Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.1
Income Taxes
 12 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision / (benefit) for income taxes by taxing jurisdiction was as follows:
Year ended March 31,
2021 2020 2019
Current state and local $ 204  $ 182  $ — 
Current non-U.S. 38  (55) (63)
Total current 242  127  (63)
Deferred U.S. federal (13,185) (7,928) — 
Deferred state and local (204) (2,624) — 
Deferred non-U.S. 120  50  532 
Total deferred (13,269) (10,502) 532 
Total income tax provision / (benefit) $ (13,027) $ (10,375) $ 469 
Income before income taxes included income / (loss) from domestic operations of $44,800, $3,800, and ($9,300) for the years ended March 31, 2021, 2020, and 2019, respectively, and income / (loss) from foreign operations of ($2,800), ($300), and $3,700 for the years ended March 31, 2021, 2020, and 2019, respectively.
A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:
Year ended March 31,
2021 2020 2019
Statutory federal income taxes $ 8,819  $ 741  $ (1,163)
State income taxes, net of federal benefit (1,284) 144  — 
Non-deductible expenses 926  272  1,097 
Change in warrant liability —  2,012  1,024 
Change in Mobile Posse earn-out 3,238  —  — 
Excess deductions for stock compensation (16,523) (1,384) (47)
Change in uncertain tax liability 591  32  (5)
Change in valuation allowance (11,223) (12,262) (2,422)
Return-to-provision adjustments 2,243  —  2,411 
Other miscellaneous 186  70  (426)
Income tax provision / (benefit) $ (13,027) $ (10,375) $ 469 
Fiscal year 2020 and 2019 amounts recast for immaterial differences to match reported financial statements.
The Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily as a result of changes in valuation allowance, tax deductions in excess of book for stock compensation, nondeductible changes in stock acquisition earn-out and warrant liabilities, 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. During the year ended March 31, 2021, the Company’s pre-tax income in the U.S. continued to increase such that the Company was no longer in a cumulative three-year loss position. Following the acquisition and integration of Mobile Posse, the Company was able to sustain this pre-tax income position throughout the full fiscal year. In the fourth quarter ended March 31, 2021, based on management’s assessment of this income trend following the integration of Mobile Posse, we determined that the U.S. deferred tax assets were more likely than not realizable based on expected future taxable income. A net tax benefit of $11,782 was realized in the fiscal year ended March 31, 2021 as a result of the release of the U.S. valuation allowance.
For the year ended March 31, 2021, an adjustment to prior period deferred tax balances for net operating losses and stock-based compensation was recorded, resulting in a reduction to deferred tax assets of $2,243. The majority of the adjustment was for the removal of the deferred tax asset for expired equity awards and adjustments to the net operating losses related to transfer pricing. A similar adjustment to net operating loss deferred assets was recorded in the year ended March 31, 2019, in the amount of $2,411, as a result of updates to transfer pricing studies.
As part of the stock acquisition of Mobile Posse on February 28, 2020, the Company recorded a net U.S. deferred tax liability of $10,552 on the opening balance sheet. The deferred tax liability primarily related to intangible assets recorded at fair market value for financial accounting compared to the carryover of historical tax basis. The acquired deferred tax liabilities represent a source of positive evidence with respect to the Company’s ability to realize deferred tax assets. In accordance with ASC 805-740-30-3, a change in the acquirer’s valuation allowance as a result of a business combination is recorded as a component of income tax expense. As a result of the business combination, the Company released $10,552 of valuation allowance as a component of income tax expense in the year ended March 31, 2020.
Deferred tax assets and liabilities consist of the following:
Year ended March 31,
2021 2020 2019
Deferred income tax assets
Net operating loss carry-forward $ 25,630  $ 21,913  $ 23,471 
Stock-based compensation 1,675  3,775  3,996 
Other 3,887  2,284  1,228 
Gross deferred income tax assets 31,192  27,972  28,695 
Valuation allowance (5,287) (15,977) (27,972)
Net deferred income tax assets 25,905  11,995  723 
Deferred income tax liabilities
Depreciation and amortization (2,627) (1,648) (678)
Intangibles and goodwill (10,315) (10,356) — 
Other —  —  (5)
Net deferred income tax assets / (liabilities) $ 12,963  $ (9) $ 40 
Fiscal year 2020 amounts recast for immaterial differences to match reported financial statements.
As of March 31, 2021, the Company had U.S. federal net operating loss (NOL) carryforwards of $87,341, state of approximately $35,722, Australia of approximately $6,399, and Israel of approximately $15,802. U.S. federal NOL of $77,902 and state NOLs expire between 2028 and 2037, and $9,439 of the U.S. federal NOL has an unlimited carryover period. Australia and Israel NOLs have unlimited carryover periods. Utilization of the NOLs in the U.S. are governed by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign limitations that place limitations on the amount of NOLs able to be utilized following ownership changes. Due to the accumulation of annual allowances as of March 31, 2021, the U.S. NOLs are no longer subject to limitation. A valuation allowance of $5,287 is recorded against deferred tax assets as of March 31, 2021, of which $3,272 relates to non-U.S. locations with a history of losses, $417 for U.S. federal deferred tax assets, and $1,598 for state NOL carryforwards.
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.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended March 31, 2021, 2020, and 2019 is as follows:
  2021 2020 2019
Balance at April 1 $ 787  $ 788  $ 838 
Additions for tax position of prior years 585  —  — 
Reductions for tax positions of prior years —  (1) (50)
Balance at March 31 $ 1,372  $ 787  $ 788 
Included in the net deferred tax assets balances at March 31, 2021, 2020, and 2019 on our Consolidated Balance Sheets are $1,372, $787, and $788, respectively, of unrecognized tax benefits, which would affect the annual effective tax rate if recognized. The Company recognized $23, $33, and $45 of expense for interest and penalties on uncertain income tax liabilities in income tax expense for the years ended March 31, 2021, 2020, and 2019, 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 2016 through 2021.