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Income Taxes
 12 Months Ended
Jan. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
12. Income Taxes
The components of total income (loss) from continuing operations before income taxes are as follows (in thousands):
Fiscal Year Ended January 31,
202320222021
US$(4,877)$19,486 $(48,866)
Foreign(170,453)(178,557)(140,496)
Loss before income taxes$(175,330)$(159,071)$(189,362)
The provision for (benefit from) income taxes consisted of the following (in thousands):
Fiscal Year Ended January 31,
202320222021
Current:
Federal and State$1,432 $(863)$2,517 
Foreign822 671 315 
Total current$2,254 $(192)$2,832 
Deferred:
Federal and State$614 $(1,443)$— 
Foreign30 124 — 
Total deferred$644 $(1,319)$— 
Provision for (benefit from) income taxes$2,898 $(1,511)$2,832 
A reconciliation of the statutory U.S. federal income tax rate to the Company's effective tax rate is as follows:
Fiscal Year Ended January 31,
202320222021
Tax at federal statutory rate21.0 %21.0 %21.0 %
State, net of federal benefit(0.2)0.2 (0.2)
Stock-based compensation(0.4)5.0 (7.3)
Non-deductible Executive Compensation(1.6)(0.5)— 
Research tax credit2.7 1.0 0.2 
Foreign rate differential5.5 6.1 2.8 
Change in valuation allowance(29.0)(30.3)(18.6)
Foreign derived intangible income deduction0.6 0.3 0.2 
Unrecognized tax benefits(0.5)(1.3)— 
Other0.2 (0.6)0.4 
Total(1.7)%0.9 %(1.5)%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
January 31,
20232022
Deferred tax assets:
Net operating loss carryforwards$144,016 $99,291 
Research tax credits2,359 1,211 
Deferred revenue5,876 3,811 
Accruals and other assets3,590 2,714 
Intangibles8,278 14,751 
Stock-based compensation5,040 1,587 
Gross deferred tax assets169,159 123,365 
Valuation allowance(159,470)(115,839)
Net deferred tax assets9,689 7,526 
Deferred tax liabilities:
Deferred contract acquisition costs(6,095)(6,516)
Acquired intangibles(863)(1,389)
Equity Method Investment(2,892)— 
Fixed Assets(499)— 
Other(189)— 
Net deferred tax liabilities$(849)$(379)
Under the provisions of ASC 740, Income Taxes, the determination of the Company’s ability to recognize its deferred tax asset requires an assessment of both negative and positive evidence when determining the Company’s ability to recognize its deferred tax assets. The Company determined that it was not more likely than not that the Company could recognize certain deferred tax assets. The evidence evaluated by the Company included operating results during the most recent three-year period and future
projections, with more weight given to historical results than expectations of future profitability, which are inherently uncertain. Certain entities’ net losses in recent periods represented sufficient negative evidence to require a valuation allowance against its net deferred tax assets. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of deferred tax assets.
The increase of $43.6 million in the valuation allowance for the year ended January 31, 2023 is primarily due to net operating losses generated during the year. As of January 31, 2023, the Company recorded $0.8 million of deferred tax liabilities, net.
The Company has not recorded a provision for deferred U.S. tax expense that could result from the remittance of foreign undistributed earnings since the Company intends to reinvest the earnings of the foreign subsidiaries indefinitely. The Company’s share of the undistributed earnings of foreign corporations not included in its consolidated federal income tax returns that could be subject to additional U.S. income tax if remitted is immaterial. As of January 31, 2023, the amount of unrecognized U.S federal deferred income tax liability for undistributed earnings is immaterial.
As of January 31, 2023, the Company had federal net operating loss carryforwards of approximately $2.3 million, state net operating loss carryforwards of approximately $87.7 million and foreign net operating loss carryforwards of approximately $539.9 million. All of the federal net operating loss carryforwards are carried over from an entity acquired in the previous fiscal year. The federal net operating loss carryforwards do not expire as they were generated post Tax Cuts and Jobs Act, where net operating losses generated after December 31, 2017 do not expire. The U.S. state net operating loss carryforwards, if not utilized, will begin to expire on various dates beginning in 2032. The foreign net operating loss carryforwards, if not utilized, will begin to expire on various dates beginning in 2027. In addition, the Company has research tax credit carryforwards of approximately $4.2 million for federal purposes. The U.S. Federal Research & Experimentation (R&E) credit, if not utilized, will begin to expire in 2042. The Company also has research tax credit carryforwards of approximately $1.4 million for U.S. state purposes, which if not utilized, will begin to expire in 2030. Pursuant to the U.S. Internal Revenue Code, the Net Operating Loss and R&E credit could be subject to limitation should the Company experience an owner shift of greater than 50 percent over a 3 year period; however at this time, the effect of this limitation is immaterial.
Uncertain Tax Positions
At January 31, 2023, the Company’s U.S. federal 2018 through 2021 tax years were open and subject to potential examination in one or more jurisdictions. In addition, in the United States, any net operating losses or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination. The Company is currently under examination in the Netherlands for tax years 2015 and 2016. The Company is currently unable to estimate the financial outcome of this examination due to its preliminary status. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.
As of January 31, 2023, unrecognized tax benefits approximated $7.5 million, of which $0.5 million would affect the effective tax rate if recognized. As of January 31, 2022, unrecognized tax benefits approximated $5.6 million, of which $0.8 million would affect the effective tax rate if recognized. The Company anticipates an immaterial amount of unrecognized tax benefits to reverse in the next 12 months.
The reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):
January 31,
20232022
Beginning balance$5,557 $— 
Gross increases and decreases due to tax positions taken in prior periods685 4,076 
Gross increases and decreases due to tax position taken in current period1,369 1,481 
Gross increases and decreases due to settlements with taxing authorities— — 
Gross increases and decreases due to lapses in applicable statutes of limitations(151)— 
Ending balance$7,460 $5,557 
It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. For the years ended January 31, 2023, 2022 and 2021, the Company recognized interest and penalties of $0.2 million, $0.1 million and zero, respectively.