QUINSTREET, INC Income Taxes Disclosure
9. Income Taxes
The components of income (loss) before income taxes were as follows (in thousands):
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
US |
|
$ |
4,907 |
|
|
$ |
(31,110 |
) |
|
$ |
(21,745 |
) |
Foreign |
|
|
726 |
|
|
|
714 |
|
|
|
383 |
|
Total |
|
$ |
5,633 |
|
|
$ |
(30,396 |
) |
|
$ |
(21,362 |
) |
The components of the provision for income taxes were as follows (in thousands):
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
State |
|
|
298 |
|
|
|
125 |
|
|
|
143 |
|
Foreign |
|
|
337 |
|
|
|
305 |
|
|
|
224 |
|
Total current provision for income taxes |
|
|
635 |
|
|
|
430 |
|
|
|
367 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
396 |
|
|
|
572 |
|
|
|
40,780 |
|
State |
|
|
69 |
|
|
|
(104 |
) |
|
|
6,357 |
|
Foreign |
|
|
(174 |
) |
|
|
37 |
|
|
|
— |
|
Total deferred provision for income taxes |
|
|
291 |
|
|
|
505 |
|
|
|
47,137 |
|
Total provision for income taxes |
|
$ |
926 |
|
|
$ |
935 |
|
|
$ |
47,504 |
|
The reconciliation between the statutory federal income tax expense and the Company’s effective income tax expense was as follows (in thousands):
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Statutory federal income tax expense |
|
$ |
1,180 |
|
|
$ |
(6,359 |
) |
|
$ |
(4,486 |
) |
States taxes, net of federal benefit |
|
|
(191 |
) |
|
|
(1,553 |
) |
|
|
(752 |
) |
Foreign rate differential |
|
|
(82 |
) |
|
|
106 |
|
|
|
61 |
|
Stock-based compensation (benefit) expense |
|
|
(3,148 |
) |
|
|
25 |
|
|
|
676 |
|
Change in valuation allowance |
|
|
1,618 |
|
|
|
8,113 |
|
|
|
52,396 |
|
Research and development credits |
|
|
(2,441 |
) |
|
|
(1,593 |
) |
|
|
(1,847 |
) |
Disqualified compensation expense |
|
|
3,142 |
|
|
|
1,363 |
|
|
|
744 |
|
Uncertain tax position |
|
|
696 |
|
|
|
490 |
|
|
|
550 |
|
Expired attributes |
|
|
155 |
|
|
|
188 |
|
|
|
273 |
|
Foreign deferred adjustment |
|
|
— |
|
|
|
(6.0 |
) |
|
|
— |
|
Other |
|
|
(3 |
) |
|
|
161 |
|
|
|
(111 |
) |
Effective income tax expense |
|
$ |
926 |
|
|
$ |
935 |
|
|
$ |
47,504 |
|
The components of the noncurrent deferred tax assets and liabilities, net were as follows (in thousands):
|
|
|
|
June 30, |
|
|||||
|
|
|
|
2025 |
|
|
2024 |
|
||
Noncurrent deferred tax assets: |
|
|
|
|
|
|
|
|
||
Reserves and accruals |
|
|
|
$ |
1,222 |
|
|
$ |
1,192 |
|
Stock-based compensation expense |
|
|
|
|
4,626 |
|
|
|
3,340 |
|
Net operating loss |
|
|
|
|
27,591 |
|
|
|
38,590 |
|
Fixed assets |
|
|
|
|
378 |
|
|
|
330 |
|
Tax credits |
|
|
|
|
17,680 |
|
|
|
15,496 |
|
Operating lease liabilities |
|
|
|
|
2,111 |
|
|
|
2,583 |
|
Research and development capitalized cost |
|
|
|
|
19,144 |
|
|
|
12,985 |
|
Contingent consideration liability |
|
|
|
|
3,266 |
|
|
|
— |
|
Other |
|
|
|
|
708 |
|
|
|
623 |
|
Total noncurrent deferred tax assets |
|
|
|
|
76,726 |
|
|
|
75,139 |
|
Less: valuation allowance — long-term |
|
|
|
|
(69,287 |
) |
|
|
(67,669 |
) |
Total noncurrent deferred tax assets, net of valuation allowance |
|
|
|
|
7,439 |
|
|
|
7,470 |
|
|
|
|
|
|
|
|
|
|
||
Noncurrent deferred tax liabilities: |
|
|
|
|
|
|
|
|
||
Intangibles |
|
|
|
|
(9,190 |
) |
|
|
(8,434 |
) |
Operating lease right-of-use assets |
|
|
|
|
(1,962 |
) |
|
|
(2,458 |
) |
Total noncurrent deferred tax liabilities |
|
|
|
|
(11,152 |
) |
|
|
(10,892 |
) |
|
|
|
|
|
|
|
|
|
||
Net deferred tax liabilities |
|
|
|
$ |
(3,713 |
) |
|
$ |
(3,422 |
) |
The Company has a net deferred tax liability balance of $3.7 million and $3.4 million as of June 30, 2025 and 2024, included within other liabilities, noncurrent on the Company’s consolidated balance sheet. The net deferred tax liability is related to indefinite lived deferred tax liabilities unable to be offset with deferred tax assets. The Company has a valuation allowance of approximately $69.3 million and $67.7 million as of June 30, 2025 and 2024, respectively. The Company evaluated the need for a valuation allowance by considering among other things, the nature, frequency and severity of current and cumulative losses, reversal of taxable temporary differences, tax planning strategies, forecasts of future profitability, and the duration of statutory carryforward periods. The Company determined that the significant negative evidence associated with cumulative losses in recent periods outweighed the positive evidence as of June 30, 2025 and accordingly, the near-term realization of certain of these assets was deemed not more likely than not. In the fourth quarter of fiscal year 2023, the Company recorded a one-time, non-cash charge to income tax expense of $52.4 million to establish a valuation allowance against its net deferred tax assets. The Company will continue to assess the likelihood that the deferred tax assets will be realizable at each reporting period and the valuation allowance will be adjusted accordingly. Due to recent improvements in the U.S. operating results, management believes a reasonable possibility exists that, within the next twelve months, sufficient positive evidence may become available to reach a conclusion that all or some portion of the U.S. valuation allowance will no longer be needed. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of sustained U.S. profitability that the Company is able to actually achieve.
As of June 30, 2025 and 2024, the Company had a federal operating loss carryforward of approximately $105.4 million and $152.9 million. As of June 30, 2025 and 2024, the Company’s state operating loss carryforward was approximately $82.8 million and $97.6 million. With the exception of $68.6 million of federal net operating losses which can be carried forward indefinitely, the federal and state net operating losses, if not used, will begin to expire on June 30, 2037 and June 30, 2026, respectively. The operating loss carryforward in the India jurisdiction was approximately $1.2 million which will begin to expire on June 30, 2026. The Company has federal and California research and development tax credit carryforwards of approximately $13.2 million and $12.9 million to offset future taxable income. The federal research and development tax credits, if not used, will begin to expire on June 30, 2034, while the state tax credit carryforwards do not have an expiration date and may be carried forward indefinitely.
Utilization of the operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of operating loss carryforwards and credits before utilization.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits was as follows (in thousands):
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of the year |
|
$ |
6,644 |
|
|
$ |
6,030 |
|
|
$ |
5,296 |
|
Gross increases - current period tax positions |
|
|
839 |
|
|
|
654 |
|
|
|
717 |
|
Gross decreases - prior period tax positions |
|
|
37 |
|
|
|
(40 |
) |
|
|
— |
|
Gross increases - prior period tax positions |
|
|
— |
|
|
|
— |
|
|
|
19 |
|
Reductions as a result of lapsed statute of limitations |
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
Balance at end of the year |
|
$ |
7,520 |
|
|
$ |
6,644 |
|
|
$ |
6,030 |
|
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Company’s provision for (benefit from) income taxes. As of June 30, 2025, the Company has accrued $1.7 million for interest and penalties related to the unrecognized tax benefits. The balance of interest and penalties is recorded as other liabilities, noncurrent on the Company’s consolidated balance sheet.
As of June 30, 2025, unrecognized tax benefits of $1.1 million, if recognized, would affect the Company’s effective tax rate. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions and is no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations by tax authorities for years before 2014. As of June 30, 2025, the tax years 2014 through 2025 remain open in the U.S., and the tax years 2021 through 2025 remain open in various foreign jurisdictions. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from our examinations.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 21, 2025 | Showing above |
| 2024 | Aug 21, 2024 | |
| 2023 | Aug 21, 2023 | |
| 2022 | Aug 22, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.