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Income Taxes
 12 Months Ended
Jul. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

Note 19—Income Taxes

 

The components of income before income taxes are as follows:

 

Year ended July 31

(in thousands)

  2024   2023   2022 
Domestic  $56,316   $48,036   $25,025 
Foreign   5,594    12,771    9,858 
INCOME BEFORE INCOME TAXES  $61,910   $60,807   $34,883 

 

Significant components of the Company’s deferred income tax assets consist of the following:

 

July 31

(in thousands)

  2024   2023 
Deferred income tax assets:          
Bad debt reserve  $1,588   $1,117 
Accrued expenses   2,897    4,825 
Stock options and restricted stock   929    361 
Charitable contributions   754    724 
Depreciation   70    (585)
Unrealized gain   5,405    4,407 
Net operating loss   36,967    23,870 
Total deferred income tax assets   48,610    34,719 
Valuation allowance   (13,602)   (10,618)
NET DEFERRED INCOME TAX ASSETS  $35,008   $24,101 

 

The (provision for) benefit from income taxes consist of the following:

 

Year ended July 31

(in thousands)

  2024   2023   2022 
Current:               
Federal  $(38)  $(47)  $(45)
State and local   (2,716)   (1,511)   (863)
Foreign   (724)   (1,275)   (729)
Current   (3,478)   (2,833)   (1,637)
Deferred:               
Federal   9,725    (14,340)   (2,596)
State and local   (261)   16    (19)
Foreign   368    716    (1,626)
Deferred   9,832    (13,608)   (4,241)
BENEFIT FROM (PROVISION FOR) INCOME TAXES  $6,354   $(16,441)  $(5,878)

 

 

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

 

Year ended July 31

(in thousands)

  2024   2023   2022 
U.S. federal income tax at statutory rate  $(13,001)  $(12,770)  $(7,325)
Valuation allowance   2,984    970    1,147 
Foreign tax rate differential   (1,636)   (1,068)   (1,059)
Nondeductible expenses   (1,159)   (1,767)   2,044 
Revaluation of existing foreign attributes   

(2,886

)   

—

    

—

 
Prior year benefit   23,622    —    — 
State and local income tax, net of federal benefit   (1,855)   (1,181)   (686)
Other   

285

    (625)   1 
BENEFIT FROM (PROVISION FOR) INCOME TAXES  $6,354   $(16,441)  $(5,878)

 

The Company’s cumulative undistributed foreign earnings are included in retained earnings in the Company’s consolidated balance sheets and consisted of approximately $297 million at July 31, 2024. The Company has concluded that the earnings remain permanently reinvested.

 

At July 31, 2024, the Company had U.S. federal net operating loss carryforwards of approximately $86 million. These loss carryforwards are available to offset future U.S. federal taxable income. U.S. federal net operating loss carryforwards of $83 million expire in fiscal 2028 through fiscal 2038, and $3 million do not expire. The Company has foreign net operating loss carryforwards of approximately $74 million, of which approximately $63 million does not expire, approximately $10 million expires in two to ten years, and approximately $1 million expires in twenty years. These foreign loss carryforwards are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional U.S. federal net operating loss carryforwards of approximately $11 million, which will expire through fiscal 2027. With the reacquisition of net2phone by the Company in March 2006, its losses were limited under Internal Revenue Code (“IRC”) Section 382 to approximately $7 million per year. In fiscal 2024, the Company had an IRC Section 382 study conducted on the reacquisition and the limitation was adjusted to $9 million per year. The Company recorded a tax benefit related to the adjusted amount of $23.6 million in fiscal 2024. The net operating loss carryforwards do not include any excess benefits related to stock options or restricted stock.

 

The change in the valuation allowance is as follows:

 

Year ended July 31

(in thousands)

 

Balance at

beginning of

year

  

Additions

charged to

costs and

expenses

   Deductions  

Balance at

end of year

 
2024                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $10,618   $2,984   $—   $13,602 
2023                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $11,588   $2,537   $(3,507)  $10,618 
2022                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $11,540   $48   $—   $11,588 

 

In fiscal 2024, the Company increased the valuation allowance by $3.0 million, which included the establishment of a valuation allowance of $3.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration, net of a decrease of $0.2 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.3 million for profitability in the United Kingdom.

 

In fiscal 2023, the Company decreased the valuation allowance by $1.0 million, which included a decrease of $2.8 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.7 million for profitability in the United Kingdom, net of an establishment of $2.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration.

 

 

At July 31, 2024 and 2023, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2024, fiscal 2023, and fiscal 2022. At July 31, 2024, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2024, fiscal 2023, and fiscal 2022, the Company did not record any interest and penalties on income taxes. At July 31, 2024 and 2023, there was no accrued interest included in current income taxes payable.

 

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2021 to fiscal 2024, state and local tax returns generally for fiscal 2020 to fiscal 2024, and foreign tax returns generally for fiscal 2020 to fiscal 2024.