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Income Taxes | 12 Months Ended
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Jul. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Loss before benefit from income taxes consists of the following:
|  | Fiscal Years Ended July 31,
|  | 2024 |  | 2023 |  | 2022
U.S. |  | $ | (65,374,000) |  |  | (21,327,000) |  |  | (31,772,000) |
Foreign |  | (34,906,000) |  |  | (9,520,000) |  |  | (5,303,000) |
|  | $ | (100,280,000) |  |  | (30,847,000) |  |  | (37,075,000) |
The benefit from income taxes included in the accompanying Consolidated Statements of Operations consists of the following:
|  | Fiscal Years Ended July 31,
|  | 2024 |  | 2023 |  | 2022
Federal – current |  | $ | 377,000 |  |  | (258,000) |  |  | 287,000 |
Federal – deferred |  | (2,345,000) |  |  | (4,623,000) |  |  | (4,888,000) |
State and local – current |  | 1,181,000 |  |  | 1,412,000 |  |  | 348,000 |
State and local – deferred |  | (834,000) |  |  | (815,000) |  |  | (442,000) |
Foreign – current |  | 1,137,000 |  |  | 958,000 |  |  | 1,197,000 |
Foreign – deferred |  | 189,000 |  |  | (622,000) |  |  | (525,000) |
Benefit from income taxes |  | $ | (295,000) |  |  | (3,948,000) |  |  | (4,023,000) |
The benefit from income taxes differed from the amounts computed by applying the U.S. Federal income tax rate as a result of the following:
|  | Fiscal Years Ended July 31,
|  | 2024 |  | 2023 |  | 2022
|  | Amount |  | Rate |  | Amount |  | Rate |  | Amount |  | Rate
Computed "expected" tax benefit |  | $ | (21,059,000) |  |  | 21.0 | % |  | (6,478,000) |  |  | 21.0 | % |  | (7,786,000) |  |  | 21.0 | %
Increase (reduction) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State and local income taxes, net of federal benefit |  | (127,000) |  |  | 0.1 |  |  | 440,000 |  |  | (1.4) |  |  | 227,000 |  |  | (0.6) |
Stock-based compensation |  | 1,891,000 |  |  | (1.9) |  |  | 692,000 |  |  | (2.2) |  |  | 1,049,000 |  |  | (2.8) |
Research and experimentation credits |  | (1,251,000) |  |  | 1.2 |  |  | (2,576,000) |  |  | 8.4 |  |  | (1,484,000) |  |  | 4.0 |
Foreign-derived intangible income deduction |  | 43,000 |  |  | — |  |  | (517,000) |  |  | 1.7 |  |  | — |  |  | — |
Revaluation of convertible preferred stock option liability |  | — |  |  | — |  |  | — |  |  | — |  |  | (211,000) |  |  | 0.6 |
Revaluation of warrants |  | (897,000) |  |  | 0.9 |  |  | — |  |  | — |  |  | — |  |  | — |
Nondeductible executive compensation |  | — |  |  | — |  |  | 1,484,000 |  |  | (4.8) |  |  | 2,801,000 |  |  | (7.6) |
PST Divestiture |  | 1,384,000 |  |  | (1.4) |  |  | — |  |  | — |  |  | — |  |  | — |
Change in valuation allowance |  | 10,177,000 |  |  | (10.0) |  |  | 2,834,000 |  |  | (9.2) |  |  | 2,009,000 |  |  | (5.4) |
Remeasurement of deferred taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | (396,000) |  |  | 1.1 |
Foreign income taxes |  | (389,000) |  |  | 0.4 |  |  | (269,000) |  |  | 0.9 |  |  | (478,000) |  |  | 1.3 |
Goodwill impairment |  | 9,549,000 |  |  | (9.5) |  |  | — |  |  | — |  |  | — |  |  | — |
Other, net |  | 384,000 |  |  | (0.5) |  |  | 442,000 |  |  | (1.6) |  |  | 246,000 |  |  | (0.7) |
Benefit from income taxes |  | $ | (295,000) |  |  | 0.3 | % |  | (3,948,000) |  |  | 12.8 | % |  | (4,023,000) |  |  | 10.9 | %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at July 31, 2024 and 2023 are presented below:
|  | 2024 |  | 2023
Deferred tax assets: |  |  |  |
Inventory and warranty reserves |  | $ | 4,685,000 |  |  | 6,147,000 |
Compensation and commissions |  | 3,401,000 |  |  | 3,221,000 |
Federal, state and foreign research and experimentation credits |  | 17,559,000 |  |  | 19,308,000 |
Capitalized U.S. research and experimental expenditures |  | 12,177,000 |  |  | 8,784,000 |
Stock-based compensation |  | 2,409,000 |  |  | 4,774,000 |
Foreign scientific research and experimental development expenditures |  | 1,720,000 |  |  | 2,118,000 |
Federal, state and foreign net operating losses |  | 18,289,000 |  |  | 13,011,000 |
Federal and state capital losses |  | 14,473,000 |  |  | 15,582,000 |
Lease liabilities |  | 8,999,000 |  |  | 11,986,000 |
Deferred revenue, non-current |  | 4,664,000 |  |  | 4,463,000 |
163(j) Interest Expense Limitation |  | 3,423,000 |  |  | 549,000 |
Other |  | 1,278,000 |  |  | 1,868,000 |
Less: valuation allowance |  | (44,888,000) |  |  | (34,478,000) |
Total deferred tax assets |  | 48,189,000 |  |  | 57,333,000 |
Deferred tax liabilities: |  |  |  |
Plant and equipment |  | (4,781,000) |  |  | (4,883,000) |
Lease right-of-use assets |  | (7,116,000) |  |  | (10,510,000) |
Intangibles |  | (42,563,000) |  |  | (50,843,000) |
Total deferred tax liabilities |  | (54,460,000) |  |  | (66,236,000) |
Net deferred tax liabilities |  | $ | (6,271,000) |  |  | (8,903,000) |
At July 31, 2024, our net deferred tax liability of $6,271,000 includes $78,000 of foreign net deferred tax liabilities that were recorded as other liabilities, net in our Consolidated Balance Sheets. At July 31, 2023, our net deferred tax liability of $8,903,000 includes $591,000 of foreign net deferred tax assets that were recorded as other assets, net in our Consolidated Balance Sheets. We account for income taxes pursuant to ASC 740, which requires an asset and liability based approach in accounting for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of them will not be realized. If management determines that it is more-likely-than-not that some or all of its deferred tax assets will not be realized, a valuation allowance will be recorded against such deferred tax assets. At July 31, 2024, we have federal research and experimentation credits carryforwards of $7,991,000 which begin to expire in 2033. We have state research and experimentation credit carryforwards of $9,234,000 which begin to expire in 2025. We believe that it is more-likely-than-not that the benefit from certain state research and experimentation credits will not be realized. In recognition of this risk, we have provided a valuation allowance of $8,502,000 on the deferred tax assets relating to these state credits. At July 31, 2024, we have a nominal amount of federal net operating loss carryforwards which begin to expire in 2038. We have state net operating loss carryforwards of $3,652,000 which begin to expire in 2025. We believe it to be more-likely-than-not that the benefit from certain state net operating loss carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $3,448,000 on the deferred tax assets relating to these state net operating loss carryforwards. At July 31, 2024, we have federal and state capital loss carryforwards of $14,473,000 which mostly expire in 2026. We believe it to be more-likely-than-not that the benefit from these federal and state capital loss carryforwards will not be realized. In recognition of this risk, we have provided a full valuation allowance on the deferred tax assets relating to these federal and state capital loss carryforwards. With respect to our remaining U.S. federal and state net deferred tax assets as of July 31, 2024, we believe it to be more-likely-than-not that the benefit from such assets will not be realized. In recognition of this risk, we have provided a valuation allowance of $2,799,000 on these net deferred tax assets. At July 31, 2024, we have foreign deferred tax assets relating to research and experimentation credits of $335,000 which begin to expire in 2039. We have foreign deferred tax assets relating to net operating loss carryforwards of $14,624,000 which begin to expire in 2032. We believe that it is more-likely-than-not that certain foreign deferred tax assets, which include these net operating loss carryforwards, may not be realized. In recognition of this risk, we have provided a valuation allowance of $15,666,000 on these deferred tax assets. Our foreign earnings and profits are not material and, as such, we have not recorded any deferred tax liability on unremitted foreign earnings. At July 31, 2024 and 2023, total unrecognized tax benefits were $8,605,000 and $9,166,000, respectively, including interest of $224,000 and $210,000, respectively. At July 31, 2024 and 2023, $2,231,000 and $2,208,000, respectively, of our unrecognized tax benefits were recorded as non-current income taxes payable on our Consolidated Balance Sheets. The remaining unrecognized tax benefits of $6,374,000 and $6,958,000 at July 31, 2024 and 2023, respectively, were presented as an offset to the associated non-current deferred tax assets on our Consolidated Balance Sheets. Of the total unrecognized tax benefits, $7,679,000 and $8,286,000 at July 31, 2024 and 2023, respectively, net of the reversal of the federal benefit recognized as a deferred tax asset relating to state reserves, would favorably impact our effective tax rate, if recognized. We believe it is reasonably possible that the gross unrecognized tax benefits could decrease by as much as $512,000 in the next 12 months due to the expiration of statute of limitations related to federal, state and foreign tax positions. Our policy is to recognize potential interest and penalties relating to uncertain tax positions in income tax expense. The following table summarizes the activity related to our unrecognized tax benefits for fiscal years 2024, 2023 and 2022 (excluding interest):
|  | 2024 |  | 2023 |  | 2022
Balance at beginning of period |  | $ | 8,956,000 |  |  | 9,675,000 |  |  | 9,009,000 |
Increase related to current period |  | 181,000 |  |  | 681,000 |  |  | 598,000 |
Increase related to prior periods |  | 130,000 |  |  | 51,000 |  |  | 153,000 |
Expiration of statute of limitations |  | (622,000) |  |  | (1,406,000) |  |  | (83,000) |
Decrease related to prior periods |  | (264,000) |  |  | (45,000) |  |  | (2,000) |
Balance at end of period |  | $ | 8,381,000 |  |  | 8,956,000 |  |  | 9,675,000 |
Our U.S. federal income tax returns for fiscal 2021 through 2023 are subject to potential future Internal Revenue Service ("IRS") audit. None of our state income tax returns prior to fiscal 2020 are subject to audit. Future tax assessments or settlements could have a material adverse effect on our consolidated results of operations and financial condition.

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