Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

12.    Income Taxes

The components of the income tax provision (benefit) from continuing operations for the fiscal years are as follows (in thousands):

	Year Ended September 30,
	2021		2020		2019
Current income tax provision (benefit):
Federal	$	(14,247)	$	661	$	543
State		(867)		375		360
Foreign		15,484		3,721		3,045
Total current income tax provision		370		4,757		3,948
Deferred income tax provision (benefit):
Federal		(11,469)		(11,833)		(16,071)
State		(2,283)		(1,976)		(5,503)
Foreign		(6,718)		(4,878)		(5,204)
Total deferred income tax benefit		(20,470)		(18,687)		(26,778)
Income tax benefit	$	(20,100)	$	(13,930)	$	(22,830)

The components of income (loss) from continuing operations before income taxes for the fiscal years are as follows (in thousands):

	Year Ended September 30,
	2021		2020		2019
Domestic	$	(88,763)	$	(48,932)	$	(85,639)
Foreign		39,794		8,640		1,682
Income before income taxes	$	(48,969)	$	(40,292)	$	(83,957)

The differences between the income tax provision (benefit) on income (loss) from continuing operations and income taxes computed using the applicable U.S. statutory federal tax rates for the fiscal years ended September 30, 2021, 2020 and 2019 are as follows (in thousands):

	Year Ended September 30,
	2021		2020		2019
Income tax benefit computed at federal statutory rate	$	(10,284)	$	(8,461)	$	(17,631)
State income taxes, net of federal benefit		(1,005)		(1,557)		(3,856)
Foreign income taxed at different rates		(2,594)		(1,786)		(1,408)
Impact of investments in subsidiaries		7,128		289		(536)
Change in deferred tax asset valuation allowance		(3,247)		(2,514)		(1,834)
Impact of change in uncertain tax positions		(10,607)		1,144		720
Global intangible low taxed income, net of foreign tax credits		4,051		2,815		393
Impact of tax rate changes		165		(185)		(1,440)
Compensation		462		(2,302)		(165)
Tax credits		(4,050)		(676)		(689)
Merger costs		20		37		593
Other taxes		468		398		432
Transition tax and other true-ups		—		(520)		2,909
Research and development expense deduction		(730)		(547)		(447)
Other		123		(65)		129
Income tax provision (benefit)	$	(20,100)	$	(13,930)	$	(22,830)

The Company provided immaterial deferred income taxes, which includes all related income taxes and foreign withholding taxes on the outside basis differences of its held for sale foreign subsidiaries. The Company repatriated foreign cash during the fourth quarter from the subsidiaries included in the assets held for sale and incurred $4.1 million of tax expense, net of foreign tax credits. Any future repatriations are not expected to have a material impact to the Company. The deferred income taxes on the outside basis differences are not material because the path to disposal of these legal entities will primarily be treated as sales of assets.

The Company has not provided deferred income taxes on the outside basis differences of its foreign subsidiaries which are not held for sale and part of the continuing operations business. For continuing operations the Company maintains its general assertion of indefinite reinvestment as of September 30, 2021. The foreign earnings are expected to be reinvested in foreign operations and acquisitions. Unremitted foreign earnings total approximately $229 million. The Company did not calculate estimated deferred tax liabilities related to these earnings because such calculations would not be practicable due to the complexity of its hypothetical calculation. The taxes on these earnings would primarily consist of foreign withholding taxes and minimal U.S. state income taxes.

The significant components of the net deferred tax assets and liabilities as of September 30, 2021 and 2020 are as follows (in thousands):

	September 30,
	2021		2020
Accruals and reserves not currently deductible	$	17,272	$	15,761
Federal, state and foreign tax credits		4,350		5,627
Other assets		502		1,175
Equity compensation		5,872		4,115
Net operating loss carryforwards		9,693		12,583
Lease liabilities		12,958		6,508
Mergers		7,239		140
Deferred revenue		3,258		3,359
Inventory reserves and valuation		6,946		6,442
Deferred tax assets		68,090		55,710
Depreciation and intangible amortization		(50,181)		(53,474)
Right-of-use assets		(12,683)		(6,522)
Other liabilities		(1,883)		(464)
Deferred tax liabilities		(64,747)		(60,460)
Valuation allowance		(8,592)		(10,623)
Net deferred tax asset (liability)	$	(5,249)	$	(15,373)

Not included in the net deferred tax asset (liability) shown above are long-term assets held for sale of $3.2 million and long-term liabilities held for sale of $6.5 million as of September 30, 2021. Not included in the net deferred tax asset (liability) shown above are long-term assets held for sale of $1.1 million and long-term liabilities held for sale of $0.1 million as of September 30, 2020. The deferred tax assets on the balance sheets for September 30, 2021 and 2020 also include $2.3 million and $1.6 million deferred tax charge related to the company’s intercompany profit elimination, respectively.

ASC Topic 740 requires that all available evidence, both positive and negative, be considered in determining, based on the weight of that evidence, whether a valuation allowance is needed. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or the entire deferred tax asset. A cumulative loss in recent years is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.

The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and quarterly basis. The Company evaluates the profitability of each tax-paying component on a historic cumulative basis and a forward-looking basis in the course of performing this analysis.

After evaluating all the relevant positive and negative evidence, the Company reduced its valuation allowance against certain foreign net deferred tax assets resulting in a tax benefit of $2.0 million in fiscal year 2021. The Company continued to hold a U.S. valuation allowance related to the realizability of certain state tax credits and net operating loss carry-forwards. The Company also maintains valuation allowances against net deferred tax assets in certain foreign tax-paying components as of the end of fiscal year 2021.

As of September 30, 2021, the Company has federal, state and foreign net operating loss carry-forwards of approximately $2.3 million, $133.4 million and $19.6 million, respectively. The federal net operating loss carry-forwards expire at various dates through 2030.

As of September 30, 2021, the Company had federal research and development tax credit carry-forwards of $0.3 million. These credit carry-forwards will expire in 2041. The Company has federal foreign tax credit carry-forwards of $0.7 million. These credit carry-forwards will expire at various dates beginning in 2027 through 2031. The Company

also has $5.5 million of state credits which begin to expire in 2034, while some of these credits have an unlimited carryover period.

During the fiscal year 2018, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted in the United States, making significant tax law changes affecting the Company.

In accordance with international tax reform regulations, the Company recorded a toll charge in the United States. on its previously untaxed accumulated foreign earnings. The Company recorded a tax impact of $8.0 million, net of foreign tax credits, related to the toll charge during the fiscal year ended September 30, 2018. The Company completed final calculations in accordance with Staff Accounting Bulletin No.118 during the first quarter of fiscal year 2019 and recorded a reduction in the toll charge of $1.1 million. During the third quarter of fiscal year 2019, the U.S. government issued final regulations that clarified certain rules related to the toll charge that impacted fiscal year taxpayers. As a result of this clarification, the Company recorded an increase to the toll charge of $4.1 million. After all adjustments had been recorded, the Company realized a toll charge of $11.0 million, net of foreign tax credits.

The Company has performed studies to determine if there are any annual limitations on the federal net operating losses under the Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. As a result of these studies, the Company has determined that ownership changes have occurred primarily in connection with acquisitions when the Company has issued stock to the sellers, as well as ownership changes in the subsidiaries acquired by the Company. Certain limitations have been calculated, and the benefits of the net operating losses that will expire before utilization have not been recorded as deferred tax assets in the accompanying Consolidated Balance Sheets. Limitations on current year use of net operating loss carryovers have also been recorded in the tax provision.

The Company maintains liabilities for unrecognized tax benefits. These liabilities involve judgment and estimation, and they are monitored based on the best information available. A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the fiscal years ended September 30, 2021, 2020 and 2019 is as follows (in thousands):

	Total
Balance at September 30, 2018	$	2,655
Additions for tax positions in current year		873
Additions for tax positions in prior year		13,400
Reductions from lapses in statutes of limitations		(68)
Balance at September 30, 2019		16,860
Additions for tax positions in current year		448
Reductions from lapses in statutes of limitations		(586)
Balance at September 30, 2020		16,722
Reductions from lapses in statutes of limitations		(14,716)
Balance at September 30, 2021	$	2,006

All of the unrecognized tax benefits for the fiscal year ended September 30, 2021 would impact the effective tax rate if recognized. Not included in the September 30, 2021 balance shown above is a liability of $2.3 million which is presented as a long-term liability held for sale on the Company’s consolidated balance sheets. The Company recognizes interest related to unrecognized benefits as a component of the income tax provision (benefit), of which $1.1 million, $1.1 million and $1.1 million, respectively, was recognized for the fiscal years ended September 30, 2021, 2020 and 2019. In fiscal year 2019, the Company recorded $13.4 million of unrecognized tax benefits with the acquisition of GENEWIZ. All unrecognized tax benefits recorded with the acquisition of GENEWIZ were part of an indemnification agreement with the sellers. This unrecognized tax position was reversed in fiscal year 2021 due to the expiration of its statute of limitations. The corresponding indemnification asset was also written off during the year as a component of other expenses.

The Company is subject to U.S. federal, state, local and foreign income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the U.S. and international jurisdictions, with the earliest tax year being 2013. Based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company’s Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits and accrued interest on those benefits will be reduced by $0.4 million in the next 12 months due to statute of limitations expirations.