Income Taxes

12 Months Ended

May 31, 2024

Income Taxes

9. Income Taxes

Income before income taxes by source consists of the following amounts:

	Year Ended May 31,
	2024			2023			2022
U.S.	$	(92,161	)	$	(85,681	)	$	38,554
Foreign		77,856			63,639			21,653
	$	(14,305	)	$	(22,042	)	$	60,207

The provision for income taxes consists of the following:

	Year Ended May 31,
	2024			2023			2022
Current
Domestic
Federal	$	6,800		$	8,674		$	8,579
Change in tax-related uncertainties		1,896			278			3
State		1,495			1,616			2,406
Foreign		14,413			9,490			5,140
Total Current		24,604			20,058			16,128
Deferred
Domestic
Federal		(22,457	)		(17,406	)		(3,721	)
State		(4,881	)		(1,865	)		(356	)
Foreign		(2,150	)		41			(151	)
Total Deferred		(29,488	)		(19,230	)		(4,228	)
Income tax (benefit) expense	$	(4,884	)	$	828		$	11,900

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:

	Year Ended May 31 ,
	2024			2023			2022
Tax at U.S. statutory rate	$	(3,004	)	$	(4,629	)	$	12,643
Permanent differences		273			325			179
Global intangible low-taxed income (GILTI)		7,082			6,482			1,501
Foreign derived intangible income deduction (FDII)		(376	)		(643	)		(1,308	)
Foreign rate differential		(3,951	)		(3,742	)		215
Subpart F income		1,178			152			397
Tax-effect from stock-based compensation		2,256			1,946			(462	)
Provision for state income taxes, net of federal benefit		(2,693	)		18			1,517
Non-deductible acquisition expenses		—			7,187			—
Tax credits		(7,739	)		(6,709	)		(2,527	)
Impact of tax rate changes		—			—			583
Change in tax-related uncertainties		1,896			278			3
Changes in valuation allowances		(534	)		355			85
Research expenditures deduction		(293	)		(365	)		(112	)
Other		1,021			173			(814	)
Income tax (benefit) expense	$	(4,884	)	$	828		$	11,900

Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $7,124, $5,324, and $1,747 in fiscal years 2024, 2023, and 2022, respectively. The Company’s research and development credits were $615, $1,385, and $780 in fiscal years 2024, 2023, and 2022, respectively.

Deferred income taxes reflect the 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 our deferred income tax liabilities and assets are as follows:

	Year Ended May 31,
	2024			2023
Deferred income tax liabilities
Indefinite and long-lived assets	$	(356,971	)	$	(369,500	)
Right of use asset		(3,673	)		(1,834	)
Prepaid expenses		(1,401	)		(1,480	)
		(362,045	)		(372,814	)
Deferred income tax assets
Interest expense not currently deductible		13,994			5,782
Research and experimentation capitalization		7,230			5,868
Stock options		2,228			2,192
Inventories and accounts receivable		5,597			3,219
Tax loss carryforwards		5,580			3,909
Lease liability		3,841			1,899
Accrued expenses and other		2,171			1,981
		40,641			24,850
Valuation allowance		(1,526	)		(2,110	)
Net deferred income tax liabilities	$	(322,930	)	$	(350,074	)
Net deferred income tax assets (jurisdictional) - other non-current assets	$	3,788		$	3,353
Net deferred income tax liabilities (jurisdictional)		(326,718	)		(353,427	)
Net deferred income tax liabilities	$	(322,930	)	$	(350,074	)

The Company has the following net operating loss carryforwards:

	As of May 31, 2024		Expiry
U.S.	$	155	2038
Foreign		18,068	2025 to Indefinite
	$	18,223

Valuation allowances against certain deferred tax assets are established based on management’s determination of a more likely than not standard that the tax benefits will not be realized. Management evaluates all available evidence, both positive and negative, when determining the need for a valuation allowance. Valuation allowances related to net operating losses are primarily evaluated based on evidence (or lack thereof) of historical and future earnings. Valuation allowances related to long-lived assets primarily are evaluated based on management’s tax planning and intentions for underlying assets.

We are subject to income taxes in the U.S. (federal and state) and in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company’s policy is to recognize both accrued interest expense and penalties related to unrecognized tax benefits in income tax expense. The amount of interest and penalties included in the unrecognized tax benefits reserve was $246 at May 31, 2024, $145 at May 31, 2023, and $69 at May 31, 2022. Of the total unrecognized tax benefits at May 31, 2024 and 2023, $2,739 and $1,087, respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate.

The reconciliation of our unrecognized tax benefits is as follows:

	Year Ended May 31,
	2024			2023			2022
Beginning balance	$	946		$	741		$	764
Increase/(decrease) related to prior periods		(47	)		2			(75	)
Increase related to current period		2,004			479			147
Lapses of applicable statute of limitations		(164	)		(276	)		(95	)
Ending balance	$	2,739		$	946		$	741

The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 2020 and preceding years.

As of May 31, 2024, the Company has approximately $221,707 of undistributed earnings in its foreign subsidiaries. Approximately $88,746 of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the US is insignificant. The Company has not provided deferred taxes on approximately $132,961 of undistributed earnings from non-U.S. subsidiaries as of May 31, 2024 which are indefinitely reinvested in operations. Based on historical experience, as well as management’s future plans, earnings from these subsidiaries will continue to be re-invested indefinitely for future expansion and working capital needs. On an annual basis, we evaluate the current business environment and whether any new events or other external changes might require future evaluation of the decision to indefinitely re-invest these foreign earnings. It is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.