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INCOME TAXES | 12 Months Ended
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Jul. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income Taxes Loss before provision for income taxes by fiscal year consisted of the following:
| Fiscal Year Ended July 31,
| 2016 As Adjusted (1) |  | 2017 As Adjusted (1) |  | 2018
| (in thousands)
Domestic | $ | (67,776 | ) |  | $ | (304,363 | ) |  | $ | (201,666 | )
Foreign | (38,140 | ) |  | (70,423 | ) |  | (88,048 | )
Loss before provision for income taxes | $ | (105,916 | ) |  | $ | (374,786 | ) |  | $ | (289,714 | )
(1) | Adjusted to include the impact of ASC 606. Refer to Note 3 for more details on the impact of the adoption of this standard.
Provision for income taxes by fiscal year consisted of the following:
| Fiscal Year Ended July 31,
| 2016 As Adjusted (1) |  | 2017 As Adjusted (1) |  | 2018
| (in thousands)
Current: |  |  |  |  |
U.S. federal | $ | — |  |  | $ | — |  |  | $ | 2,059 |
State and local | 140 |  |  | 193 |  |  | 429 |
Foreign | 3,172 |  |  | 8,196 |  |  | 8,541 |
Total current taxes | 3,312 |  |  | 8,389 |  |  | 11,029 |
Deferred: |  |  |  |  |
U.S. federal | — |  |  | (1,342 | ) |  | (3,387 | )
State and local | — |  |  | 13 |  |  | (718 | )
Foreign | (995 | ) |  | (2,208 | ) |  | 523 |
Total deferred taxes | (995 | ) |  | (3,537 | ) |  | (3,582 | )
Provision for income taxes | $ | 2,317 |  |  | $ | 4,852 |  |  | $ | 7,447 |
(1) | Adjusted to include the impact of ASC 606. Refer to Note 3 for more details on the impact of the adoption of this standard.
The income tax provision differs from the amount of income tax determined by applying the applicable U.S. federal statutory income tax rate of 26.1% to pre-tax loss. The reconciliation of the statutory federal income tax and our effective income tax is as follows:
| Fiscal Year Ended July 31,
| 2016 As Adjusted (1) |  | 2017 As Adjusted (1) |  | 2018
| (in thousands)
U.S. tax reform impact | $ | — |  |  | $ | — |  |  | $ | 93,352 |
U.S. federal income tax at statutory rate | (36,011 | ) |  | (127,427 | ) |  | (75,779 | )
Stock-based compensation | 3,655 |  |  | 6,701 |  |  | (73,631 | )
Effect of foreign operations | 15,144 |  |  | 16,891 |  |  | 26,117 |
Change in valuation allowance | 19,268 |  |  | 86,941 |  |  | 25,274 |
Transfer pricing adjustments | — |  |  | 11,822 |  |  | 4,584 |
Intangible asset migration | — |  |  | — |  |  | 4,461 |
Non-deductible expenses | 802 |  |  | 1,693 |  |  | 2,115 |
State income taxes | 140 |  |  | 206 |  |  | (290 | )
Warrant revaluation | (681 | ) |  | 7,185 |  |  | — |
Other | — |  |  | 840 |  |  | 1,244 |
Total | $ | 2,317 |  |  | $ | 4,852 |  |  | $ | 7,447 |
(1) | Adjusted to include the impact of ASC 606. Refer to Note 3 for more details on the impact of the adoption of this standard.
During the fiscal year ended July 31, 2016, we early adopted ASU 2015-17 on a prospective basis. As a result, we released $3.3 million of our non-current deferred tax assets, which are reported within other assets—non-current on the consolidated balance sheets, and $3.3 million of our current deferred tax liabilities, which are reported within accrued expenses and other liabilities on the consolidated balance sheets. We did not retrospectively adjust prior periods. During the fiscal year ended July 31, 2017, our provision for income taxes was primarily attributable to foreign tax provisions in certain foreign jurisdictions in which we conduct business. During the fiscal year ended July 31, 2018, our provision for income taxes was primarily attributable to the alternative minimum tax in the U.S. related to the migration of certain intangible assets and foreign tax provisions in certain foreign jurisdictions in which we conduct business, partially offset by a partial valuation allowance release in the U.S. due to acquisitions completed during fiscal 2018. The temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:
| As of July 31,
| 2017 As Adjusted (1) |  | 2018
| (in thousands)
Deferred tax assets: |  |  |
Net operating loss carryforward | $ | 135,929 |  |  | $ | 162,914 |
Tax credit carryforward | 13,100 |  |  | 47,839 |
Deferred revenue | 2,378 |  |  | 27,577 |
Stock-based compensation expense | 27,512 |  |  | 21,252 |
Accruals and reserves | 7,427 |  |  | 8,370 |
Property and equipment | 1,118 |  |  | — |
Total deferred tax assets | 187,464 |  |  | 267,952 |
Deferred tax liabilities: |  |  |
Deferred commission expense | (22,535 | ) |  | (27,829 | )
Goodwill and intangible assets | (483 | ) |  | (5,909 | )
Property and equipment | — |  |  | (3,870 | )
Other | (75 | ) |  | (497 | )
Total deferred tax liabilities | (23,093 | ) |  | (38,105 | )
Valuation allowance | (161,195 | ) |  | (226,987 | )
Net deferred tax assets | $ | 3,176 |  |  | $ | 2,860 |
(1) | Adjusted to include the impact of ASC 606. Refer to Note 3 for more details on the impact of the adoption of this standard.
Management believes that based on available evidence, both positive and negative, it is more likely than not that the U.S. deferred tax assets will not be utilized and as such, a full valuation allowance has been recorded. The valuation allowance for deferred tax assets was $227.0 million as of July 31, 2018. The net increase in the total valuation allowance for the fiscal years ended July 31, 2017 and 2018 was $69.8 million and $65.8 million, respectively. As of July 31, 2018, we had approximately $853.2 million of federal net operating loss carryforwards and $562.1 million of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2030. In addition, we had approximately $43.3 million of federal research credit carryforwards and $30.7 million of state research credit carryforwards. The federal credits will begin to expire in 2030 and the state credits can be carried forward indefinitely. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If an ownership change occurred, utilization of the net operating loss and tax credit carryforwards could be significantly reduced. As of July 31, 2018, we held an aggregate of $146.5 million in cash and cash equivalents in our foreign subsidiaries, of which $122.6 million was denominated in U.S. dollars. None of our short-term investments were held in foreign subsidiaries as of July 31, 2018. We attribute net revenue, costs and expenses to domestic and foreign components based on the terms of our agreements with our subsidiaries. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries, as such earnings are to be reinvested offshore indefinitely. The income tax liability would be insignificant if these earnings were to be repatriated. During the fiscal year ended July 31, 2018, we undertook an internal restructuring to align certain intangible assets with our U.S. business. These intangible assets will be subject to U.S. tax amortization. We recognize uncertain tax positions in our financial statements if that position will more likely than not be sustained on audit, based on the technical merits of the position. A reconciliation of our unrecognized tax benefits, excluding accrued interest and penalties, is as follows:
| Fiscal Year Ended July 31,
| 2017 |  | 2018
| (in thousands)
Balance at the beginning of the year | $ | 19,711 |  |  | $ | 42,655 |
Increases related to current year tax positions | 22,571 |  |  | 58,727 |
Increases related to prior year tax positions | 373 |  |  | 4,893 |
Decreases related to prior year tax positions | — |  |  | (14,559 | )
Balance at the end of the year | $ | 42,655 |  |  | $ | 91,716 |
During the fiscal year ended July 31, 2018, the increase in unrecognized tax positions was primarily attributable to federal and state research and development credits, intercompany charges and business combinations in fiscal 2018. As of July 31, 2018, if uncertain tax positions are fully recognized in the future, it would result in a $7.4 million impact to our effective tax rate, and the remaining amount would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance. We recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of July 31, 2018, we had recognized immaterial accrued interest and penalties related to uncertain tax positions. We file income tax returns in the U.S. federal jurisdiction as well as various U.S. states and foreign jurisdictions. The tax years 2009 and forward remain open to examination by the major jurisdictions in which we are subject to tax. These fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. We are subject to the continuous examination of income tax returns by various tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the provision for income taxes. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations and do not anticipate a significant impact to the gross unrecognized tax benefits within the next 12 months related to these years. Impact of U.S. Federal Income Tax Reform In December 2017, the U.S. Congress passed and the President signed the Tax Cuts and Jobs Act ("TCJA"), which includes a broad range of tax reform proposals affecting businesses, including a federal corporate rate reduction from 35% to 21%, effective January 1, 2018, limitations on the deductibility of interest expense and executive compensation, the creation of new minimum taxes, such as the base erosion anti-abuse tax ("BEAT") and Global Intangible Low Taxed Income ("GILTI") tax and a new minimum tax on certain foreign earnings. As a result, we are required to remeasure our U.S. deferred tax assets and liabilities at the new tax rate. Our U.S. operation is in a net deferred tax asset position, offset by a full valuation allowance. We reduced our net deferred tax assets and the corresponding valuation allowance by $93.8 million. The TCJA includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries. We have performed an earnings and profits analysis, and as a result of our overall deficit in net accumulated earnings and profits, there will be no transition tax income tax effect in the current period. The income tax benefit and provision for the fiscal year ended July 31, 2018 are based on the assumption that foreign undistributed earnings are indefinitely reinvested. We will continue to evaluate whether or not to continue to assert indefinite reinvestment on part or all of our foreign undistributed earnings. In the event we determine not to continue to assert the permanent reinvestment of part or all of our foreign undistributed earnings, such a determination could result in the accrual and payment of additional foreign, state and local taxes. We have not yet made a policy election with respect to our treatment of any potential GILTI tax. Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. We are still in the process of analyzing the provisions of the TCJA associated with GILTI and the expected impact GILTI will have on us in the future. Pursuant to SEC Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the TJCA, we will continue to evaluate the impact of various domestic and international provisions of the TCJA, as well as the impact of additional guidance that may be issued, to assess the full effects on our financial results.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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