
| 2024 |  | 2023
| (In thousands)
Beginning balance | $ | 757 |  |  | $ | 760 |
Additions for current year tax positions | — |  |  | — |
Additions included in purchase accounting for prior year positions | 178 |  |  | — |
Reductions for prior year tax positions | — |  |  | (3) |
Ending Balance (excluding interest and penalties) | 935 |  |  | 757 |
Interest and penalties | — |  |  | — |
Total | $ | 935 |  |  | $ | 757 |
At December 31, 2024 and 2023, the Company had total unrecognized tax benefits of approximately $935,000 and $757,000, respectively. At December 31, 2024 and 2023, $935,000 and $757,000, respectively, of unrecognized tax benefits are recorded in other long-term liabilities. At December 31, 2024, if recognized, $935,000 of tax benefits would impact the Company’s effective tax rate. Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months. Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. The Company’s 2020 through 2024 tax years generally remain subject to examination by federal, state and foreign tax authorities. However, the Company utilized losses dating back to 2006 within the general statute of limitation periods and therefore tax returns from 2006 through 2024 are still subject to challenge by the taxing authorities. The Company has not been notified by an tax authority for income tax audits. The Company analyzes undistributed earnings of each foreign subsidiary and has accrued withholding tax of $600,000 for earnings that are not permanently reinvested. No additional deferred tax liability has been provided for as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law. TCJA subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred.

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