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Note 16 - Income Taxes
 12 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

16.    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,

 
  

2024

  

2023

  

2022

 

Current income tax (benefit) expense

            

Federal

 $227  $(599) $(4,826)

State

  1,482   1,528   607 

Foreign

  11,224   9,757   4,627 

Total current income tax (benefit) expense

  12,933   10,686   408 

Deferred income tax (benefit) expense:

            

Federal

  (5,457)  (18,684)  (815)

State

  313   (402)  (180)

Foreign

  (10,942)  (9,150)  1,937 

Total deferred income tax (benefit) expense

  (16,086)  (28,236)  942 

Income tax (benefit) expense

 $(3,153) $(17,550) $1,350 

 

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

 

  

Year Ended September 30,

 
  

2024

  

2023

  

2022

 

Domestic

 $(46,093) $(58,065) $(39,392)

Foreign

  (121,230)  27,632   29,456 

Loss before income taxes

 $(167,323) $(30,433) $(9,936)

 

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, 2024, 2023 and 2022 are as follows (in thousands):

 

  

Year Ended September 30,

 
  

2024

  

2023

  

2022

 

Income tax benefit computed at federal statutory rate

 $(35,138) $(6,331) $(2,086)

State income taxes, net of federal benefit

  (836)  (851)  (776)

Foreign income taxed at different rates

  (6,160)  (22)  (1,182)

Impact of investments in subsidiaries

  (22,583)  (6,058)  — 

Nontaxable gain from acquisition earn-out liability reversal

  —   (3,959)  — 

Change in deferred tax asset valuation allowance

  37,677   1,137   1,337 

Impact of change in uncertain tax positions

  36   (1,321)  (358)

Global intangible low taxed income, net of foreign tax credits

  —   —   4,060 

Impact of tax rate changes

  (46)  (1,391)  1,531 

Compensation

  1,563   1,598   (1,199)

Tax credits

  (1,199)  (1,434)  (2,102)

Merger costs

  —   1,056   1,629 

Other non-deductible expenses and other taxes

  1,426   1,304   643 

Impact of effective state tax rate change

  —   —   763 

Goodwill impairment

  23,444   —   — 

Research and development expense deduction

  (1,337)  (1,278)  (910)

Income tax (benefit) expense

 $(3,153) $(17,550) $1,350 

 

During the fiscal year 2024, the Company repatriated approximately $455.0 million of cash from its German subsidiary. The Company recorded a net tax benefit in the amount of $3.2 million related to the repatriation. The benefit included $5.2 million related to deductible U.S. foreign exchange losses measured at the foreign exchange rate on the date of repatriation. This benefit was offset by $2.0 million of state income taxes, net of federal benefit. The tax provision impacts in fiscal year 2024 were offset by the reversal of the related deferred tax asset recorded in fiscal year 2023. Additionally, during fiscal year 2024, the Company reversed $2.9 million of the deferred tax asset previously established due to changes in foreign exchange rates up to the repatriation date. The impact was recorded against other comprehensive income.

 

During fiscal year 2024, the Company recorded a goodwill impairment charge related to the B Medical Systems segment. This impairment charge is not deductible for tax purposes. For tax purposes the Company has estimated that Azenta Luxembourg, the owner of B Medical Systems, would have a deductible impairment of its investment in the business, which is a significant component of the $22.6 million rate reconciliation benefit for “Impact of investments in subsidiaries” above. This tax deduction puts Luxembourg into a valuation allowance position as it does not have sufficient taxable income to utilize the loss, therefore driving a significant increase in the valuation allowance.    

 

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, 2024. The remaining foreign earnings total approximately $899.7 million as of September 30, 2024 and are expected to be reinvested in foreign operations and acquisitions. 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, 2024 and 2023 are as follows (in thousands):

 

  

September 30,

 
  

2024

  

2023

 

Accruals and reserves not currently deductible

 $10,314  $10,426 

Federal, state and foreign tax credits

  1,151   157 

Other assets

  1,048   613 

Equity compensation

  2,359   2,183 

Net operating loss carryforwards

  49,687   9,692 

Lease liabilities

  16,774   17,513 

Capitalized research and development

  8,050   6,807 

Deferred revenue

  3,573   3,672 

Outside basis differences in subsidiaries

  —   6,058 

Deferred tax assets

  92,956   57,121 

Depreciation and intangible amortization

  (82,732)  (97,572)

Right-of-use assets

  (15,662)  (16,632)

Other liabilities

  (605)  (317)

Net unrealized gain on hedging and investments

  —   (1,574)

Deferred tax liabilities

  (98,999)  (116,095)

Valuation allowance

  (47,865)  (8,348)

Net deferred tax asset (liability)

 $(53,908) $(67,322)

 

The deferred tax assets on the balance sheets for September 30, 2024 and 2023 also include $0.6 million and $0.6 million deferred tax charges 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. 

 

The Company evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance on a quarterly basis. The Company operates in numerous countries under many legal forms and, as a result, is subject to the jurisdiction of numerous domestic and foreign tax authorities. The Company evaluates the profitability of its operations in each jurisdiction on a historic cumulative basis and on a forward-looking basis, while carefully considering carry-forward periods of tax attributes and ongoing tax planning strategies in assessing the need for the valuation allowance.

 

The Company has generated U.S. pre-tax losses in recent years but has been in an overall U.S. deferred tax liability position. As of September 30, 2024, the Company is in a net U.S. deferred tax asset position and considered whether the future taxable temporary differences are sufficient to offset future deductible temporary differences. As a result, an additional valuation allowance was recorded against U.S. federal and state deferred tax assets during fiscal year 2024. After evaluating all the relevant positive and negative evidence, the Company has recorded a $5.6 million valuation allowance against deferred tax assets in the United States during the year. The Company also maintains valuation allowances against net deferred tax assets in certain foreign jurisdictions totaling $40.2 million as of September 30, 2024. A full valuation allowance was recorded in the Company's Luxembourg subsidiary related to the B Medical business during fiscal year 2024 in the amount of $29.5 million.

 

As of September 30, 2024, the Company has tax-effected federal, state and foreign net operating loss carry-forwards of approximately $5.8 million, $1.6 million and $42.2 million, respectively. The federal net operating losses carry forward indefinitely with the deductions limited to eighty percent of taxable income in any given year. The state net operating loss carry-forwards will begin to expire in 2026. Many of the foreign net operating loss carry-forwards have no limit in number of years, but some have deductions capped at a certain percent of taxable income.

 

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. 

 

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, 2024, 2023 and 2022 is as follows (in thousands):

 

  

Year Ended September 30,

 
  

2024

  

2023

  

2022

 
             

Balance at beginning of period

 $298  $1,679  $2,006 

Reductions from lapses in statutes of limitation

  —   (1,381)  (327)

Balance at end of period

 $298  $298  $1,679 

 

All of the unrecognized tax benefits for the fiscal year ended September 30, 2024 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 which was not material for the fiscal years ended September 30, 2024, 2023 and 2022.

 

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 2019. 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 $0.3 million in the next 12 months due to statute of limitations expirations. The unrecognized tax benefits would impact the effective tax rate if recognized.