Income Taxes

3 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

The following table compares our income tax expense and effective tax rates for the three months ended June 30, 2023 and 2023:

	Three Months Ended June 30,
(Dollars in thousands)	2023			2022
Income tax expense	$	352		$	398
Effective tax rate		18.5	%		11.6	%

For the three months ended June 30, 2023 and 2022, respectively, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions. Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first five years of operations, which included fiscal 2018 through fiscal 2022. The India subsidiary is subject to 50% of regular India income taxes during its second five years of operations, which includes fiscal 2023 through fiscal 2027.

We have recorded valuation allowances offsetting substantially all the Company’s deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances. Based on recent earnings and anticipated future earnings, we believe it is reasonably possible that during the year ending March 31, 2024, we will have sufficient positive evidence to conclude that a significant portion of our valuation allowances will no longer be needed. Releasing the valuation allowances would result in the recognition of certain deferred tax assets and significant income tax benefits. The exact timing and amount of the valuation allowance releases will depend on the level of profitability that we are able to achieve and our visibility into future results. Our recorded effective tax rate may increase in subsequent periods following a valuation release. Any valuation allowance release will not impact the amount of cash paid for income taxes.