Income Taxes

9 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

In determining its interim provision for income taxes, the Company used an estimated annual effective tax rate, which is based on expected income before taxes, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the period in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company records valuation allowances against its deferred tax assets based on whether it is more likely than not that the deferred tax assets will be realized.

The Company’s income tax provision includes the results of the Company’s U.S. operations and its various foreign operations including subsidiaries based in the United Kingdom, European Union, Canada, Jamaica, Nicaragua, Pakistan, Senegal, Honduras, and the Philippines. Historically, the Company’s Bermuda-based companies are not subject to income tax as there was no corporate income tax in Bermuda. On December 27, 2023 the Bermuda Corporate Income Tax Act 2023 was passed which provides for a 15% corporate tax rate beginning on or after January 1, 2025 for companies with revenue in excess of 750 million Euros. The Company is evaluating the impact of this legislation, but it does not anticipate that it will have a material impact on the Company’s operations.

The Company recorded provision for income taxes of $1.3 million and $3.9 million in the three and nine months ended March 31, 2024, respectively. The effective tax rate was 11.0% and 14.2% for the three and nine months ended March 31, 2024, respectively. The Company recorded provision for income taxes of $1.9 million and $4.9 million in the three and nine months ended March 31, 2023, respectively. The effective tax rate was 14.2% and 15.4% for the three and nine months ended March 31, 2023, respectively. The changes in effective tax rates between these periods was primarily attributable to changes in revenue mix across our taxable jurisdictions and discrete items recorded in the quarter.

The difference between the effective tax rate and the 21% federal statutory rate in the three and nine months ended March 31, 2024 was primarily due to "Tax Holidays" in certain countries in which we operate and the distribution of taxable income in countries with differing tax rates. We have been granted Tax Holidays as an incentive to attract foreign investment by the governments of Nicaragua, Pakistan, Honduras, Jamaica, and certain qualifying locations in the Philippines. Generally, a Tax Holiday is an agreement between us and a foreign government under which we receive certain tax benefits in that country.

The aggregate reduction in income tax expense due to the above Tax Holidays were $0.8 million and $3.4 million for the three and nine months ended March 31, 2024, respectively. The aggregate reduction in income tax expense per diluted share was $0.04 and $0.18 for the three and nine months ended March 31, 2024, respectively. The aggregate reduction in income tax expense due to the above Tax Holidays were $1.0 million and $2.8 million for the three and nine months ended March 31, 2023, respectively. The aggregate reduction in income tax expense per diluted share was $0.05 and $0.15 for the three and nine months ended March 31, 2023, respectively.

As of March 31, 2024, we had no unrecognized tax positions and do not expect changes to our uncertain tax positions within the next 12 months.

In April 2024, one of our foreign jurisdictions received an assessment relating to a fiscal year 2020 audit. Based on the Company's analysis, we have not recorded any of the assessment amount as an unrecognized tax benefit liability as management has determined that the entire amount is contestable and subject to dispute. Management is challenging the assessment.