Income Taxes

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income before income taxes includes the following components:

	2023		2022		2021
United States	21,938		1,996		3,910
Foreign	18,388		17,383		11,243
Total	$	40,326	$	19,379	$	15,153

The major components of the provision for income tax expense (benefit) are as follows:

	June 30, 2023		June 30, 2022		June 30, 2021
Current tax expense:
Federal	$	385	$	—	$	1,350
State	487		647		1,051
Foreign	3,467		2,575		1,555
Total current expense	$	4,339	$	3,222	$	3,956
Deferred tax:
Federal	4,019		(3,759)		(1,036)
State	843		(1,025)		(717)
Foreign	(457)		(515)		(139)
Total deferred expense (benefit)	$	4,405	$	(5,299)	$	(1,892)
Provision for income tax expense (benefit)	$	8,744	$	(2,077)	$	2,064

The Company’s income tax provision includes the results of the Company’s U.S. operations and its various foreign operations including subsidiaries based in the United Kingdom, European Union, Canada, Jamaica, Nicaragua, Pakistan, Senegal, Honduras, and the Philippines. The Company’s Bermuda-based companies are not subject to income tax as there is no corporate income tax in Bermuda.

Differences between U.S. federal statutory income tax rates and our effective tax rates for the years ended June 30, 2023, 2022, and 2021 are as follows:

	June 30, 2023		June 30, 2022		June 30, 2021
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal deduction	1.4	%	3.0	%	7.5	%
Foreign rate differential	(5.7)	%	(8.6)	%	(13.5)	%
Non-deductible expenses / exempt income	1.2	%	1.5	%	1.7	%
Employment and other tax credits	(2.9)	%	(7.7)	%	(6.4)	%
Prior year provision / other items	3.1	%	0.4	%	1.8	%
Unrecognized losses utilized during the year	—	%	(0.7)	%	—	%
Change in valuation allowance	3.6	%	(19.6)	%	1.5	%
Effective tax rate percentage	21.7	%	(10.7)	%	13.6	%

We have been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of Nicaragua, Pakistan, and certain qualifying locations in the Philippines. Generally, a Tax Holiday is an agreement between us and a foreign government under which we receive certain tax benefits in that country. In Pakistan, we have been granted approval for an indefinite exemption from income taxes on all exported IT services. In Nicaragua, we have been granted approval of exemption from income taxes until 2025, which can be extended for another 10 years upon application. The Tax Holidays for our qualifying Philippines facilities expire at staggered dates through 2031. Our Tax Holidays could be eliminated if there are future changes in our operations or the governmental authorities approve legislation to modify the Tax Holidays in the various taxing jurisdictions. The aggregate reduction in income tax expense due to the above Tax Holidays was $3.4 million, $2.7 million, and $0.8 million and for the years ended June 30, 2023, 2022, and 2021, respectively. The aggregate reduction in income tax expense per diluted share was $0.18, $0.15, and $0.04 for the years ended June 30, 2023, 2022, and 2021, respectively.

Significant components of deferred tax assets and liabilities included in the consolidated balance sheets are as follows:

	June 30, 2023		June 30, 2022
Deferred tax assets
Provision for doubtful accounts	$	99	$	74
Provision for employee benefits and other expenses	755		1,147
Tax credit carryforwards	2,427		2,454
Section 174 research and development capitalization	589		—
Net operating losses	2,394		8,748
Property and equipment, net	534		264
Intangible assets	3		—
Lease liability (right of use assets)	6,546		7,392
Net unrealized loss on hedging	56		218
Total deferred tax assets	$	13,403	$	20,297
Valuation allowance	(1,463)		(2,942)
Total deferred tax assets, net of valuation allowance	$	11,940	$	17,355
Deferred tax liabilities
Property and equipment, net	(732)		(507)
Right of use assets	(5,440)		(6,374)
Intangible assets	(1,184)		(1,199)
Total deferred tax liabilities	$	(7,356)	$	(8,080)
Net deferred tax assets and liabilities	$	4,584	$	9,275

The Company had U.S. gross federal net operating loss carry forwards of zero and $18.9 million, as of June 30, 2023 and 2022, respectively, and gross state net operating loss carry forwards of approximately $15.1 million and $32.2 million, as of June 30, 2023 and 2022, respectively, which may be available to offset state income tax liabilities in the future. The state net operating losses will expire based on each state income tax laws. The Company’s Canadian subsidiary has net operating loss carry forward of $2.1 million and $2.2 million as of June 30, 2023 and 2022, respectively, which will begin to expire in 2028. The Company’s UK and European subsidiaries have net operating loss carry forward of $3.4 million and $6.5 million, as of June 30, 2023 and 2022, respectively, which can be carried forward indefinitely. These amounts are estimated amounts for the year ended June 30, 2023, and based on the income tax returns filed for the year ended June 30, 2022.

The Company assesses the available positive and negative evidence whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

On the basis of this evaluation, valuation allowances of $1.5 million and $2.9 million have been recorded as of June 30, 2023 and 2022, respectively, to recognize only the portion of the Company’s deferred tax assets that are expected to be realized in certain foreign taxing jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present.

We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration or not subject to taxation in the U.S. or in the local country.

The Company is subject to income tax in several jurisdictions and significant judgment is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Company recognizes tax

liabilities based on estimates of whether additional taxes and interest will be due. There are no material uncertain tax treatments that would require adjustment to income tax expense.

Under accounting standards for uncertainty in income taxes (ASC 740-10), a company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

There were no unrecognized tax benefits in the years ended June 30, 2023, 2022, and 2021 that, if recognized, would affect the Company’s effective tax rate. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense/(benefit). We have not recorded any interest expense or penalties in income tax expense for the years ended June 30, 2023, 2022 and 2021. We do not have any interest or penalties accrued as of June 30, 2023 and 2022.

We file numerous consolidated and separate income tax returns in the U.S. federal and various state jurisdictions as well as in various foreign jurisdictions. Our U.S. federal returns and most state returns for tax years 2019 and forward are subject to examination. Tax return filings in the United Kingdom for the year ended June 2019 and onward are still open for examination. Tax return filings in Canada for the year ended June 2020 and onward are still open for examination. Tax return filings in Luxembourg for the year ended June 2018 and onward are still open for examination as well as Cyprus tax returns for their tax years ending June 2017.