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Income Taxes | 12 Months Ended
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Sep. 30, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes Income taxes on the consolidated statements of operations consisted of the following:
| Fiscal Year |
(In thousands) | 2023 |  |  | 2022 |  |  | 2021 |
Current expense (benefit): |  |  |  |  |  |  |  |
U.S. Federal | $ | 3,363 |  |  | $ | (510 | ) |  | $ | 263 |
U.S. State |  | 591 |  |  |  | (143 | ) |  |  | 108 |
International |  | 250 |  |  |  | 166 |  |  |  | 87 |
Total current expense (benefit) |  | 4,204 |  |  |  | (487 | ) |  |  | 458 |
Deferred (benefit) expense: |  |  |  |  |  |  |  |
U.S. Federal |  | — |  |  |  | 5,200 |  |  |  | 1,851 |
U.S. State |  | — |  |  |  | 515 |  |  |  | (62 | )
International |  | (181 | ) |  |  | (447 | ) |  |  | (138 | )
Total deferred (benefit) expense |  | (181 | ) |  |  | 5,268 |  |  |  | 1,651 |
Total income tax expense | $ | 4,023 |  |  | $ | 4,781 |  |  | $ | 2,109 |
The difference between amounts calculated at the statutory U.S. federal income tax rate of 21% and the Company’s effective tax rate was as follows:
| Fiscal Year |
(In thousands) | 2023 |  |  | 2022 |  |  | 2021 |
Amount at statutory U.S. federal income tax rate | $ | 522 |  |  | $ | (4,724 | ) |  | $ | 1,333 |
Change because of the following items: |  |  |  |  |  |  |  |
State income taxes, net of federal benefit |  | (632 | ) |  |  | (897 | ) |  |  | (273 | )
Foreign and state rate differential |  | 495 |  |  |  | 628 |  |  |  | 596 |
U.S. federal and foreign R&D credits |  | (1,544 | ) |  |  | (1,511 | ) |  |  | (920 | )
Valuation allowance change (1) |  | 4,083 |  |  |  | 10,978 |  |  |  | 1,059 |
Stock-based compensation (2) |  | 1,003 |  |  |  | 481 |  |  |  | (544 | )
U.S. Federal and state rate change |  | (152 | ) |  |  | — |  |  |  | (35 | )
Tax reserve change |  | 734 |  |  |  | (123 | ) |  |  | (150 | )
Foreign-derived income deduction |  | (403 | ) |  |  | — |  |  |  | — |
Contingent consideration |  | (164 | ) |  |  | 13 |  |  |  | 3 |
Impact of CARES Act (3) |  | — |  |  |  | — |  |  |  | 735 |
Acquisition-related transaction costs |  | — |  |  |  | — |  |  |  | 187 |
Other |  | 81 |  |  |  | (64 | ) |  |  | 118 |
Income tax expense | $ | 4,023 |  |  | $ | 4,781 |  |  | $ | 2,109 |
(1) In fiscal 2023, the valuation allowance increased primarily as a result of the incremental deferred tax assets recorded during fiscal 2023 related to capitalized U.S. R&D expenses and Ireland net operating losses (“NOLs”). In fiscal 2022, the valuation allowance increased primarily as a result of the establishment of a full valuation allowance against U.S. net deferred tax assets as of September 30, 2022. In fiscal 2021, the valuation allowance increased primarily as a result of the incremental deferred tax assets recorded during fiscal 2021 related to U.S. state R&D tax credit carryforwards and Ireland NOLs. (2) Includes non-deductible stock-based compensation. (3) Related to the remeasurement of deferred tax assets and liabilities associated with the CARES Act. Under the temporary provisions of CARES Act, NOL carryforwards and carrybacks could offset 100% of taxable income for taxable years beginning before 2021. In addition, NOLs arising in 2018, 2019 and 2020 taxable years could be carried back to each of the preceding five years to generate a refund. Excess tax benefits related to stock-based compensation expense are recorded within income tax expense on the consolidated statements of operations and totaled less than $0.1 million, $0.2 million and $0.9 million for fiscal 2023, 2022 and 2021, respectively. The components of deferred income taxes, net, consisted of the following and resulted from differences in the recognition of transactions for income tax and financial reporting purposes:
| September 30, |
(In thousands) | 2023 |  |  | 2022 |
Depreciable assets | $ | (3,802 | ) |  | $ | (3,995 | )
Deferred revenue |  | 1,082 |  |  |  | 2,103 |
Accruals and reserves |  | 2,052 |  |  |  | 1,615 |
Stock-based compensation |  | 2,665 |  |  |  | 2,443 |
Impaired strategic investments |  | 1,829 |  |  |  | 1,787 |
NOL carryforwards (1) |  | 4,578 |  |  |  | 6,379 |
U.S. Federal and state R&D credits (2) |  | 2,973 |  |  |  | 4,465 |
Capitalized R&D expenses |  | 7,976 |  |  |  | — |
Other |  | 648 |  |  |  | 848 |
Valuation allowance |  | (22,005 | ) |  |  | (17,672 | )
Deferred taxes, net | $ | (2,004 | ) |  | $ | (2,027 | )
(1) As of September 30, 2023, NOL carryforwards consisted of U.S. state NOL carryforwards of $0.3 million and Ireland NOL carryforwards of $4.2 million. U.S. state NOL carryforwards begin to expire in fiscal 2028. Irel and NOL carryforwards have an unlimited carryforward period. (2) As of September 30, 2023, U.S. federal and state R&D credits begin to expire in fiscal 2 028. As of September 30, 2023 and 2022, valuation allowances against deferred tax assets, net, totaled $22.0 million and $17.7 million, respectively. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise from NOLs and tax credits and are primarily a result of temporary differences between the financial reporting and tax bases of assets and liabilities. We evaluate the recoverability of deferred tax assets by assessing all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. A valuation allowance is established if it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of deferred tax assets will not be realized. The determination of whether a valuation allowance should be established, as well as the amount of such allowance, requires significant judgment and estimates, including estimates of future earnings. In evaluating the realizability of our net deferred tax assets, we perform an assessment each reporting period of both positive and negative evidence. • As of September 30, 2023, we identified negative evidence that included the existence of forecasted, short-term future losses. Additionally, we identified positive evidence that included (i) the existence of three-year cumulative U.S. pre-tax income adjusted for permanent adjustments, though this was primarily driven by revenue recognized on the final milestone payment received under the Abbott Agreement; (ii) our forecast of long-term future earnings; and (iii) future reversal of taxable temporary differences and carryforwards, though these did not provide sufficient evidence to support realization of the deferred tax assets. • As of September 30, 2022, we identified negative evidence that included the existence of three-year cumulative U.S. pre-tax losses adjusted for permanent adjustments and short-term future losses. Additionally, we identified positive evidence that included (i) our forecast of long-term future earnings, and (ii) future reversal of taxable temporary differences and carryforwards, though these did not provide sufficient evidence to support realization of the deferred tax assets. We apply judgment to consider the relative impact of negative and positive evidence, and the weight given to negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. Objective historical evidence, such as cumulative three-year pre-tax income (losses) adjusted for permanent adjustments, is given greater weight than subjective positive evidence, such as forecasts of future earnings. The more objective negative evidence that exists limits our ability to consider other, potentially positive, subjective evidence, such as our future earnings projections. Based on our evaluation of all available positive and negative evidence, and by placing greater weight on the objectively verifiable evidence, we determined, as of September 30, 2023 and 2022, that it is more likely than not that our net U.S. deferred tax assets will not be realized. Accordingly, in fiscal 2022, we recorded a full valuation allowance against our net U.S. deferred tax assets as of September 30, 2022, resulting in a non-cash charge to income tax expense of $10.2 million in the fourth quarter of fiscal 2022. In fiscal 2023, we maintained the full valuation allowance against our net U.S. deferred tax assets. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record additional adjustments to the valuation allowance in future reporting periods that could have a material effect on our results of operations. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes pursuant to accounting guidance. The following is a reconciliation of the changes in unrecognized tax benefits, excluding interest and penalties:
| Fiscal Year |
(In thousands) | 2023 |  |  | 2022 |  |  | 2021 |
Unrecognized tax benefits, beginning balance | $ | 2,793 |  |  | $ | 2,887 |  |  | $ | 2,871 |
Increases in tax positions for prior years |  | — |  |  |  | 53 |  |  |  | 15 |
Decreases in tax positions for prior years |  | (4 | ) |  |  | (35 | ) |  |  | (8 | )
Increases in tax positions for current year |  | 836 |  |  |  | 519 |  |  |  | 458 |
Lapse of the statute of limitations |  | (182 | ) |  |  | (631 | ) |  |  | (449 | )
Unrecognized tax benefits, ending balance | $ | 3,443 |  |  | $ | 2,793 |  |  | $ | 2,887 |
The total amount of unrecognized tax benefits excluding interest and penalties that, if recognized, would affect the effective tax rate was $3.1 million and $2.5 million as of September 30, 2023 and 2022, respectively. As of September 30, 2023, the Company does not expect the liability for unrecognized tax benefits to change significantly in the next 12 months and has classified the above balances on the consolidated balance sheets in other noncurrent liabilities. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense on the consolidated statements of operations. As of September 30, 2023 and 2022, the gross amount accrued for interest and penalties on unrecognized tax benefits was $0.5 million and $0.3 million, respectively. The Company files income tax returns, including returns for its subsidiaries, in the U.S. federal jurisdiction and in various state jurisdictions, as well as several non-U.S. jurisdictions. Uncertain tax positions are related to tax years that remain subject to examination. The Internal Revenue Service commenced an examination of the Company’s fiscal 2019 U.S. federal tax return during fiscal 2022; the examination has not been completed. U.S. federal income tax returns for years prior to fiscal 2019 are no longer subject to examination by federal tax authorities. For tax returns for U.S. state and local jurisdictions, the Company is no longer subject to examination for tax years generally before fiscal 2013. For tax returns for non-U.S. jurisdictions, the Company is no longer subject to income tax examination for years prior to 2019. Additionally, the Company has been indemnified of liability for any taxes relating to Creagh Medical, NorMedix and Vetex for periods prior to the respective acquisition dates, pursuant to the terms of the related share purchase agreements. As of September 30, 2023 and 2022, there were no undistributed earnings in foreign subsidiaries.

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