Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

11.    Income Taxes

The components of the income tax provision (benefit) from continuing operations for the fiscal years are as follows (in thousands):

	Year Ended September 30,
	2022		2021		2020
Current income tax provision (benefit):
Federal	$	(4,826)	$	(14,247)	$	661
State		607		(867)		375
Foreign		4,627		15,484		3,721
Total current income tax provision		408		370		4,757
Deferred income tax provision (benefit):
Federal		(815)		(11,469)		(11,833)
State		(180)		(2,283)		(1,976)
Foreign		1,937		(6,718)		(4,878)
Total deferred income tax provision (benefit)		942		(20,470)		(18,687)
Income tax provision (benefit)	$	1,350	$	(20,100)	$	(13,930)

The components of income (loss) from continuing operations before income taxes for the fiscal years are as follows (in thousands):

	Year Ended September 30,
	2022		2021		2020
Domestic	$	(39,392)	$	(88,763)	$	(48,932)
Foreign		29,456		39,794		8,640
Income before income taxes	$	(9,936)	$	(48,969)	$	(40,292)

The differences between the income tax provision (benefit) on income (loss) from continuing operations and income taxes computed using the applicable U.S. statutory federal tax rates for the fiscal years ended September 30, 2022, 2021 and 2020 are as follows (in thousands):

	Year Ended September 30,
	2022		2021		2020
Income tax benefit computed at federal statutory rate	$	(2,086)	$	(10,284)	$	(8,461)
State income taxes, net of federal benefit		(776)		(1,005)		(1,557)
Foreign income taxed at different rates		(1,182)		(2,594)		(1,786)
Impact of investments in subsidiaries		—		7,128		289
Change in deferred tax asset valuation allowance		1,337		(3,247)		(2,514)
Impact of change in uncertain tax positions		(358)		(10,607)		1,144
Global intangible low taxed income, net of foreign tax credits		4,060		4,051		2,815
Impact of tax rate changes		1,531		165		(185)
Compensation		(1,199)		462		(2,302)
Tax credits		(2,102)		(4,050)		(676)
Merger costs		1,629		20		37
Other non-deductible expenses		717		468		398
Other true-ups		763		—		(520)
Research and development expense deduction		(910)		(730)		(547)
Other		(74)		123		(65)
Income tax provision (benefit)	$	1,350	$	(20,100)	$	(13,930)

The Company has not provided deferred income taxes on the outside basis differences of its foreign subsidiaries which are not held for sale and part of the continuing operations business. For continuing operations the Company maintains its general assertion of indefinite reinvestment as of September 30, 2022. The foreign earnings are expected to be reinvested in foreign operations and acquisitions. Unremitted foreign earnings total approximately $1.3 billion. The Company did not calculate estimated deferred tax liabilities related to these earnings because such calculations would not be practicable due to the complexity of its hypothetical calculation. The taxes on these earnings would primarily consist of foreign withholding taxes, taxes on foreign exchange gains and losses resulting from potential future distributions, and minimal U.S. state income taxes. Substantially all of the unremitted earnings of the Company have been taxed in the U.S. based on the international tax regulations.

The significant components of the net deferred tax assets and liabilities as of September 30, 2022 and 2021 are as follows (in thousands):

	September 30,
	2022		2021
Accruals and reserves not currently deductible	$	9,704	$	17,272
Federal, state and foreign tax credits		—		4,350
Other assets		14		502
Equity compensation		3,508		5,872
Net operating loss carryforwards		7,397		9,693
Lease liabilities		14,700		12,958
Mergers and acquisitions		—		7,239
Deferred revenue		3,609		3,258
Inventory reserves and valuation		1,081		6,946
Deferred tax assets		40,013		68,090
Depreciation and intangible amortization		(56,856)		(50,181)
Right-of-use assets		(14,146)		(12,683)
Other liabilities		(402)		(1,883)
Net unrealized loss		(27,144)		—
Deferred tax liabilities		(98,548)		(64,747)
Valuation allowance		(5,927)		(8,592)
Net deferred tax asset (liability)	$	(64,462)	$	(5,249)

Not included in the net deferred tax asset (liability) shown above are long-term assets held for sale of $3.2 million and long-term liabilities held for sale of $6.5 million as of September 30, 2021. The deferred tax assets on the balance sheets for September 30, 2022 and 2021 also include $1.1 million and $2.3 million deferred tax charge related to the company’s intercompany profit elimination, respectively.

ASC Topic 740 requires that all available evidence, both positive and negative, be considered in determining, based on the weight of that evidence, whether a valuation allowance is needed. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or the entire deferred tax asset. A cumulative loss in recent years is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.

The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and quarterly basis. The Company evaluates the profitability of each tax-paying component on a historical cumulative basis and a forward-looking basis in the course of performing this analysis.

After evaluating all the relevant positive and negative evidence, the Company is not recording any additional valuation allowance against deferred tax assets in the United States. The Company is in a net deferred tax liability position and has sufficient future taxable income from the reversal of taxable temporary difference to offset the deductible temporary differences. The Company continued to hold a United States valuation allowance related to the realizability of certain state tax credits and net operating loss carry-forwards. The Company also maintains valuation allowances against net deferred tax assets in certain foreign tax-paying components as of the end of fiscal year 2022.

As of September 30, 2022, the Company has tax-effected federal, state and foreign net operating loss carry-forwards of approximately $0.4 million, $2.1 million and $4.9 million, respectively. The federal net operating loss carry-forwards expire at various dates through 2030. The state of net operating loss carry-forwards will begin to expire in 2026. The majority of the foreign net operating loss carryovers have an indefinite carry-forward in Germany.

The Company has performed studies to determine if there are any annual limitations on the federal net operating losses under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. As a result of these studies, the Company has determined that ownership changes have occurred primarily in connection with acquisitions when the Company has issued stock to the sellers, as well as ownership changes in the subsidiaries acquired by the Company. The benefits of the net operating losses that will expire before utilization have not been recorded as deferred tax assets in the accompanying Consolidated Balance Sheets. Limitations on current year use of net operating loss carryovers have also been recorded in the tax provision.

The Company maintains liabilities for unrecognized tax benefits. These liabilities involve judgment and estimation, and they are monitored based on the best information available. A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the fiscal years ended September 30, 2022, 2021 and 2020 is as follows (in thousands):

	Total
Balance at September 30, 2019	$	16,860
Additions for tax positions in current year		448
Reductions from lapses in statutes of limitations		(586)
Balance at September 30, 2020		16,722
Reductions from lapses in statutes of limitations		(14,716)
Balance at September 30, 2021		2,006
Reductions from lapses in statutes of limitations		(327)
Balance at September 30, 2022	$	1,679

All of the unrecognized tax benefits for the fiscal year ended September 30, 2022 would impact the effective tax rate if recognized. The Company recognizes interest related to unrecognized benefits as a component of the income tax provision (benefit), of which $0.0 million, $1.1 million and $1.1 million, respectively, was recognized for the fiscal years ended September 30, 2022, 2021 and 2020. In fiscal year 2019, the Company recorded $13.4 million of unrecognized tax benefits with the acquisition of GENEWIZ. All unrecognized tax benefits recorded with the acquisition of GENEWIZ were part of an indemnification agreement with the sellers. This unrecognized tax position was reversed in fiscal year 2021 due to the expiration of its statute of limitations. The corresponding indemnification asset was also written off during the year as a component of other expenses.

The Company is subject to U.S. federal, state, local and foreign income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the United States and international jurisdictions, with the earliest tax year being 2017. Based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company’s Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits and accrued interest on those benefits will be reduced by $1.6 million in the next 12 months due to statute of limitations expirations.