Income Taxes

12 Months Ended

Jun. 30, 2019

The components of income before income taxes and income tax expense were as follows:



	Year Ended June 30,
	2019			2018			2017
Income before income taxes:
United States	$	57,281		$	43,368		$	30,499
Foreign	2,246			(795		)	569
	$	59,527		$	42,573		$	31,068
Tax provision (benefit):
Federal:
Current	$	11,454		$	4,470		$	11,476
Deferred	(3,008		)	(4,527		)	(7,645		)
	8,446			(57		)	3,831
State:
Current	5,194			2,370			3,650
Deferred	(1,421		)	(537		)	(1,684		)
	3,773			1,833			1,966
Foreign:
Current	546			186			240
Deferred	(13		)	(272		)	156
	533			(86		)	396
	$	12,752		$	1,690		$	6,193

The following is the reconciliation between the statutory federal income tax rate and the Company’s effective income tax rate:



	Year Ended June 30,
	2019		2018		2017
Tax provision at federal statutory rates	21.0	%	28.0	%	35.0	%
State income tax, net of federal tax benefit	5.9		5.6		4.9
Research and development credits	(4.5	)	(5.1	)	(6.1	)
Excess tax benefits on stock compensation	(4.5	)	(18.5	)	(13.1	)
Domestic manufacturing deduction	—		(2.0	)	(3.9	)
Deemed repatriation of foreign earnings	—		1.9		(0.1	)
Foreign income tax rate differential	0.1		0.3		0.2
Officer and equity compensation	2.0		1.7		1.8
Acquisition costs	0.1		1.4		0.9
Reserves for tax contingencies	0.3		0.3		(0.6	)
Benefit from tax rate changes	—		(2.3	)	—
Impacts related to acquired tax attributes	—		(8.7	)	—
Other	1.0		1.4		0.9
	21.4	%	4.0	%	19.9	%

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted by the U.S. government. The Tax Act impacted the U.S. corporate tax rate that the Company will use going forward, which has been reduced to 21% from 35%. As the Company has a June 30 fiscal year-end, the lower U.S. corporate tax rate was phased in, resulting in a U.S. corporate tax rate of approximately 28% for the Company's fiscal year ended June 30, 2018, and 21% for fiscal year ended June 30, 2019 and subsequent fiscal years.

The Tax Act also includes items that increase the Company’s tax expense including, but not limited to, the elimination of the domestic manufacturing deduction and increased limitations on deductions for executive compensation. In addition, the actual effective tax rate may be materially different than the statutory Federal tax rate (including being higher) based on the availability and impact of various other adjustments including, but not limited to, state taxes, Federal research and development credits, discrete tax benefits related to stock compensation, and the inclusion or exclusion of various items in taxable income which may differ from GAAP income.

The effective tax rate for fiscal 2019 differed from the federal statutory rate primarily due to benefits related to research and development tax credits and excess tax benefits for equity compensation. These benefits are offset by additional tax expense for state and local income taxes, non-deductible officer compensation and non-deductible equity compensation. During fiscal 2019 and 2018, the Company recognized a discrete tax benefit of $2,672 and $7,897, respectively, related to excess tax benefits on stock-based compensation.

The components of the Company’s net deferred tax liabilities were as follows:



	June 30,
	2019			2018
Deferred tax assets:
Inventory valuation and receivable allowances	$	10,313		$	8,476
Accrued compensation	4,644			3,803
Equity compensation	4,595			3,944
Federal and state research and development tax credit carryforwards	15,510			18,784
Other accruals	1,128			1,085
Deferred compensation	1,561			1,561
Acquired net operating loss carryforward	721			1,634
Capital loss carryforwards	2,354			2,413
Other temporary differences	2,258			1,565
	43,084			43,265
Valuation allowance	(16,666		)	(16,992		)
Total deferred tax assets	26,418			26,273
Deferred tax liabilities:
Prepaid expenses	(848		)	(696		)
Property and equipment	(4,927		)	(4,436		)
Intangible assets	(38,399		)	(34,546		)
Other temporary differences	(58		)	(230		)
Total deferred tax liabilities	(44,232		)	(39,908		)
Net deferred tax liabilities	$	(17,814	)	$	(13,635	)

As reported:
Deferred tax liabilities	$	(17,814	)	$	(13,635	)
	$	(17,814	)	$	(13,635	)

At June 30, 2019, the Company evaluated the need for a valuation allowance on deferred tax assets. In assessing whether the deferred tax assets are realizable, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the Company's past operating results, its forecast of future earnings, future taxable income, and tax planning strategies. The Company continues to conclude that it is more likely than not that most domestic deferred tax assets would be realizable based on recent financial performance, projected future taxable income and the reversal of existing deferred tax liabilities.

The Company continues to record a full valuation allowance on capital loss carryforwards and certain state research and development credits as of June 30, 2019 as management continues to believe that it is not more likely than not that these deferred tax assets would be realized. Any future reversals of the valuation allowance will impact income tax expense.

The Company had federal research and development credit carryforwards of $345, which will begin to expire in 2029. The Company had state research and development credit carryforwards of $15,165, which will expire from 2019 through 2033.

The Company files income tax returns in all jurisdictions in which it operates. The Company has established reserves to provide for additional income taxes that management believes will more likely than not be due in future years as these previously filed tax returns are audited. These reserves have been established based upon management’s assessment as to the potential exposures. All tax reserves are analyzed quarterly and adjustments are made as events occur and warrant modification.

On August 21, 2018, the Internal Revenue Service (“IRS”) provided initial guidance on amendments made to the limitation on executive compensation by the Tax Act. During the three months ended September 30, 2018, the Company recorded an unrecognized tax position as a result of this guidance. Upon further technical and legal analysis, the Company determined that it’s position no longer required a reserve. No other material changes to the Company’s unrecognized tax positions occurred during fiscal 2019.

The changes in the Company’s reserves for unrecognized income tax benefits are summarized as follows:



	Year Ended June 30,
	2019		2018
Unrecognized tax benefits, beginning of period	$	998	$	804
Increases for previously recognized positions	—		—
Settlements of previously recognized positions	—		—
Reductions as a result of a lapse of the applicable statute of limitations	—		(81		)
Increases for currently recognized positions	275		315
Reductions for previously recognized positions	—		(40		)
Unrecognized tax benefits, end of period	$	1,273	$	998

The $1,273 of unrecognized tax benefits as of June 30, 2019, if released, would reduce income tax expense.

The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. The total amount of gross interest and penalties accrued was $84 as of June 30, 2019 and 2018. In connection with tax matters, the Company recognized interest and penalty expense in fiscal 2019, 2018 and 2017 of $101, $42 and $30, respectively.

The Company’s major tax jurisdiction is the U.S. and the open tax years are fiscal 2016 through 2019.