Income Taxes

12 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income Tax Expense

Income (loss) from continuing operations before income taxes was as follows (in thousands):

	Year Ended March 31,
	2023		2022
U.S.	$	(101,458)	$	(32,904)
Non-U.S.	3,329		4,674
(Loss) income from continuing operations before income taxes	$	(98,129)	$	(28,230)

Income tax expense (benefit) from continuing operations was as follows (in thousands):

	Year Ended March 31,
	2023		2022
Current:
U.S. federal	$	(232)	$	362
U.S. state	124		(5)
Non-U.S.	509		1,444
Total current	401		1,801
Deferred:
U.S. federal	7,047		(6,881)
U.S. state	1,959		(940)
Non-U.S.	(48)		(6)
Total deferred	8,958		(7,827)
Income tax expense (benefit)	$	9,359	$	(6,026)

Following is a reconciliation of the U.S. statutory federal income tax rate with our effective income tax rate for continuing operations:

	Year Ended March 31,
	2023		2022
U.S. statutory income tax rate	21.0	%	21.0	%
State tax, net of U.S. federal tax benefit	3.7		3.6
Non-U.S. income taxes	—		(0.8)
Nondeductible operating expenses	(1.5)		(0.5)
Foreign-derived intangible income deduction	—		—
Section 162(m) limitation	(0.1)		(5.4)
Non-deductible foreign employee stock compensation	(0.1)		(1.2)
Non-deductible acquisition related expenses	—		(1.8)
Research and development credit	0.2		2.3
Change in deferred tax measurement rate	—		0.2
Change in uncertain tax positions	(0.1)		(1.0)
Excess tax benefit or detriment from stock plans	(0.5)		5.4
Change in valuation allowance	(25.9)		(0.4)
Impairment of intangibles	(6.2)		—
Capital losses	—		—
Other	—		(0.1)
Effective income tax rate	(9.5)	%	21.3	%

The income tax expense from continuing operations for the year ended March 31, 2023 was primarily driven by the recording of a U.S. deferred tax asset valuation allowance in the amount of $25.4 million, which also affected the effective tax rate from continuing operations compared to the statutory rate.

Deferred Income Taxes

Individually significant components of deferred income tax assets and liabilities were as follows (in thousands):

	As of March 31,
	2023		2022
Deferred income tax assets:
Accrued liabilities	$	2,773	$	5,828
Allowance for doubtful accounts	59		89
Inventory valuation	347		222
Capitalized indirect inventory costs	366		1,044
Stock-based compensation expense	715		895
Deferred rent	4,919		6,065
Deferred revenue	1,003		960
Interest expense	1,247		383
Net operating loss carryforward	13,979		2,194
Basis difference on long-lived assets	1,300		1,189
Section 174 capitalization	6,028		—
Credit carryforward	667		1,048
Capital losses	25,791		25,744
Other	301		290
Gross deferred income tax assets	59,495		45,951
Valuation allowance	(51,902)		(26,510)
Deferred income tax assets, net of valuation allowance	7,593		19,441
Deferred income tax liabilities:
Prepaid advertising	(29)		(273)
Other prepaids	(191)		(135)
Basis difference of long-lived assets	(2,631)		(4,740)
Deferred rent	(4,440)		(5,532)
Other	(1)		(1)
Deferred income tax liabilities	(7,292)		(10,681)
Net deferred income tax assets	$	301	$	8,760

Our deferred income tax assets and liabilities were recorded on our Consolidated Balance Sheets as follows (in thousands):

	As of March 31,
	2023		2022
Deferred income tax assets, non-current	$	554	$	8,760
Deferred income tax liabilities, non-current	(253)		—
Net deferred income tax assets (liabilities)	$	301	$	8,760

Valuation Allowance

Under ASC Topic 740, Accounting for Income Taxes, we must periodically evaluate deferred tax assets to determine if it is more-likely-than-not that the future tax benefits will be realized. If the negative evidence outweighs the positive, a valuation allowance must be recognized to reduce the net carrying amount of the deferred tax assets to the amount more-likely-than-not to be realized.

Evaluating the need for, and amount of, a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence on a jurisdiction-by-jurisdiction basis. Such judgments require us to interpret existing tax law and other published guidance as applied to our circumstances. As part of this

assessment, we consider both positive and negative evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which the strength of the evidence can be objectively verified. We generally consider the following, but are not limited to, objectively verified evidence to determine the likelihood of realization of the deferred tax assets:

•Our current financial position and our historical results of operations for recent years. We generally consider cumulative pre-tax losses in the three year period ending with the current quarter or a projected three year cumulative loss position within the next 12 months following the current quarter to be significant negative evidence.

•A pattern of objectively-measured historical and current financial reporting loss trend is heavily weighted as a source of negative evidence.

•Sources of taxable income of the appropriate character. Future realization of deferred tax assets is dependent on projected taxable income of the appropriate character. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable evidence. Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combined with a history of recent profits and current financial trends and can be reasonably estimated.

•Carry-back and carry-forward periods available. The carry-back and carry-forward periods permitted under the tax law are objectively verified evidence.

•Tax planning strategies. Tax planning strategies can be, depending on their nature, heavily-weighted sources of objectively verifiable positive evidence when the strategies are available and can be reasonably executed. We consider tax planning strategies only if they are feasible and justifiable considering our current operations and our strategic plan. Tax planning strategies, if executed, may accelerate the recovery of a deferred tax asset so the tax benefit of the deferred tax asset can be carried back.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. In the first quarter of fiscal 2023, a significant new piece of objective negative evidence evaluated was the third year of cumulative losses projected within the next twelve months. Such objective evidence limits our ability to consider other subjective evidence, such as our projections for future growth.

Based on this evaluation, in the first quarter of fiscal 2023, we concluded that it was no longer more likely than not that the tax benefits from the existing U.S deferred tax assets would be realized. Accordingly, we recorded a valuation allowance in the first quarter of fiscal 2023 against our domestic uncovered net deferred tax assets. We sustain the same position as of March 31, 2023 and, therefore, we continue to recognize a valuation allowance to reduce our U.S deferred tax assets to an anticipated realizable value. We recognized a $25.4 million valuation allowance in fiscal 2023 primarily against our domestic uncovered net deferred tax assets.

As of March 31, 2023, we had a valuation allowance against net deferred income tax assets of $51.9 million. Of the valuation allowance, $51.6 million relates to domestic valuation allowance and the remainder of $0.3 million relates to certain foreign intangible assets and net operating loss carry-forwards. Should it be determined in the future that it is more likely than not that our deferred income tax assets will be realized, an appropriate portion of valuation allowance would be released during the period in which such an assessment is made.

Income Tax Carryforwards

As of March 31, 2023, we had the following income tax carryforwards (in millions):

	Amount		Expires in
Net operating loss carryforwards
U.S. federal	$	50.6	Indefinite
U.S. state	$	47.7	2028 - 2043
U.S. state	$	11.5	Indefinite
Capital loss carryforwards
U.S federal and state	$	101.3	2025
Income tax credit carryforwards
U.S. federal	$	0.4	2043
U.S. state	$	0.4	Indefinite

The timing and manner in which we are permitted to utilize our net operating loss carryforwards may be limited by Internal Revenue Code Section 382, Limitation on Net Operating Loss Carry-forwards and Certain Built-in-Losses Following Ownership Change.

Unrecognized Tax Benefits

Following is a reconciliation of gross unrecognized tax benefits from uncertain tax positions, excluding the impact of penalties and interest (in thousands):

	Year Ended March 31,
	2023		2022
Balance at beginning of period	$	1,782	$	2,374
Additions for tax positions taken in prior years	—		133
Reductions for tax positions taken in prior years	(26)		—
Additions for tax positions related to the current year	59		103
Lapses of statutes of limitations	—		—
Other	(108)		(828)
Balance at end of period	$	1,707	$	1,782

During fiscal 2023, we completed a tax deregistration of a foreign entity that was part of the discontinued operations. As a result, the previously unrecognized tax benefit and associated accrued interest and penalty in the amount of $2.1 million was released and recorded as a component of income taxes from discontinued operations.

As of March 31, 2023, of the $1.7 million of gross unrecognized tax benefits from uncertain tax positions outstanding as of March 31, 2023, $1.6 million would affect our effective tax rate if recognized.

We recorded tax-related interest and penalty expense (benefit) of $(1.9) million for 2023 and $0.1 million for 2022. We had a cumulative liability for interest and penalties related to uncertain tax positions as of March 31, 2023 and 2022 of $0.4 million and $2.3 million, respectively.

Our U.S. federal income tax returns for 2008 through 2016 are currently open for limited review and for 2017 through 2023 are open for full review by the U.S. Internal Revenue Service. Further Our state income tax returns for 2008 through 2023 are open to review, depending on the respective statute of limitation in each state. Currently, our U.S. corporate income tax returns for 2016 through 2019 are under IRS examination. In addition, we file income tax returns in several non-U.S. jurisdictions with varying statutes of limitation.

As of March 31, 2023, we believe it is reasonably likely that, within the next twelve months, none of the previously unrecognized tax benefits will be recognized due to the expirations of the statutes of limitations.