INCOME TAXES

12 Months Ended

Sep. 30, 2022

INCOME TAXES

INCOME TAXES

15.INCOME TAXES

The components of loss (income) before income taxes are presented below:

	2022		2021
(Loss) income before income taxes:
U.S.	$	(338,565)	$	6,119
Non-U.S.		(13,884)		—
Total (loss) income before income taxes	$	(352,449)	$	6,119

Significant components of our deferred tax assets and liabilities are as follows:

	As of September 30,
	2022		2021
Deferred tax assets:
Inventory	$	1,461	$	117
Allowance for credit losses		1,288		—
Accrued compensation and vacation		2,574		224
Accrued expenses and other		608		—
Domestic net operating loss carryforwards		8,837		5,277
Foreign net operating loss carryforwards		8,276		—
Foreign tax credit carryforwards		769		—
Unrealized foreign exchange		1,191		—
Goodwill		—		138
Stock compensation expense		2,999		501
Business Interest Limitation		3,137		226
Leases		130		94
Total deferred tax assets		31,270		6,577
Deferred tax liabilities:
Prepaid expenses		(483)		(126)
Accrued expenses and other		—		(926)
Accreted interest on convertible debt		(8,586)		—
Basis difference for property and equipment		(12,300)		(2,077)
Basis difference for intangible assets		(76,307)		(2,841)
Goodwill		(267)		—
Total deferred tax liabilities		(97,943)		(5,970)
Total net deferred tax assets (liabilities)		(66,673)		607
Valuation allowance for net deferred tax assets		(10,354)		(951)
Net deferred tax asset (liabilities)	$	(77,027)	$	(344)

Significant components of the provision (benefit) for income taxes are as follows as of the years ended September 30, 2022 and 2021:

	2022		2021
Current:
Federal	$	61	$	—
State and local		496		7
Foreign		1,674
Deferred:
Federal		(12,494)		(3,902)
State and local		(4,911)		(881)
Foreign		(13)
Income tax (benefit)	$	(15,187)	$	(4,776)

The effective income tax rate on continuing operations varied from the statutory federal income tax rate as follows:

	Fiscal Years Ended
	2022		2021
Federal statutory income tax rate	21.0	%	21.0	%
Increases (decreases):
State and local income taxes, net of Federal tax benefit, if applicable	2.6	%	0.1	%
Change in Tax Rates	0.6	%		%
Loss on Fair Value Remeasument of Embedded Derivative	(2.9)	%		%
Nondeductible Compensation	(1.0)	%		%
Other nondeductible expenses	(0.2)	%	(24.3)	%
Goodwill	(16.4)	%	3.3	%
Disregarded entities	0.6	%		%
Foreign rate differential	(0.4)	%		%
Valuation allowance changes from activity	0.1	%	3.3	%
Valuation allowance changes from acquisitions	0.3	%	(81.4)	%
Effective income tax rate	4.3	%	(78.0)	%

U.S. GAAP requires that valuation allowances should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. The Company assesses its deferred income taxes to determine if valuation allowances are required or should be adjusted. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company’s U.S. tax reporting group has a cumulative three-year loss. The reversal of a deferred tax liability cannot be determined or considered a source of income for valuation allowance purposes where an NOL in the reversal period is limited. Therefore, the result is a valuation allowance in excess of net deferred tax assets and a net credit balance. The valuation allowance related to the Company’s U.S. tax reporting group as of September 30, 2022 and 2021 was $0 and $951, respectively, and $10,354 for the foreign entities, as the Company does not believe that these deferred tax assets will be realized in the foreseeable future. The Company did not have a non-U.S. tax footprint until fiscal year 2022. Payments made in fiscal years 2022 and 2021 for income taxes, net of refunds, amounted to $479 and $8, respectively.

The Company’s non-U.S. subsidiaries’ cumulative undistributed earnings, projected as of September 30, 2022, are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or withholding taxes has been made in the accompanying consolidated financial statements. Further, a determination of the unrecognized deferred tax liability for the amount indefinitely reinvested is not practicable due to the complexities in the tax laws and assumptions we would have to make. As of November 5, 2021, with the acquisition of Envigo, the Company adopted an accounting policy regarding the treatment of taxes due on future inclusion of non-U.S. income in U.S. taxable

income under the Global Intangible Low-Taxed Income provisions as a current period expense when incurred. Therefore, no deferred tax related to these provisions has been recorded as of September 30, 2022.

At September 30, 2022, the Company had domestic net operating loss carryforwards for federal tax purposes of $28,731, of which $792 would expire in September 30, 2036 and approximately $27,939 may be carried forward indefinitely. State and local loss carryforwards total approximately $49,704. The majority expire from September 30, 2028 through 2041; however, approximately $14,535 may be carried forward indefinitely, as they relate to states conforming to the provisions of the Tax Cuts and Jobs Act which allowed for an indefinite carryforward period of losses generated after December 31, 2017. As a result of the current year acquisitions, the Company has not yet completed an Internal Revenue Code Section 382 study regarding certain limitations on the future usage of net operating losses. The Company had non-U.S. net operating loss carryforwards of $39,535, which have been fully offset by valuation allowance and an uncertain tax position. These losses may be carried forward indefinitely.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon regulatory examination based on the technical merits of the position. The amount of the benefit for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position. There have been no additional gross uncertain tax positions during fiscal 2022 based on any federal, state tax position. The Company’s only uncertain tax position, in a foreign jurisdiction, was derived from a business combination. The Company established an uncertain tax position of $1,861 in accordance with ASC 805-740 to directly offset acquired foreign net operating losses of $2,222 within the foreign net deferred tax liability.

The Company is no longer subject to U.S. Federal tax examinations for years before 2017 or state and local for years before 2016, with limited exceptions. For federal purposes, the tax attributes carried forward could be adjusted through the examination process and are subject to examination 3 years from the date of utilization.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, due to the coronavirus pandemic.  Among other things, the legislation provides tax relief for businesses. The Company received a PPP loan of $5,051 and applied for forgiveness of $4,851. The Company’s application for the forgiveness of the PPP loan in the amount of $4,851 was approved in July 2021.