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Income Taxes

12 Months Ended

Apr. 30, 2021

16. Income Taxes

The components of income before income taxes are as follows (in thousands):


	Year Ended April 30,
	2021		2020		2019
Domestic	$	34,274	$	52,730	$	50,644
Foreign		91		(60)		(166)
Income from continuing operations before income taxes		34,365		52,670		50,478

Equity method investment loss		(10,481)		(5,487)		(3,944)
Total income from continuing operations before income taxes	$	23,884	$	47,183	$	46,534

The Company expects any foreign earnings to be reinvested in such foreign jurisdictions and, therefore, no deferred tax liabilities for U.S. income taxes on undistributed earnings are recorded. The foreign subsidiaries do not have any undistributed earnings.

A reconciliation of income tax expense computed using the U.S. federal statutory rates to actual income tax expense is as follows:


	Year Ended April 30,
	2021		2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal benefit	(1.4)		(2.1)		(2.2)
R&D and other tax credits	(11.5)		(6.8)		(8.1)
Valuation allowance	3.2		3.4		3.7
Return to provision adjustments	(0.3)		0.1		(0.3)
Permanent items	3.6		0.7		0.8
Foreign derived intangible income	(7.6)		(3.9)		(3.7)
Excess benefit of equity awards	(5.7)		(1.5)		(3.1)
Other	0.3		0.2		1.1
Effective income tax rate	1.6	%	11.1	%	9.2	%

The components of the provision for income taxes are as follows (in thousands):


	Year Ended April 30,
	2021		2020		2019
Current:
Federal	$	3,094	$	3,005	$	1,953
State		448		390		228
Foreign		—		—		—
		3,542		3,395		2,181
Deferred:
Federal		(3,247)		2,063		1,945
State		244		421		551
Foreign		—		(31)		(36)
		(3,003)		2,453		2,460
Total income tax expense	$	539	$	5,848	$	4,641

Significant components of the Company’s deferred income tax assets and liabilities are as follows (in thousands):


	April 30,
	2021		2020
Deferred income tax assets:
Accrued expenses	$	4,422	$	3,337
Stock based compensation		2,492		2,259
Allowances, reserves, and other		1,482		1,784
Outside basis difference		4,617		2,264
Unrealized loss on securities		110		9
Net operating loss and credit carry-forwards		33,155		12,832
Intangibles basis		—		605
Lease liability		5,645		2,282
Total deferred income tax assets		51,923		25,372
Deferred income tax liabilities:
Fixed asset basis		(10,286)		(1,218)
Revenue recognition		—		(3,112)
Right-of-use asset		(5,119)		(1,965)
Intangibles basis		(17,004)		—
Total deferred income tax liabilities		(32,409)		(6,295)
Valuation allowance		(17,453)		(14,149)
Net deferred tax assets	$	2,061	$	4,928

At April 30, 2021 and 2020 the Company recorded a valuation allowance of $17,453,000 and $14,149,000, respectively, against state R&D credits as the Company is currently generating more tax credits than it will utilize in future years and against the outside basis difference in an equity method investee. The valuation allowance increased by $3,304,000 and $2,871,000 for April 30, 2021 and April 30, 2020, respectively.

At April 30, 2021 the Company had state credit carryforwards of $28,530,000 that do not expire and federal tax credit carryforwards of $2,260,000 that expire in 2041.

At April 30, 2021, the Company had federal, state and foreign net operating loss carryforwards of approximately $88,719,000, $24,685,000 and $341,000, respectively. The federal and $8,754,000 of the state net operating losses carry forward indefinitely. $15,931,000 of state net operating losses will begin expiring in fiscal year 2028, and the foreign loss carryforward will begin expiring in fiscal year 2022. Utilization of federal and state net operating loss carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code, as amended and similar state provisions.

At April 30, 2021 and 2020, the Company had approximately $17,556,000 and $14,347,000, respectively, of unrecognized tax benefits all of which would impact the Company’s effective tax rate if recognized. The Company estimates that $1,324,000 of its unrecognized tax benefits will decrease in the next twelve months due to statute of limitation expiration.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended April 30, 2021 and 2020 (in thousands):


	April 30,
	2021		2020
Balance as of May 1	$	14,347	$	12,593
Increases related to prior year tax positions		1,305		62
Decreases related to prior year tax positions		(116)		—
Increases related to current year tax positions		2,074		1,971
Decreases related to lapsing of statute of limitations		(54)		(279)
Balance as of April 30	$	17,556	$	14,347

The Company records interest and penalties on uncertain tax positions to income tax expense. As of April 30, 2021 and 2020, the Company had accrued approximately $23,000 and $21,000, respectively, of interest and penalties related to uncertain tax positions. The Company is currently under audit by various state jurisdictions. The 2017 to 2020 tax years remain open to examination by the IRS for federal income taxes. The tax years 2010 to 2012 and 2016 to 2020 remain open for major state taxing jurisdictions.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, a $2 trillion relief package comprising a combination of tax provisions and other stimulus measures. The CARES Act broadly provides entities tax payment relief and significant business incentives and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, or the Tax Act. The tax relief measures for entities include a five-year net operating loss carry back, increases interest expense deduction limits, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The Act also provides other non-income tax benefits, including federal funding for a range of stabilization measures and emergency funding to assist those impacted by the COVID-19 pandemic. Similar legislation is being enacted in other jurisdictions in which the Company operates. ASC Topic 740, Income Taxes, requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which new legislation is enacted. The enactment of the CARES Act and similar legislation in other jurisdictions in which the Company operates was not material to the Company’s income tax benefit for the year ended April 30, 2021.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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