Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.1
Income Taxes
 12 Months Ended
Jan. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The domestic and foreign component of the income (loss) before provision for income taxes was as follows:
Year Ended January 31,
(in thousands) 2025 2024 2023
Domestic $ 18,464  $ 32,033  $ (70,072)
Foreign 29,828  28,489  22,604 
Total $ 48,292  $ 60,522  $ (47,468)
The (benefit) provision for income taxes consisted of the following:
Year Ended January 31,
(in thousands) 2025 2024 2023
Current tax provision:
Federal $ —  $ —  $ — 
State 1,834  207  69 
Foreign 12,875  11,788  8,039
Total current tax provision
 $ 14,709  $ 11,995  $ 8,108 
Deferred tax (benefit) expense:
Federal $ (69,072) $ 94  $ 92 
State (17,795) 108  142 
Foreign (1,159) (3,078) (68)
Total deferred tax (benefit) expense
 (88,026) (2,876) 166 
Total (benefit) provision for income taxes
 $ (73,317) $ 9,119  $ 8,274 
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate was as follows:
Year Ended January 31,
2025 2024 2023
U.S. federal statutory rate 21.0  % 21.0  % 21.0  %
Effect of:
State taxes, net of U.S. federal benefit 2.6  2.4  2.2 
Foreign taxes in excess of the U.S. rate differential 1.4  1.6  (3.7)
Foreign withholding taxes
 6.3  6.1  (1.8)
Non-deductible expenses 4.2  0.3  (11.4)
Non-deductible officer's compensation 7.9  16.3  (2.7)
Changes in valuation allowance (199.5) (31.3) (15.9)
Excess tax benefits related to shared based compensation (4.1) (3.6) 4.4 
Global Intangible Low Taxed Income (GILTI) inclusion —  0.3  (12.7)
Impact of disregarded entity elections
 7.0  —  — 
Other 1.4  2.0  3.1 
Effective tax rate
 (151.8) % 15.1  % (17.5) %
Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities were as follows:
January 31,
(in thousands) 2025 2024
Deferred tax assets:
Net operating loss carryforward $ 90,177  $ 112,671 
Accrued compensation
 6,911  1,866 
Accrued commissions 4,847  1,406 
Fixed assets and intangibles
 3,486  882 
Allowance for doubtful accounts 2,137  1,294 
Deferred revenue 2,012  337 
Stock-based compensation 8,800  4,962 
Lease liabilities
 11,719  1,731 
Other 8,751  — 
Total deferred tax assets 138,840  125,149 
Less valuation allowance (705) (86,203)
Deferred tax assets, net of valuation allowance 138,135  38,946 
Deferred tax liabilities
Fixed assets and intangibles
 —  (876)
Capitalized commission costs (34,834) (33,379)
Lease right-of-use
 (10,638) (1,525)
Other (2,329) (332)
Total deferred tax liabilities (47,801) (36,112)
Net deferred tax assets(1)
$ 90,334  $ 2,834 
(1) Deferred tax assets of $90.4 million and $4.3 million are recorded within other non-current assets on the consolidated balance sheets as of January 31, 2025 and 2024, respectively.
At January 31, 2025, for U.S. federal income tax purposes, the Company had net operating loss (“NOL”) carryforwards of approximately $335.7 million, which expire in fiscal 2034 through fiscal 2038. The U.S. federal net operating losses generated after
fiscal 2019 do not expire and may be carried forward indefinitely. For U.S. states income tax purposes, the Company had net operating loss carryforwards of approximately $258.9 million, which expire in various years beginning from fiscal 2026 through fiscal 2042. As of January 31, 2025, based on the relevant weight of positive and negative evidence, including the amount of our taxable income in recent years which is objective and verifiable, and consideration of our expected future taxable earnings, we have now recognized deferred tax assets without an offsetting valuation allowance for these federal and state NOLs. For foreign income tax purposes, the Company had net operating loss carryforwards of approximately $6.9 million, which expire beginning fiscal 2026.
Utilization of the Company’s net operating loss carryforwards may be subject to an annual limitation as a result of an ownership change, as defined under the provisions of Section 382 of the Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. Analysis has been conducted to determine whether an ownership change had occurred since inception. This analysis has indicated that although ownership changes have occurred in a prior year, the net operating losses would not expire before utilization as a result of the ownership change. In the event that the Company has subsequent changes in ownership, net operating losses and research and development credit carryovers could be limited and may expire unutilized as a result of the subsequent ownership change. Utilization of the Company’s foreign NOL carryforwards in the future will be dependent upon the local tax law and regulation.
The Company had a valuation allowance of $0.7 million and $86.2 million as of January 31, 2025 and 2024, respectively. We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. As of January 31, 2025, based on the relevant weight of positive and negative evidence, including cumulative taxable income over the past three years, which is objective and verifiable, and consideration of our expected future taxable earnings, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets are realizable. As such, we released $87.1 million of our valuation allowance associated with the U.S. federal and state deferred tax assets.
Following an assessment of the realizability of deferred tax assets in Brazil and Japan, the Company released its previously established valuation allowances on these assets, resulting in a $3.3 million tax benefit being recorded during the year ended January 31, 2024.
The Company has not recorded deferred income taxes and withholding taxes with respect to the undistributed earnings of its foreign subsidiaries, as such earnings are determined to be reinvested indefinitely. If those earnings were repatriated, in the form of dividends or otherwise, the Company could be subject to U.S. income taxes and withholding taxes to the various foreign countries. As of January 31, 2025, the Company had $85.4 million of earnings indefinitely reinvested outside of the U.S. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the amount of tax associated with such unremitted earnings.
The IRA was signed into law on August 16, 2022. The bill was meant to address the high inflation rate in the U.S. through various climate, energy, healthcare, and other incentives. These incentives are meant to be paid for by the tax provisions included in the IRA, such as a new 15 percent corporate minimum tax, a new excise tax on stock buybacks, additional IRS funding to improve taxpayer compliance, and other items. As of January 31, 2025, the Company has accrued $1.9 million of excise taxes associated with the 2024 Share Repurchase Program. At this time, none of the IRA tax provisions are expected to have a material impact to the Company’s fiscal year 2025 tax provision. The Company will continue to monitor for updates to the Company’s business along with guidance issued with respect to the IRA.
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company records interest and penalties related to unrecognized tax benefits within the Company’s provision for income taxes.
A reconciliation of the beginning and ending balance of total gross unrecognized tax benefits for the year ended January 31, 2025:
Year Ended January 31,
(in thousands) 2025 2024 2023
Balance at beginning of period $ 2,436  $ 1,728  $ 1,539 
Tax positions taken during a prior year:
Gross decreases —  —  (288)
Tax positions taken during the current year:
Gross increases 666  708  477 
Balance at end of period $ 3,102  $ 2,436  $ 1,728 
As of January 31, 2025, the Company had recorded unrecognized tax benefits of $3.1 million that, if recognized, would benefit the Company’s effective tax rate. As of January 31, 2024, the Company had recorded unrecognized tax benefits of $2.4 million that, if recognized, would benefit the Company’s effective tax rate.
The Company recognized immaterial amounts of interest and penalties related to income tax matters as a component of income tax expense during the years ended January 31, 2025, 2024, and 2023. In addition, the Company accrued immaterial amounts related to penalties and interest as of January 31, 2025 and 2024.
The Company’s India subsidiary is currently under audit in India for tax years 2016 through 2018. Related to the audit by the India tax authorities, it is reasonably possible that the Company’s uncertain tax positions could change within the next 12 months. An estimate of the range of any change cannot be made. The Company believes that it has recorded all appropriate provisions for all jurisdictions and open years. However, the Company can give no assurance that taxing authorities will not propose adjustments that would increase its tax liabilities. The Company is not currently under audit by the IRS or any other taxing authority in any other material jurisdiction.
Because of net operating loss carryforwards, all of the Company’s tax years dating to inception in 2012 remain open to tax examination in U.S. and certain state tax jurisdictions. For India, tax years from 2016 remain open. For other major non-U.S. jurisdictions, tax years from 2019 to present remain open to tax examination.