Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.1
Income Taxes
 12 Months Ended
Jan. 31, 2024
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) 2024 2023 2022
Domestic $ 32,033  $ (70,072) $ (123,956)
Foreign 28,489  22,604  19,402 
Total $ 60,522  $ (47,468) $ (104,554)
The provision for income taxes consisted of the following:
Year Ended January 31,
(in thousands) 2024 2023 2022
Current tax provision:
Federal $ —  $ —  $ — 
State 207  69  67 
Foreign 11,788  8,039  6,987
Total current tax provision
 $ 11,995  $ 8,108  $ 7,054 
Deferred tax expense (benefit):
Federal $ 94  $ 92  $ 88 
State 108  142  92 
Foreign (3,078) (68) (318)
Total deferred tax expense (benefit)
 (2,876) 166  (138)
Total provision for income taxes $ 9,119  $ 8,274  $ 6,916 
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,
2024 2023 2022
U.S. federal statutory rate 21.0  % 21.0  % 21.0  %
Effect of:
State taxes, net of U.S. federal benefit 2.4  2.2  2.8 
Foreign taxes in excess of the U.S. rate differential 1.6  (3.7) 1.4 
Foreign withholding taxes
 6.1  (1.8) (3.2)
Non-deductible expenses 16.6  (14.0) (8.7)
Changes in valuation allowance (31.3) (15.9) (23.9)
Excess tax benefits related to shared based compensation (3.6) 4.4  4.8 
Global Intangible Low Taxed Income (GILTI) inclusion 0.3  (12.7) — 
Other 2.0  3.1  (0.8)
Effective tax rate
 15.1  % (17.4) % (6.6) %
Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities were as follows:
January 31,
(in thousands) 2024 2023
Deferred tax assets:
Net operating loss carryforward $ 112,671  $ 120,438 
Accrued compensation
 1,866  1,252 
Accrued commissions 1,406  976 
Depreciation and amortization 882  749 
Allowance for doubtful accounts 1,294  775 
Deferred revenue 337  1,308 
Stock-based compensation 4,962  11,340 
Lease liabilities
 1,731  2,190 
Other —  6 
Total deferred tax assets 125,149  139,034 
Less valuation allowance (86,203) (105,500)
Deferred tax assets, net of valuation allowance 38,946  33,534 
Deferred tax liabilities
  Depreciation and amortization (876) (3,239)
Capitalized commission costs (33,379) (27,873)
Lease right-of-use
 (1,525) (2,376)
Other (332) (101)
Total deferred tax liabilities (36,112) (33,589)
Net deferred tax assets (liabilities) $ 2,834  $ (55)
At January 31, 2024, for U.S. federal income tax purposes, the Company had net operating loss carryforwards of approximately $420.8 million, which expire in fiscal 2032 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 $316.6 million, which expire in various years beginning from fiscal 2022 through fiscal 2042. For foreign income tax purposes, the Company had net operating loss carryforwards of approximately $12.2 million which expire beginning fiscal 2025.
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. 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 $86.2 million and $105.5 million as of January 31, 2024 and 2023, respectively. The Company regularly evaluates the need for a valuation allowance against its deferred tax assets by considering both positive and negative evidence related to whether it is more likely than not that our deferred tax assets will be realized. Based on the weight of the available evidence, which includes the Company’s historical operating losses, and lack of taxable income, the Company provided a valuation allowance against the deferred tax assets for the U.S. 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. In the current year, the Company achieved three years of cumulative pretax income along with the positive outlook of future earnings in the Brazil and Japan tax jurisdictions. As such, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that the Company will be able to utilize a portion of its deferred tax assets.
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, 2024, the Company had $99.3 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.
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 which 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, 2024:
Year Ended January 31,
(in thousands) 2024 2023 2022
Balance at beginning of period $ 1,728  $ 1,539  $ 568 
Tax positions taken during a prior year:
Gross increases —  —  1,229 
Gross decreases —  (288) (605)
Tax positions taken during the current year:
Gross increases 708  477  347 
Balance at end of period $ 2,436  $ 1,728  $ 1,539 
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, 2024, 2023, and 2022. In addition, the Company accrued immaterial amounts related to penalties and interest as of January 31, 2024 and 2023.
It is reasonably possible that over the next 12-month period the Company may experience an increase or decrease to certain unrecognized tax benefits due to tax examination changes, settlement activities, expirations of statute of limitations, or other similar activities. Nonetheless, the Company anticipates insignificant changes to unrecognized tax benefits over the next 12 months.
The Company is subject to taxation in multiple jurisdictions in the United States and outside of the United States. The Company currently considers U.S. federal, Brazil, France, India, Japan, and the United Kingdom to be major tax jurisdictions. Tax years 2017 and forward remain open for examination for U.S. federal tax purposes and tax years 2018 and forward remain open for examination for the Company's more significant state jurisdictions. To the extent utilized in future years’ tax returns, net operating loss carryforwards from tax years 2012 and onward will remain subject to examination until the respective tax year is closed. Generally, tax authorities outside of the United States may examine the Company’s tax returns five years from the date an income tax return is filed.