Income Taxes

6 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Valuation Allowances. The Company had valuation allowances of $25.1 million and $10.3 million as of December 31, 2019 and June 30, 2019, respectively, because the Company has concluded it is more likely than not that it will be unable to utilize net operating and capital loss carryforwards of certain subsidiaries to offset future taxable earnings. As of each reporting date, the Company’s management considers new evidence, both positive and negative, which could impact management’s view with regard to future realization of deferred tax assets. During three months ended December 31, 2019, the valuation allowance balance increase of $14.8 million is related to the capital gain the Company previously expected to recognize in conjunction with the sale of the assets of the Digital Marketing Business which are classified as held for sale in the fourth quarter of fiscal 2019. In the second quarter of fiscal 2020, the expected fair value of the asset group decreased and the mix of assets to be sold changed. As a result, a capital gain is no longer expected to be recognized.

Unrecognized Income Tax Benefits. As of December 31, 2019 and June 30, 2019, the Company had unrecognized income tax benefits of $8.5 million and $7.8 million, respectively, of which $7.7 million and $7.0 million, respectively, would impact the effective tax rate if recognized. During the six months ended December 31, 2019, the Company increased its unrecognized income tax benefits related to current tax positions by $0.7 million based on information that indicates the extent to which certain tax positions are more likely than not of being sustained.

Provision for Income Taxes. The effective tax rate for the three months ended December 31, 2019 and 2018 was 38.2% and 24.8%, respectively. The effective tax rate for the three months ended December 31, 2019 was impacted by $14.8 million of tax expense from the increase in valuation allowance associated with a deferred tax asset for a capital loss carryforward which the Company does not expect to utilize and $0.1 million excess tax benefit from stock-based compensation. The effective tax rate for the three months ended December 31, 2018 was impacted by $1.2 million excess tax expense from stock-based compensation. The effective tax rate increase from December 31, 2018 to December 31, 2019 is also impacted by the mix of earnings by jurisdiction.

The effective tax rate for the six months ended December 31, 2019 and 2018 was 31.7% and 26.6%, respectively. The effective tax rate for the six months ended December 31, 2019 was impacted by $14.8 million of tax expense from the increase in valuation allowance as discussed above, $1.2 million of one-time tax benefit resulting from an adjustment of an accrual for foreign withholding taxes related to undistributed earnings as a result of the Tax Cuts and Job Act ("Tax Reform Act"), and $0.7 million excess tax expense from stock-based compensation. The effective tax rate for the six months ended December 31, 2018 was impacted by an estimated one-time tax expense of $3.4 million from a revaluation of deferred tax assets associated with executive compensation as a result of the Tax Reform Act and $0.7 million of excess tax benefits from stock-based compensation.