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Income Taxes | 12 Months Ended
--- | ---
Jan. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company is subject to taxation in the U.S. and various other state and foreign jurisdictions. The domestic and foreign components of pre-tax income (loss) for fiscal 2025, 2024 and 2023 were as follows:
| Year Ended January 31,
| 2025 |  | 2024 |  | 2023
| (dollars in millions)
Domestic | $ | 28 |  |  | $ | (360) |  |  | $ | (834) |
Foreign | 18 |  |  | 23 |  |  | 33 |
Income (loss) before provision for income taxes | $ | 46 |  |  | $ | (337) |  |  | $ | (801) |
The components of the provision for income taxes for fiscal 2025, 2024 and 2023 were as follows:
| Year Ended January 31,
| 2025 |  | 2024 |  | 2023
| (dollars in millions)
Current: |  |  |  |  |
Federal | $ | 5 |  |  | $ | 2 |  |  | $ | — |
State | 2 |  |  | 3 |  |  | 2 |
Foreign | 9 |  |  | 6 |  |  | 5 |
Total current provision for income taxes | 16 |  |  | 11 |  |  | 7 |
Deferred: |  |  |  |  |
Foreign | 2 |  |  | 7 |  |  | 7 |
Total deferred provision for income taxes | 2 |  |  | 7 |  |  | 7 |
Total provision for income taxes | $ | 18 |  |  | $ | 18 |  |  | $ | 14 |
For fiscal 2025, income tax expense resulted primarily from profitable foreign jurisdictions, federal and state taxes resulting from limitations on tax attribute utilization, offset by the impact of tax windfalls from stock-based compensation in the United States. For fiscal 2024, the income tax expense resulted primarily from income tax expense related to profitable foreign jurisdictions, federal and state taxes resulting from limitations on tax attribute utilization, and the tax impact of shortfalls from stock-based compensation in the United Kingdom. For fiscal 2023, income tax expense resulted primarily from income tax expense related to profitable foreign jurisdictions, the tax impact of shortfalls from stock-based compensation in the United Kingdom, and state taxes. The Company does not provide for income taxes on undistributed earnings of subsidiaries that are intended to be indefinitely reinvested. Where the Company does not intend to indefinitely reinvest subsidiary earnings, income and withholding taxes, as applicable, are provided on such undistributed earnings and are insignificant. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for fiscal 2025, 2024 and 2023:
| Year Ended January 31,
| 2025 |  | 2024 |  | 2023
Tax at federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of federal benefit | 3.7 |  |  | 3.8 |  |  | 3.6 |
Change in valuation allowance | 27.4 |  |  | (5.6) |  |  | (9.9) |
Stock-based compensation | 14.5 |  |  | (28.4) |  |  | (11.9) |
Effect of foreign operations | 8.1 |  |  | (0.7) |  |  | (1.0) |
Research and development credits | (51.7) |  |  | 5.3 |  |  | 2.6 |
Non-deductible expenses | 19.2 |  |  | (1.5) |  |  | (6.2) |
Provision to return true-up | (7.1) |  |  | 0.2 |  |  | — |
Unrecognized tax benefits | 7.9 |  |  | — |  |  | — |
Other, net | (4.0) |  |  | 0.6 |  |  | 0.2 |
Effective tax rate | 39.0 | % |  | (5.3) | % |  | (1.6) | %
The Tax Cuts and Jobs Act enacted on December 22, 2017 amended Internal Revenue Code Section 174 to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or fifteen years (non-U.S. R&E) beginning in fiscal 2023. As a result, for fiscal 2024 and 2023, the Company disavowed certain tax deductions, which resulted in the utilization of federal and state tax attributes to offset this impact. The tax effects of temporary differences and related deferred tax assets and liabilities as of January 31, 2025 and 2024 were as follows:
| As of January 31,
| 2025 |  | 2024
| (dollars in millions)
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 702 |  |  | $ | 716 |
Capitalized research expenditures | 335 |  |  | 268 |
Stock-based compensation | 41 |  |  | 41 |
Operating lease liabilities | 31 |  |  | 36 |
Other reserves and accruals | 24 |  |  | 21 |
Research and development and other credits | 146 |  |  | 125 |
Total deferred tax assets | 1,279 |  |  | 1,207 |
Valuation allowance | (1,144) |  |  | (1,087) |
Total deferred tax assets, net | 135 |  |  | 120 |
Deferred tax liabilities: |  |  |
Deferred commissions | (99) |  |  | (67) |
Other deferred tax liabilities | (15) |  |  | (5) |
Operating lease right-of-use assets | (20) |  |  | (21) |
Depreciation and amortization | (14) |  |  | (35) |
Total deferred tax liabilities | (148) |  |  | (128) |
Net deferred tax liabilities | $ | (13) |  |  | $ | (8) |
The Company has determined that it is not more likely than not that it will realize the benefits of its net deferred tax assets in the United States due to negative evidence such as a continued cumulative loss and an increase in net deferred tax assets despite attribute utilization. Therefore, the Company has recorded a valuation allowance to reduce the carrying value of the U.S. deferred tax assets, net of U.S. deferred tax liabilities. The U.S. valuation allowance increased by $57 million and $9 million during fiscal 2025 and 2024, respectively. As of January 31, 2025, the Company had approximately $2,683 million of federal and $2,025 million of state net operating loss carryforwards available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2036 and 2026, respectively. The federal and state net operating losses for fiscal 2025 consider the impacts of the amendments of prior-year federal and state tax returns as discussed in the effective tax rate reconciliation section. As of January 31, 2025, the Company had approximately $34 million of UK net operating losses which do not expire. As of January 31, 2025, the Company had federal research and development tax credit carryforwards of $130 million and California research and development tax credit carryforwards of $86 million. The federal research and development credits will start to expire in 2038 while the California research and development credits do not expire. The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. A reconciliation of beginning and ending amount of unrecognized tax benefit was as follows:
| Year Ended January 31,
| 2025 |  | 2024 |  | 2023
| (dollars in millions)
Gross amount of unrecognized tax benefits as of the beginning of the year | $ | 49 |  |  | $ | 43 |  |  | $ | 37 |
Additions based on tax positions related to a prior year | 4 |  |  | — |  |  | 1 |
Additions based on tax positions related to current year | 12 |  |  | 7 |  |  | 7 |
Reductions based on tax positions taken in a prior year | — |  |  | (1) |  |  | (2) |
Gross amount of unrecognized tax benefits as of the end of the year | $ | 65 |  |  | $ | 49 |  |  | $ | 43 |
For all periods presented, the Company has an immaterial amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate. The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. For all years presented, the Company has not accrued a material amount in interest and penalties related to unrecognized tax benefits. The Company does not have any significant uncertain tax positions as of January 31, 2025 for which it is reasonably possible that the positions will increase or decrease within the next twelve months. As the Company has net operating loss carryforwards for the U.S. federal and state jurisdictions, the statute of limitations is open for all years. For material foreign jurisdictions, the tax years open to examination include the tax years 2017 and forward.

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