Income Taxes

12 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income Tax Expense

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

	Year Ended March 31,
	2024		2023
U.S.	$	(90,124)	$	(101,458)
Non-U.S.	1,575		3,329
Loss from continuing operations before income taxes	$	(88,549)	$	(98,129)

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

	Year Ended March 31,
	2024		2023
Current:
U.S. federal	$	990	$	(232)
U.S. state	1		124
Non-U.S.	371		509
Total current	1,362		401
Deferred:
U.S. federal	(4)		7,047
U.S. state	91		1,959
Non-U.S.	372		(48)
Total deferred	459		8,958
Income tax expense (benefit)	$	1,821	$	9,359

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,
	2024		2023
U.S. statutory income tax rate	21.0	%	21.0	%
State tax, net of U.S. federal tax benefit	3.6		3.7
Non-U.S. income taxes	0.2		—
Nondeductible operating expenses	(0.3)		(1.5)
Section 162(m) limitation	—		(0.1)
Non-deductible foreign employee stock compensation	(0.3)		(0.1)
Research and development credit	0.1		0.2
Change in deferred tax measurement rate	(0.1)		—
Change in uncertain tax positions	(0.6)		(0.1)
Excess tax benefit or detriment from stock plans	(0.8)		(0.5)
Change in valuation allowance	(25.5)		(25.9)
Impairment of intangibles	—		(6.2)
Other	0.6		—
Effective income tax rate	(2.1)	%	(9.5)	%

The income tax expense from continuing operations for the year ended March 31, 2024 was primarily driven by income in non-U.S. jurisdictions, the recording of a deferred tax asset valuation allowance in non-U.S. jurisdictions,

and the recording of unrecognized tax positions as the result of a U.S. tax examination, 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,
	2024		2023
Deferred income tax assets:
Accrued liabilities	$	2,298	$	2,773
Allowance for doubtful accounts	18		59
Inventory valuation	218		347
Capitalized indirect inventory costs	357		366
Stock-based compensation expense	380		715
Deferred rent	3,849		4,919
Deferred revenue	965		1,003
Interest expense	2,992		1,247
Net operating loss carryforward	19,416		13,979
Basis difference on long-lived assets	7,693		1,300
Section 174 capitalization	11,031		6,028
Credit carryforward	713		667
Capital losses	25,091		25,791
Other	253		301
Gross deferred income tax assets	75,274		59,495
Valuation allowance	(74,371)		(51,902)
Deferred income tax assets, net of valuation allowance	903		7,593
Deferred income tax liabilities:
Prepaid advertising	(27)		(29)
Other prepaids	(114)		(191)
Basis difference of long-lived assets	(845)		(2,631)
Deferred rent	—		(4,440)
Other	(16)		(1)
Deferred income tax liabilities	(1,002)		(7,292)
Net deferred income tax assets (liabilities)	$	(99)	$	301

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

	As of March 31,
	2024		2023
Deferred income tax assets, non-current	$	—	$	554
Deferred income tax liabilities, non-current	(99)		(253)
Net deferred income tax assets (liabilities)	$	(99)	$	301

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 fourth quarter of fiscal 2024, a significant new piece of objective negative evidence evaluated was the company’s filing of Chapter 11 bankruptcy. Such objective evidence limits our ability to consider other subjective evidence, such as our projections for future growth.

Based on this evaluation, in the fourth quarter of fiscal 2024, we concluded that it was no longer more likely than not that the tax benefits from the existing non-U.S deferred tax assets would be realized. Accordingly, we recorded a valuation allowance in the fourth quarter of fiscal 2024 against our non-U.S. uncovered net deferred tax assets. A valuation allowance was recorded against our U.S. net deferred tax assets in fiscal 2023. We sustain the same position as of March 31, 2024 and continue to recognize a valuation allowance to reduce our U.S. deferred tax assets to an anticipated realizable value. We recognized a $22.5 million valuation allowance in fiscal 2024 primarily against our domestic uncovered net deferred tax assets.

As of March 31, 2024, we had a valuation allowance against net deferred income tax assets of $74.4 million. Of the valuation allowance, $73.4 million relates to domestic valuation allowance and the remainder of $1.0 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, 2024, we had the following income tax carryforwards (in millions):

	Amount		Expires in
Net operating loss carryforwards
U.S. federal	$	72.1	Indefinite
U.S. state	$	62.6	2028 - 2044
U.S. state	$	17.0	Indefinite
Capital loss carryforwards
U.S federal and state	$	101.4	2025 - 2029
Income tax credit carryforwards
U.S. federal	$	0.5	2043 - 2044
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,
	2024		2023
Balance at beginning of period	$	1,707	$	1,782
Additions for tax positions taken in prior years	363		—
Reductions for tax positions taken in prior years	(4)		(26)
Additions for tax positions related to the current year	7		59
Other	—		(108)
Balance at end of period	$	2,073	$	1,707

As of March 31, 2024, of the $2.1 million of gross unrecognized tax benefits from uncertain tax positions outstanding, $1.9 million would affect our effective tax rate if recognized.

We recorded tax-related interest and penalty expense (benefit) of $0.3 million for 2024 and $(1.9) million for 2023. We had a cumulative liability for interest and penalties related to uncertain tax positions as of March 31, 2024 and 2023 of $0.6 million and $0.4 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, 2024, we believe it is reasonably likely that, within the next twelve months, $0.9 million of the previously unrecognized tax benefits will be recognized due to the expirations of the statutes of limitations.