Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

17.    Income Taxes

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

	Year Ended September 30,
	2023		2022		2021
Current income tax (benefit) expense
Federal	$	(599)	$	(4,826)	$	(14,247)
State		1,528		607		(867)
Foreign		9,757		4,627		15,484
Total current income tax (benefit) expense		10,686		408		370
Deferred income tax (benefit) expense:
Federal		(18,684)		(815)		(11,469)
State		(402)		(180)		(2,283)
Foreign		(9,150)		1,937		(6,718)
Total deferred income tax (benefit) expense		(28,236)		942		(20,470)
Income tax (benefit) expense	$	(17,550)	$	1,350	$	(20,100)

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

	Year Ended September 30,
	2023		2022		2021
Domestic	$	(58,065)	$	(39,392)	$	(88,763)
Foreign		27,632		29,456		39,794
Loss before income taxes	$	(30,433)	$	(9,936)	$	(48,969)

The differences between the income tax (benefit) expense 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, 2023, 2022 and 2021 are as follows (in thousands):

	Year Ended September 30,
	2023		2022		2021
Income tax benefit computed at federal statutory rate	$	(6,331)	$	(2,086)	$	(10,284)
State income taxes, net of federal benefit		(851)		(776)		(1,005)
Foreign income taxed at different rates		(22)		(1,182)		(2,594)
Impact of investments in subsidiaries		(6,058)		—		7,128
Nontaxable gain from acquisition earn-out liability reversal		(3,959)		—		—
Change in deferred tax asset valuation allowance		1,137		1,337		(3,247)
Impact of change in uncertain tax positions		(1,321)		(358)		(10,607)
Global intangible low taxed income, net of foreign tax credits		—		4,060		4,051
Impact of tax rate changes		(1,391)		1,531		165
Compensation		1,598		(1,199)		462
Tax credits		(1,434)		(2,102)		(4,050)
Merger costs		1,056		1,629		20
Other non-deductible expenses and other taxes		1,304		643		591
Impact of effective state tax rate change		—		763		—
Research and development expense deduction		(1,278)		(910)		(730)
Income tax (benefit) expense	$	(17,550)	$	1,350	$	(20,100)

The Company recorded net deferred tax assets in the amount of $6.1 million related to its outside basis difference in a German subsidiary. The benefit includes $8.1 million related to U.S. foreign exchange losses on the future repatriation calculated at foreign exchange rates as of the balance sheet date. This benefit is offset by $2.0 million of state income taxes, net of the federal benefit. During the fourth quarter of fiscal year 2023, it became apparent that the basis difference with regard to $450 million of foreign cash maintained in the German subsidiary would reverse within the next twelve months based on significant capital needs.

The Company has not provided deferred income taxes on the outside basis differences of any other foreign subsidiary and maintains its general assertion of indefinite reinvestment regarding those subsidiaries and the remaining earnings of its German subsidiary as of September 30, 2023. The remaining foreign earnings are expected to be reinvested in foreign operations and acquisitions. Including the expected remittance noted previously, unremitted foreign earnings total approximately $1.3 billion. The Company did not calculate estimated deferred tax liabilities on the remaining 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 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, 2023 and 2022 are as follows (in thousands):

	September 30,
	2023		2022
Accruals and reserves not currently deductible	$	10,426	$	9,704
Federal, state and foreign tax credits		157		—
Other assets		613		1,095
Equity compensation		2,183		3,508
Net operating loss carryforwards		9,692		7,397
Lease liabilities		17,513		14,700
Capitalized research and development		6,807		—
Deferred revenue		3,672		3,609
Outside basis differences in subsidiaries		6,058
Deferred tax assets		57,121		40,013
Depreciation and intangible amortization		(97,572)		(56,856)
Right-of-use assets		(16,632)		(14,146)
Other liabilities		(317)		(402)
Net unrealized gain on hedging and investments		(1,574)		(27,144)
Deferred tax liabilities		(116,095)		(98,548)
Valuation allowance		(8,348)		(5,927)
Net deferred tax asset (liability)	$	(67,322)	$	(64,462)

The deferred tax assets on the balance sheets for September 30, 2023 and 2022 also include $0.6 million and $1.1 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 2023.

It is reasonably possible in future years that the Company may not generate sufficient taxable income to realize the benefit of the deferred assets and recording a valuation allowance may be necessary. The Company has recognized pre-tax losses in the United States from continuing operations in recent years. If the Company continues to recognize losses in the United States and uses those losses to offset the future taxable temporary differences, it may become necessary to record a valuation allowance against future losses.

As of September 30, 2023, the Company has tax-effected federal, state and foreign net operating loss carry-forwards of approximately $0.4 million, $2.1 million and $7.2 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 the current year use of net operating loss carryovers have also been recorded in the tax expense.

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, 2023, 2022 and 2021 is as follows (in thousands):

	Year Ended September 30,
	2023		2022		2021
Balance at beginning of period	$	1,679	$	2,006	$	16,722
Reductions from lapses in statutes of limitation		(1,381)		(327)		(14,716)
Balance at end of period	$	298	$	1,679	$	2,006

All of the unrecognized tax benefits for the fiscal year ended September 30, 2023 would impact the effective tax rate if recognized. The Company recognizes interest related to unrecognized benefits as a component of the income tax (benefit) expense, of which $0.1 million, $0.0 million and $1.1 million, respectively, was recognized for the fiscal years ended September 30, 2023, 2022 and 2021.

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 2018. 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 does not anticipate it is reasonably possible that the unrecognized tax benefits and accrued interest on those benefits will be reduced in the next 12 months.