Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Benefit for Income Taxes

The Company computes its tax provision (benefit) for interim periods by applying the estimated annual effective tax rate (“AETR”) to year-to-date income from operations and adjusting for discrete items arising in that quarter. However, if the Company is unable to make a reliable estimate of its AETR, then the actual effective tax rate for the year-to-date period may be the best estimate. For the three and nine months ended March 31, 2022, the Company computed its tax provision (benefit) using

the AETR approach. However, for the nine months ended March 31, 2023, the Company recorded the actual effective tax rate as it was determined that the AETR approach was not the most appropriate estimate to be applied to the year to date pretax (loss) income given small changes in the forecast of pre-tax (loss) income would result in significant changes in the AETR.

Income tax benefit was $24.2 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively, resulting in effective tax rates of 29.5% and 39.9%, respectively. Our income tax benefit was higher in the three months ended March 31, 2023 due to the current year’s change in the Company’s approach to computing its tax provision (benefit) for the interim periods to the actual effective tax rate method.

Benefit for income taxes was $68.1 million and $7.4 million for the nine months ended March 31, 2023 and 2022, respectively, resulting in effective tax rates of 33.5% and 32.7%, respectively. Income tax benefit increased due to the higher Foreign-Derived Intangible Income (“FDII”) deduction recorded in the current period as a result of non-deductible amortization of intangibles, capitalized R&D costs, and a change in the accounting methodology related to historical revenue recognition for tax purposes on multi-year software license agreements. The change resulted in the recognition of taxable income over a four-tax year period with fiscal year 2024 as the last year of the adjustment.