Income Taxes

6 Months Ended

Jul. 31, 2020

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the applicable quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our pre-tax income in multiple jurisdictions, certain book-tax differences, and the effects of acquisitions.

The following table provides details of the provision for income taxes:


	Three Months Ended July 31,									Six Months Ended July 31,
	2020			2019			2020			2019

	(in thousands, except percentages)
Net income before provision for income taxes	$	190,185		$	6,757		$	219,360		$	9,287
Provision for income taxes	4,196			1,216			6,296			1,532
Effective tax rate	2.2		%	18.0		%	2.9		%	16.5		%

The provision for income taxes was $4.2 million and $1.2 million for the three months ended July 31, 2020 and 2019, respectively, and $6.3 million and $1.5 million for the six months ended July 31, 2020 and 2019, respectively. The provision for income taxes for the three and six months ended July 31, 2020 consisted primarily of foreign income taxes, state income taxes, and a one-time benefit from the release of a valuation allowance as a result of an acquisition. For the three and six months ended July 31, 2020 and 2019, the provision for income taxes differed from the U.S. federal statutory rate primarily due to stock-based compensation and the full valuation allowance on the U.S. and the U.K. deferred tax assets.

The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence during the three and six months ended July 31, 2020, we believe it is more likely than not that the tax benefits of the U.S. and the U.K. losses incurred may not be realized. Accordingly, we recorded a full valuation allowance against the tax benefits of the U.S. and the U.K. losses incurred. We intend to maintain the full valuation allowance on the U.S. and the U.K. net deferred tax assets until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

We recorded a valuation allowance against all of our deferred tax assets (“DTAs”) for the U.S. and U.K. as of both July 31, 2020 and January 31, 2020. We intend to continue maintaining a full valuation allowance on our DTAs until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

During the three and six months ended July 31, 2020, there were no material changes to the total amount of unrecognized tax benefits and we do not expect any significant changes in the next 12 months.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed into law and amended portions of relevant tax laws. The CARES Act did not have a significant impact on the provision for income taxes for the three and six months ended July 31, 2020. We will continue to monitor future guidance issued regarding the CARES Act and other similar stimulus measures to determine any future impacts.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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