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Income Taxes
 12 Months Ended
Jul. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 12. INCOME TAXES

Income Taxes

Loss before provision for income taxes by fiscal year consisted of the following:

 

 

 

Fiscal Year Ended July 31,

 

 

 

2022

 

 

2023

 

 

2024

 

 

 

(in thousands)

 

Domestic

 

$

(834,915

)

 

$

(294,093

)

 

$

(167,745

)

Foreign

 

 

55,233

 

 

 

60,508

 

 

 

66,427

 

Loss before provision for income taxes

 

$

(779,682

)

 

$

(233,585

)

 

$

(101,318

)

 

Provision for income taxes by fiscal year consisted of the following:

 

 

 

Fiscal Year Ended July 31,

 

 

 

2022

 

 

2023

 

 

2024

 

 

 

(in thousands)

 

Current:

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

13

 

 

$

(568

)

 

$

—

 

State and local

 

 

77

 

 

 

623

 

 

 

2,052

 

Foreign

 

 

21,578

 

 

 

21,952

 

 

 

23,925

 

Total current taxes

 

 

21,668

 

 

 

22,007

 

 

 

25,977

 

Deferred:

 

 

 

 

 

 

 

 

 

U.S. federal

 

 

23

 

 

 

24

 

 

 

24

 

State and local

 

 

—

 

 

 

—

 

 

 

—

 

Foreign

 

 

(2,427

)

 

 

(1,056

)

 

 

(2,544

)

Total deferred taxes

 

 

(2,404

)

 

 

(1,032

)

 

 

(2,520

)

Provision for income taxes

 

$

19,264

 

 

$

20,975

 

 

$

23,457

 

 

The income tax provision differs from the amount of income tax determined by applying the applicable U.S. federal statutory income tax rate of 21% 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,

 

 

 

2022

 

 

2023

 

 

2024

 

 

 

(in thousands)

 

U.S. federal income tax at statutory rate

 

$

(163,734

)

 

$

(49,053

)

 

$

(21,277

)

Change in valuation allowance

 

 

117,588

 

 

 

71,157

 

 

 

115,826

 

Non-deductible item on fair value remeasurement of
   derivative liability

 

 

41,589

 

 

 

—

 

 

 

—

 

Stock-based compensation

 

 

14,462

 

 

 

8,767

 

 

 

(47,632

)

Effect of foreign operations

 

 

10,544

 

 

 

(4,896

)

 

 

(2,553

)

Research and development tax credits

 

 

(9,455

)

 

 

(17,500

)

 

 

(30,076

)

Non-deductible expenses

 

 

6,646

 

 

 

5,090

 

 

 

4,704

 

Change in unrecognized tax benefit

 

 

655

 

 

 

1,840

 

 

 

2,840

 

State income taxes

 

 

77

 

 

 

623

 

 

 

2,052

 

Tax impact of Frame divestiture

 

 

—

 

 

 

4,569

 

 

 

—

 

Other

 

 

892

 

 

 

378

 

 

 

(427

)

Total

 

$

19,264

 

 

$

20,975

 

 

$

23,457

 

 

During the fiscal years ended July 31, 2022, 2023 and 2024, our provision for income taxes was primarily attributable to foreign tax provisions in certain foreign jurisdictions in which we conduct business.

The temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

 

 

 

As of July 31,

 

 

 

2023

 

 

2024

 

 

 

(in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforward

 

$

606,483

 

 

$

532,559

 

Tax credit carryforward

 

 

229,429

 

 

 

292,546

 

Capitalized research expenses

 

 

128,169

 

 

 

241,194

 

Deferred revenue

 

 

175,975

 

 

 

179,093

 

Leases

 

 

28,587

 

 

 

35,416

 

Accruals and reserves

 

 

23,631

 

 

 

25,065

 

Stock-based compensation

 

 

17,028

 

 

 

17,221

 

Intangibles and goodwill

 

 

8,499

 

 

 

8,447

 

Property and equipment

 

 

4,043

 

 

 

4,302

 

Interest expense carryforward

 

 

5,166

 

 

 

—

 

Other assets

 

 

24,347

 

 

 

22,631

 

Total deferred tax assets

 

 

1,251,357

 

 

 

1,358,474

 

Deferred tax liabilities:

 

 

 

 

 

 

Deferred commission expense

 

 

(84,421

)

 

 

(84,409

)

Leases

 

 

(30,153

)

 

 

(36,100

)

Prepaid expenses

 

 

(1,966

)

 

 

(2,249

)

Intangibles and goodwill

 

 

(1,258

)

 

 

(1,394

)

Property and equipment

 

 

(1,362

)

 

 

(1,359

)

Convertible notes

 

 

(31,207

)

 

 

—

 

Other

 

 

(11,808

)

 

 

(14,075

)

Total deferred tax liabilities

 

 

(162,175

)

 

 

(139,586

)

Valuation allowance

 

 

(1,078,355

)

 

 

(1,205,780

)

Net deferred tax assets

 

$

10,827

 

 

$

13,108

 

 

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 $1.2 billion as of July 31, 2024. The net increase in the total valuation allowance for the fiscal years ended July 31, 2023 and 2024 was $75.8 million and $127.4 million, respectively.

As of July 31, 2024, we had approximately $2.4 billion of federal net operating loss carryforwards and $1.6 billion of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in fiscal 2024. In addition, we had approximately $177.1 million of federal research credit carryforwards, $131.3 million of state research credit carryforwards and $48.2 million of foreign tax credit carryforwards available to reduce future tax liability. The federal credits will begin to expire in fiscal 2030 and the state credits can be carried forward indefinitely. The foreign credits will begin to expire in fiscal 2029.

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, 2024, we held an aggregate of $299.9 million in cash and cash equivalents in our foreign subsidiaries, of which $137.5 million was denominated in U.S. dollars. 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. It is not practical to estimate the withholding tax liability if these earnings were to be repatriated.

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,

 

 

 

2023

 

 

2024

 

 

 

(in thousands)

 

Balance at the beginning of the year

 

$

90,673

 

 

$

95,862

 

Increases related to current year tax positions

 

 

4,635

 

 

 

7,595

 

Increases related to prior year tax positions

 

 

1,616

 

 

 

425

 

Decreases related to prior year tax positions

 

 

(29

)

 

 

(932

)

Lapse of statute of limitations/Settlements/Other

 

 

(1,033

)

 

 

(303

)

Balance at the end of the year

 

$

95,862

 

 

$

102,647

 

 

During the fiscal year ended July 31, 2024, the net increase in unrecognized tax positions was primarily attributable to federal and state research and development credits and intercompany charges.

As of July 31, 2024, if uncertain tax positions are fully recognized in the future, it would result in a $17.1 million impact to our effective tax rate, primarily relating to positions in foreign jurisdictions, 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, 2024, we had recognized $9.5 million of 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. We do not anticipate a significant impact to the gross unrecognized tax benefits within the next 12 months related to these years.