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Income Taxes
 12 Months Ended
Jan. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13. Income Taxes

The components of income before income taxes were as follows (in thousands):

 

 

 

Year Ended January 31,

 

 

 

2025

 

 

2024

 

 

2023

 

United States

 

$

13,890

 

 

$

14,174

 

 

$

(7,103

)

Foreign

 

 

71,270

 

 

 

48,412

 

 

 

41,510

 

Total

 

$

85,160

 

 

$

62,586

 

 

$

34,407

 

The components of (benefit from) provision for income taxes were as follows (in thousands):

 

 

 

Year Ended January 31,

 

 

 

2025

 

 

2024

 

 

2023

 

Current:

 

 

 

 

 

 

 

 

 

State

 

$

1,196

 

 

$

1,887

 

 

$

1,431

 

Foreign

 

 

10,568

 

 

 

6,959

 

 

 

4,546

 

Total

 

 

11,764

 

 

 

8,846

 

 

 

5,977

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(154,032

)

 

 

(91

)

 

 

58

 

State

 

 

(23,614

)

 

 

59

 

 

 

65

 

Foreign

 

 

6,421

 

 

 

(75,260

)

 

 

1,524

 

Total

 

 

(171,225

)

 

 

(75,292

)

 

 

1,647

 

(Benefit from) provision for income taxes

 

$

(159,461

)

 

$

(66,446

)

 

$

7,624

 

The following is a reconciliation of the difference between the effective income tax rate and the federal statutory rate of 21% (in thousands):

 

 

 

Year Ended January 31,

 

 

 

2025

 

 

2024

 

 

2023

 

Tax at statutory federal rate

 

$

17,884

 

 

$

13,139

 

 

$

7,225

 

State taxes, net of federal benefit

 

 

2,782

 

 

 

3,792

 

 

 

(1,794

)

U.S. tax on foreign earnings

 

 

17,389

 

 

 

14,569

 

 

 

14,357

 

Foreign rate difference

 

 

2,022

 

 

 

819

 

 

 

(53

)

Nondeductible expenses

 

 

828

 

 

 

701

 

 

 

893

 

Induced conversion expense

 

 

2,129

 

 

 

—

 

 

 

—

 

Research and development credit

 

 

(7,880

)

 

 

(7,916

)

 

 

(6,870

)

Change in reserve for unrecognized tax benefits

 

 

7,880

 

 

 

7,916

 

 

 

6,870

 

Stock-based compensation

 

 

1,032

 

 

 

3,555

 

 

 

(7,069

)

Change in valuation allowance, including the effect of tax rate change

 

 

(203,542

)

 

 

(102,573

)

 

 

(5,995

)

Other

 

 

15

 

 

 

(448

)

 

 

60

 

Total (benefit from) provision for income taxes

 

$

(159,461

)

 

$

(66,446

)

 

$

7,624

 

 

The significant components of our deferred tax assets and liabilities were as follows (in thousands):

 

 

 

January 31,

 

 

 

2025

 

 

2024

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryover

 

$

149,519

 

 

$

194,008

 

Stock-based compensation

 

 

10,365

 

 

 

9,426

 

Capitalized research and development

 

 

93,398

 

 

 

76,361

 

Depreciation and amortization

 

 

11,218

 

 

 

11,428

 

Operating lease liabilities

 

 

20,582

 

 

 

28,050

 

Other

 

 

10,012

 

 

 

11,692

 

Total deferred tax assets

 

 

295,094

 

 

 

330,965

 

Valuation allowance

 

 

(28,526

)

 

 

(230,686

)

Total deferred tax assets, net of valuation allowance

 

 

266,568

 

 

 

100,279

 

Deferred tax liabilities:

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

(15,307

)

 

 

(21,291

)

Deferred commissions

 

 

(3,502

)

 

 

(2,836

)

Goodwill with indefinite life amortization

 

 

(1,932

)

 

 

(1,505

)

Other

 

 

(57

)

 

 

—

 

Total deferred tax liabilities

 

 

(20,798

)

 

 

(25,632

)

Net deferred tax assets

 

$

245,770

 

 

$

74,647

 

We assess the realizability of deferred tax assets by considering whether it is more likely than not that some portion or all the deferred tax assets will not be realized. As a result, we continue to maintain a valuation allowance against our California deferred tax assets to the extent they are not offset by liabilities from uncertain tax positions.

In the fourth quarter of fiscal year 2025, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets, with the exception of California, are realizable. We released $201.2 million of our valuation allowance associated with the U.S. federal and state deferred tax assets. These U.S. federal and state deferred tax assets were created primarily as a result of net operating loss carryforwards from historical business operations. A significant improvement in our profitability over the last three years coupled with anticipated future earnings provided positive evidence to support the conclusion that sufficient taxable income will be generated in the future and a valuation allowance is no longer necessary. As of January 31, 2025, we maintained our valuation allowance associated with the California state deferred tax assets.

During the years ended January 31, 2025 and 2024, the valuation allowance decreased by $202.2 million and $101.2 million, respectively.

Provisions enacted in the 2017 Tax Cuts and Jobs Act related to the capitalization for tax purposes of research and experimental (R&E) expenditures became effective for tax years beginning after December 31, 2021. Beginning in the year ended January 31, 2023, we began capitalizing and amortizing R&E expenditures over five years for domestic research and 15 years for international research rather than expensing these costs as incurred. As a result, we recorded a net deferred tax asset of $90.2 million and $68.0 million, respectively, related to the capitalization requirement during the years ended January 31, 2025 and 2024.

As of January 31, 2025, we had federal, state and foreign net operating loss carryforwards of $233.7 million, $487.3 million and $268.5 million, respectively, available to offset future taxable income. The federal net operating loss carryforwards generated prior to fiscal year 2019 will expire at various dates beginning in 2037, if not utilized. We have federal net operating loss carryforwards of $125.3 million, which can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2027, if not utilized. The foreign net operating loss carryforwards do not expire. In addition, as of January 31, 2025, we had federal and state research and development tax credit carryforwards of $69.4 million and $65.6 million, respectively. The federal research and development tax credit carryforwards will expire beginning in 2026, if not utilized. The state research and development tax credit carryforwards do not expire.

Utilization of the federal and state net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. We completed a Section 382 ownership change analysis through fiscal year 2025 tax periods, which concluded that our net operating losses are not permanently limited. Subsequent ownership changes may further affect the limitation in future years but we do not expect that the annual limitations will significantly impact our ability to utilize net operating loss or tax credit carryforward.

We evaluate tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years.

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):

 

 

 

Year Ended January 31,

 

 

 

2025

 

 

2024

 

 

2023

 

Unrecognized tax benefits—beginning of period

 

$

118,981

 

 

$

103,636

 

 

$

90,678

 

Reductions for tax positions related to prior year

 

 

(49

)

 

 

—

 

 

 

—

 

Additions for tax positions related to prior year

 

 

—

 

 

 

1,733

 

 

 

209

 

Additions for tax positions related to current year

 

 

13,642

 

 

 

13,612

 

 

 

12,749

 

Unrecognized tax benefits—end of period

 

$

132,574

 

 

$

118,981

 

 

$

103,636

 

It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may decrease by up to approximately $70.0 million due to refinement of certain tax return positions.

As of January 31, 2025, the balance of unrecognized tax benefits was $132.6 million of which $69.1 million, if recognized, would affect the effective tax rate and $63.5 million would result in adjustment to deferred tax assets with corresponding adjustments to the valuation allowance. The gross unrecognized tax benefits, if recognized, would not materially affect the effective tax rate as of January 31, 2024 and 2023.

Our policy is to classify interest and penalties associated with uncertain tax positions, if any, as a component of our income tax provision. Interest and penalties were not significant during the years ended January 31, 2025, 2024 and 2023.

We file tax returns in the U.S. for federal, California, and other states. All tax years remain open to examination for both federal and state purposes as a result of our net operating loss and credit carryforwards. We file tax returns in the U.K. and other foreign jurisdictions in which we operate. Tax years 2021 onwards remain open to examination for the U.K. Certain tax years remain open to examination under the statute of limitations of the respective countries in which our other foreign subsidiaries are located.