Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
 12 Months Ended
Mar. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of the Company’s income tax provision (benefit) attributable to operations are as follows:
Year ended March 31,
2023 2022 2021
Current:
U.S. federal $ (38) $ 236  $ — 
State and local 637  703  204 
Non-U.S. 10,313  7,439  38 
10,912  8,378  242 
Deferred:
U.S. federal 3,026  1,485  (13,185)
State and local (3,430) (1,350) (204)
Non-U.S. (5,362) (110) 120 
(5,766) 25  (13,269)
Income tax provision (benefit) $ 5,146  $ 8,403  $ (13,027)
(Loss) income before income taxes included (loss) income from domestic operations of $(6,801), $6,504, and $44,800 for the years ended March 31, 2023, 2022, and 2021, respectively, and income (loss) from foreign operations of $28,817, $37,468 and $(2,943) for the years ended March 31, 2023, 2022, and 2021, respectively.
A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision (benefit) follows:
Year ended March 31,
2023 2022 2021
Statutory federal income taxes $ 4,650  $ 9,256  $ 8,819 
State income taxes, net of federal benefit 77  938  (1,284)
State rate remeasurement (2,992) —  — 
Non-deductible expenses 67  2,891  926 
Disallowed executive compensation 1,070  —  — 
Excess deductions for stock compensation 1,167  (9,946) (16,523)
Foreign income inclusion, net 3,926  —  — 
Foreign rate differential (2,682) (1,554) — 
Change in Mobile Posse earn-out —  —  3,238 
Change in Fyber earn-out —  10,500  — 
Change in AdColony earn-out —  (1,872) — 
Research and development tax credit (3,000) —  — 
Change in uncertain tax liability 600  52  591 
Change in valuation allowance 6,500  (1,503) (11,223)
Return-to-provision adjustments (4,237) (454) 2,243 
Other miscellaneous —  95  186 
Income tax provision (benefit) $ 5,146  $ 8,403  $ (13,027)

The Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily as a result of nondeductible executive compensation and transaction costs, tax deductions in excess of book for stock compensation, nondeductible changes in stock acquisition earn-outs, and state income taxes.
ASC 740 requires the consideration of a valuation allowance, on a jurisdictional basis, to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. A net tax expense of $6,500 was realized in the fiscal year ended March 31, 2023, as a result of changes in the valuation allowance. A valuation allowance of $25,921 is recorded against deferred tax assets as of March 31, 2023, related to non-U.S. locations with a history of losses.
A net tax benefit of $1,503 was realized in the fiscal year ended March 31, 2022, as a result of changes in the valuation allowance. An increase in the valuation allowance of $16,130 was recorded through acquisition accounting related to German deferred tax assets of Fyber that are not considered more likely than not realizable. A valuation allowance of $19,914 was recorded against deferred tax assets as of March 31, 2022, related to non-U.S. locations with a history of losses.
The 2017 tax reform act amended the Internal Revenue Code (“Code”), effective for amounts paid or incurred in tax years beginning after December 31, 2021, to eliminate the immediate expensing of research and experimental expenditures (“R&E”) and to require taxpayers to charge their R&E expenditures and software development costs (collectively, R&E expenditures) to a capital account. Capitalized costs are required to be amortized over five years (15 years for expenditures attributable to foreign research). Additionally, the R&E credit may only be claimed for costs that are eligible to be treated as R&E expenditures under the Code. At March 31, 2023, the Company has charged a total of $44.1 million of R&E expenditures and software development costs to a capital account and has recorded tax amortization of $3.8 million on such costs to date.
The Inflation Reduction Act (“IRA”) was signed into law in August 2022. The Company has evaluated the provisions of the IRA and does not expect any material impact to its consolidated provision for income taxes.
Deferred income tax assets and liabilities consist of the following:
Year ended March 31,
2023 2022 2021
Deferred income tax assets
Net operating loss carry-forward $ 63,660  $ 76,219  $ 25,630 
Stock-based compensation 7,009  3,765  1,675 
Accrued compensation 1,562  3,724  1,968 
Capitalized research and experimentation expenses 4,965  —  — 
Other 1,366  1,700  1,919 
Gross deferred income tax assets 78,562  85,408  31,192 
Valuation allowance (25,921) (19,914) (5,287)
Net deferred income tax assets 52,641  65,494  25,905 
Deferred income tax liabilities
Depreciation and amortization (2,063) (5,795) (2,627)
Intangibles and goodwill (64,518) (79,675) (10,315)
Net deferred income tax assets (liabilities) $ (13,940) $ (19,976) $ 12,963 
The following details the scheduled expiration dates of the Company’s net operating loss (NOL) carryforwards:
2024 Through 2033 2034 Through 2043 Indefinite Total
U.S. federal NOLs $ —  $ 45,741  $ 49,828  $ 95,569 
State taxing jurisdictions NOLs 6,487  103,636  1,395  111,518 
Non-U.S. NOLs —  —  128,683  128,683 
Total, net $ 6,487  $ 149,377  $ 179,906  $ 335,770 
The Company’s income is subject to taxation in both the U.S. and foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company establishes liabilities for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities for tax contingencies are established when the Company believes that a tax position is not more likely than not sustainable. The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of uncertain tax liabilities and changes in liabilities that are considered appropriate.
The Company has not provided for deferred taxes on approximately $30,408 of undistributed earnings from foreign subsidiaries as of March 31, 2023. The Company has not provided for any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax, or foreign exchange gain or loss that would be due when cash is repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional taxes. Because of the various avenues to repatriate the earnings, the determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings, if eventually remitted, is not practicable.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended March 31, 2023, 2022, and 2021, is as follows:
Year ended March 31,
  2023 2022 2021
Balance at April 1 $ 1,424  $ 1,372  $ 787 
Additions for tax positions of prior years 600  52  585 
Reductions for tax positions of prior years —  —  — 
Balance at March 31 $ 2,024  $ 1,424  $ 1,372 
Included in the net deferred income tax assets (liabilities) balances at March 31, 2023, 2022, and 2021, on our consolidated balance sheets are $2,024, $1,424, and $1,372, respectively, of unrecognized tax benefits, which would affect the annual effective tax rate if recognized. The Company recognized $44, $59, and $23 for interest and penalties on uncertain income tax liabilities in income tax expense for the years ended March 31, 2023, 2022, and 2021, respectively. The Company does not expect the amount of unrecognized tax benefits to change significantly in the next twelve months.
The Company’s U.S. federal, state, and foreign income tax returns generally remain subject to examination for the tax years ended 2018 through 2023.