Income Taxes

12 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

For the year ended March 31, income before income taxes consisted of the following:

(In thousands)		2024		2023		2022
Income before income taxes
United States	$	12,492	$	14,526	$	1,598
Foreign		8,192		1,238		4,913
Total income before income taxes	$	20,684	$	15,764	$	6,511

For the year ended March 31, income tax expense (benefit) consisted of the following:

(In thousands)		2024			2023			2022
Income tax (benefit) provision
Current:
Federal	$	-		$	87		$	62
State and local		370			277			21
Foreign		1,884			1,070			853
Deferred:
Federal		(57,065	)		12			12
State and local		(8,131	)		77			7
Foreign		(2,569	)		(341	)		(922	)
Income tax (benefit) provision	$	(65,511	)	$	1,182		$	33

The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended March 31:

(In thousands)	2024			2023			2022
Income tax expense (benefit) at the U.S. Federal statutory rate	$	4,344		$	3,340		$	1,368
Expense (benefit) for state taxes		293			377			(65	)
Impact of foreign operations		(250	)		(78	)		(819	)
R&D credits		(3,540	)		—			—
Global intangible low-taxed income		1,471			101			971
Indefinite life assets		—			20			19
Intercompany gain		—			177			—
Rate change		(1,817	)		—			—
Change in valuation allowance		(65,023	)		(2,276	)		(2,623	)
Change in liability for unrecognized tax benefits		(1,044	)		24			25
Share-based compensation		(1,823	)		(241	)		(2,018	)
Deferred adjustments		1,927			(281	)		(260	)
Provision to return		(219	)		(31	)		3,438
Other		170			50			(3	)
Income tax (benefit) provision	$	(65,511	)	$	1,182		$	33

We have elected to account for global intangible low-taxed income (GILTI) inclusions in the period in which they are incurred.

The fiscal 2024 tax provision results primarily from the release of the valuation allowances against U.S. Federal and State deferred tax assets. The fiscal 2024 tax provision differs from the statutory rate primarily due to the release of the valuation allowances.

The fiscal 2023 tax provision results primarily from foreign tax expense and minimal expense from the U.S. The fiscal 2023 tax provision differs from the statutory rate primarily due to adjustments to deferred tax assets; offset by current year expense in foreign jurisdictions.

Deferred tax assets and liabilities as of March 31, are as follows:

(In thousands)	2024			2023
Deferred tax assets:
Accrued liabilities	$	10,135		$	8,748
Allowance for expected credit losses and doubtful accounts		154			132
Federal losses and credit carryforwards		28,588			36,912
Foreign losses and credit carryforwards		3,324			3,555
State losses and credit carryforwards		7,248			10,080
Deferred revenue		270			291
Capitalized research expenses		22,280			11,399
Property and equipment and software amortization		-			325
Operating lease liabilities		5,715			4,171
Goodwill and other intangible assets		(694	)		(536	)
Other		438			185
		77,458			75,262
Less: valuation allowance		(2,938	)		(67,928	)
Total		74,520			7,334
Deferred tax liabilities:
Operating lease right-of-use assets		(4,230	)		(3,153	)
Goodwill and other intangible assets		(3,274	)		(3,659	)
Other		(198	)		12
Total		(7,702	)		(6,800	)
Total deferred tax assets, net	$	66,818		$	534

At March 31, 2024, we had $78.5 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2033 to 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. Our Hong Kong, Canada, Singapore and the U.A.E. subsidiaries have $0.7 million, $0.1 million, $0.7 million and $0.1 million of net operating loss carryforwards, respectively. The losses for Hong Kong, Singapore and the U.A.E. can be carried forward indefinitely. Canada losses can be carried back three years and carried forward 20 years. 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 5 years of operations which included fiscal 2018 through fiscal 2022. The India subsidiary is then subject to 50% of regular India income taxes during the second five years of operations which includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $3.9 million as of March 31, 2024. The Company has paid minimum alternative taxes during the period of regular tax relief resulting in a credit of $1.8 million as of March 31, 2024.

At March 31, 2024 we also had $111.8 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2025 through 2043.

We have recorded valuation allowances offsetting certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. At March 31, 2024, the total valuation allowance against deferred tax assets of $2.9 million was comprised of $1.5 million for U.S. state deferred tax assets, and $1.4 million associated with deferred tax assets in Hong Kong, Singapore, and the U.A.E. 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 consider the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected earnings, and tax planning strategies in our assessment of positive and negative evidence supporting the likelihood of deferred tax asset realization. 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.

The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed earnings of foreign subsidiaries are permanently reinvested and totaled $30.1 million and $22.2 million as of March 31, 2024 and 2023, respectively. We made the determination of permanent reinvestment on the basis of sufficient evidence that demonstrates we will invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign expansion. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not practicable.

Uncertain tax positions as of March 31, are as follows:

(In thousands)	2024			2023		2022
Beginning gross unrecognized tax benefits	$	575		$	575	$	575
Decreases related to prior year tax positions		(575	)		—		—
Increases related to current year tax positions		562			—		—
Ending gross unrecognized tax benefits	$	562		$	575	$	575

We recognize interest accrued on any uncertain tax positions as a component of income tax expense. Penalties are recognized as a component of general and administrative expenses. For the year ended March 31, 2024, we reduced accrued interest and penalty by $0.6 million. We recognized interest and penalty expense of less than $0.1 million for the years ended March 31, 2023 and 2022. As of March 31, 2024, no interest or penalties were accrued. As of March 31, 2023, we had approximately $0.6 million of interest and penalties accrued in other non-current liabilities on our Consolidated Balance Sheets.

We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.

In the U.S. we file federal and state income tax returns where statutes of limitations generally range from three to five years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open from 2011 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2019 forward in certain state jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to seven years. Years beginning after 2017 are open for examination by certain foreign taxing authorities.