Income Taxes

9 Months Ended

Nov. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

(12) Income Taxes

The Company’s provision for income taxes consists of federal, foreign and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year.  At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. The authoritative guidance for accounting for income taxes allows use of the year-to-date effective tax rate (the “discrete method”) when a reliable estimate of the estimated annual effective tax rate cannot be made. During the interim period ended August 31, 2019, the Company determined the use of the discrete method for U.S. operations is more appropriate than the annual effective tax rate method due to sensitivity to small changes to projected pre-tax earnings, which resulted in significant variations in the customary relationship between income tax expense and pretax income. As such, the Company has estimated a foreign effective tax rate and applied that to its foreign year to date results and has discretely calculated the U.S. tax provision (benefit) based on pre-tax results through the three and nine months ended November 30, 2019.

For the three months ended November 30, 2019, the Company recorded an income tax provision of $2,720, which includes a discrete income tax provision of $1,035. The Company recorded a discrete tax provision of $1,153 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and a discrete income tax benefit of $118 primarily related to the reversal of uncertain tax provision liabilities as result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019. For the three months ended November 30, 2018, the Company recorded an income tax benefit of $4,078, which includes a discrete income tax benefit of $57, related primarily to the reversal of unrecognized tax benefits resulting from a lapse of the applicable statute of limitations, offset by an income tax provision related to the finalization of our federal, state and foreign tax filings during the quarter ended November 30, 2018.

The effective tax rates for the three months ended November 30, 2019 and 2018 were an income tax provision of 66.6% on pre-tax income of $4,087 and an income tax benefit of 62.8% on a pre-tax income of $6,491, respectively. The effective tax rate for the three months ended November 30, 2019 differs from the U.S. statutory rate of 21% primarily due to the calculation of the U.S. tax provision on a discrete basis, the U.S. taxation of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the three months ended November 30, 2018 differed from the statutory rate of 21% primarily due to the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. In addition, the valuation allowance increased for tax credits and loss jurisdictions for which a limited tax benefit can be recognized.

For the nine months ended November 30, 2019, the Company recorded an income tax provision of $1,190, which includes a discrete income tax benefit of $345. The Company recorded a discrete tax benefit of $50 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and a discrete income tax benefit of $295 primarily related to the reversal of uncertain tax provision liabilities as result of lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019. For the nine months ended November 30, 2018, the Company recorded an income tax provision of $3,147, which includes a discrete income tax benefit of $256, primarily related to the reversal of unrecognized tax benefits resulting from a lapse in the applicable statute of limitations, offset by an income tax provision related to the finalization of our federal, state and foreign tax filings during the quarter ended November 30, 2018.

The effective tax rates for the nine months ended November 30, 2019 and 2018 were an income tax provision of 17.1% on a pre-tax loss of $6,979 and an income tax provision of 27.8% on a pre-tax loss of $11,338, respectively. The effective tax rate for the nine months ended November 30, 2019 differs from the U.S. statutory rate of 21% primarily due to the calculation of the U.S. tax provision on a discrete basis, the U.S. taxation of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the nine months ended November 30, 2018 differed from the statutory rate of 21% primarily due to the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates.

At November 30, 2019, the Company had an uncertain tax position liability of $1,125, including interest and penalties. The unrecognized tax benefits include amounts related to various U.S. federal, state and local, and foreign tax issues.