Income Taxes

12 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 14. Income Taxes

Income (loss) before provision for income taxes on the accompanying statements of operations and comprehensive loss included the following components (in thousands):

	Years Ended June 30,
	2022			2021			2020
Domestic	$	(14,092	)	$	(8,448	)	$	(1,811	)
Foreign		12,090			3,889			7,501
Total worldwide	$	(2,002	)	$	(4,559	)	$	5,690

The provision for income taxes consisted of the following (in thousands):

	Years Ended June 30,
	2022		2021			2020
Current:
Federal	$	—	$	—		$	—
State		25		17			15
Foreign		1,535		1,849			1,495
Total current	$	1,560	$	1,866		$	1,510
Deferred:
Federal		—		—			—
State		—		—			—
Foreign		1,785		(114	)		353
Total deferred		1,785		(114	)		353
Total provision for income taxes	$	3,345	$	1,752		$	1,863

A reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying consolidated statements of operations and comprehensive loss is as follows (in thousands):

	Years Ended June 30,
	2022			2021			2020
U.S. federal taxes (benefit):
At federal statutory rate	$	(420	)	$	(958	)	$	1,195
State tax, net of federal benefit		25			17			15
Share-based compensation expense		592			879			810
Debt extinguishment		—			898			—
Other non-deductible permanent items		252			155			418
R&D credits		(415	)		(1,278	)		(635	)
Foreign taxes		(948	)		918			273
Other		(97	)		(57	)		(69	)
Deferred Tax on foreign earnings		1,730			—			—
Global Intangible Low-Taxed Income		2,124			243			1,185
Change in valuation allowance		502			935			(1,329	)
Total	$	3,345		$	1,752		$	1,863

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets (liabilities) were as follows (in thousands):

	June 30,
	2022			2021
Deferred tax assets:
Federal and state net operating losses	$	75,450		$	75,033
Accrued expenses and reserves		7,359			6,597
Lease liability		3,037			4,258
Deferred revenue		5,505			5,093
R&D Credits		25,146			24,340
Share-based compensation expense		1,406			1,096
Capitalized research and development		1,440			2,088
Unicap		489			1,827
Fixed assets/intangibles		956			1,055
Section 163(j) interest		2,350			1,817
Other		228			1,082
Total deferred tax assets		123,366			124,286
Deferred tax liabilities:
Contract acquisition costs		(1,521	)		(1,174	)
Right of use assets		(2,517	)		(3,533	)
Debt		—			(5,612	)
Deferred tax on foreign earnings		(1,730	)		—
Total deferred tax liabilities		(5,768	)		(10,319	)
Valuation allowance		(119,115	)		(113,476	)
Net deferred tax assets (liabilities)	$	(1,517	)	$	491

As of June 30, 2022, the Company had approximately $324.0 million and $131.1 million in federal and state net operating loss carryforwards, respectively. The federal and state carryforwards expire in varying amounts beginning in 2025 for federal and 2023 for state purposes.

In addition, as of June 30, 2022, the Company had federal and state research and development tax credits of approximately $25.5 million and $22.1 million, respectively. If not utilized, the federal research credits will begin to expire in 2023, the California research credits have no expiration date and the other state research credits will begin to expire in 2023.

Under the Internal Revenue Code ("IRC") Sections 382 and 383, annual use of our net operating loss and research tax credit carryforwards to offset taxable income may be limited based on cumulative changes in ownership. Although ownership changes have occurred in the prior years, the carryovers should be available for utilization by the Company before they expire, provided the Company generates sufficient future taxable income. During the current period, an analysis of the impact of this provision through March 31, 2022 has been performed and it was determined that no ownership change has occurred after December 2009.

Based on the available objective evidence and history of losses, the Company has established a 100% valuation allowance against its combined domestic net deferred tax assets because of uncertainty surrounding the realization of such deferred tax assets.

Beginning fiscal year 2019, for U.S. federal tax purposes, certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC’s U.S. shareholder. The income required to be included in gross income is referred to as global intangible low tax income (“GILTI”) and is defined under IRC Section 951A as the excess of the shareholder’s net CFC tested income over the net deemed tangible income return. The GILTI inclusion amount has been absorbed by net operating losses. The Company has made a policy decision to record GILTI tax as a current-period expense when incurred.

The recorded income tax expense for fiscal year 2022 includes $1.7 million of Swiss withholding tax expected to be paid on the remittance of unrepatriated distributable reserves in France, Japan and Switzerland. At June 30, 2022, we have undistributed earnings of certain foreign subsidiaries of approximately $18.1 million that we have indefinitely invested, and on which we have not recognized deferred taxes.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):

	Years Ended June 30,
	2022			2021			2020
Balance at beginning of year	$	18,765		$	16,996		$	16,280
Tax positions related to current year:
Additions		1,222			1,433			954
Tax positions related to prior years:
Additions		61			786			286
Reductions		(238	)		(450	)		(524	)
Balance at end of year	$	19,810		$	18,765		$	16,996

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company’s tax positions with respect to legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business. The reduction in prior year's tax positions primarily relates to lapses of applicable statutes of limitations. The Company anticipates there will be no material changes in uncertain tax positions in the next 12 months. As of June 30, 2022, the amount of gross unrecognized tax benefits was $19.8 million of which $19.6 million would not affect income tax expense before consideration of any valuation allowance.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2022 and 2021, the Company had approximately $0.06 million and $0.05 million, respectively, of cumulative accrued interest and penalties related to uncertain tax positions.

The Company files income tax returns in the United States federal, various states, and foreign jurisdictions. Due to tax attributes being carried forward and utilized during open years, the statute of limitations remains open for the U.S. federal jurisdiction and domestic states for tax years from 2002 and forward. The statutes of limitation with

respect to the foreign jurisdictions where the Company files income tax returns vary from jurisdiction to jurisdiction and range from 3 to 10 years and the material foreign jurisdictions are France, Switzerland and Japan.

The Company is also subject to examination of its income tax returns by the Internal Revenue Service (IRS) and other foreign tax authorities, and in some cases the Company has received additional tax assessments which have not been significant. Currently, the Company is under the early stages of audit by the Japanese tax authorities for the fiscal periods 2019, 2020 and 2021.