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INCOME TAXES
 9 Months Ended
Feb. 28, 2025
INCOME TAXES  
INCOME TAXES

6. INCOME TAXES  

 

The following table provides details of income taxes:

 

Three Months Ended

Nine Months Ended

February 28,

February 29,

February 28,

February 29,

(In thousands)

2025

2024

2025

2024

Income (loss) before income tax expense (benefit)

$(874)$(1,464)$(1,305)$9,335

Income tax expense (benefit)

(231)7(294)43

Effective tax rate

26.4%

(0.5%)

22.5%0.5%

 

The Company’s effective tax rate varies from the U.S. federal statutory rate of 21% primarily due to the research and development credits available to apply against federal and California income and the tax expense from stock-based compensation.

 

For the three and nine months ended February 28, 2025, the Company utilized the discrete effective tax rate method as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18 to compute the interim tax provision for the U.S. jurisdiction. The Company has historically computed an estimated annual effective tax rate for purposes of computing its interim period tax expense (benefit). However, considering the near break-even level of pretax income forecasted for the year and significant permanent differences, relatively small changes in estimates of pretax income would result in significant volatility in the estimated annual effective tax rate. As a result of this potential volatility, the Company computed the interim tax provision on a year-to-date discrete basis for U.S. operations. For the three and nine months ended February 28, 2025, the Company recognized a tax benefit due to quarter-to-date and year-to-date losses in the U.S.

Tax expense for the three and nine months ended February 29, 2024 was primarily due to profitable foreign subsidiaries. Provision for income taxes for the three and nine months ended February 29, 2024 did not included tax expense related to U.S. operations due to a valuation allowance. The Company maintained a full valuation allowance on all the U.S. net deferred tax assets through the first nine months of fiscal 2024. In the fourth quarter of fiscal 2024, the Company concluded that the valuation allowance related to the U.S. federal and state deferred tax assets was no longer required due to existence of sufficient positive evidence to support that it is more likely than not that its deferred tax assets are realizable. A significant income tax benefit of $21.9 million was recognized due to release of a valuation allowance in the fourth quarter of fiscal 2024.

 

The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.