Income Taxes

6 Months Ended

Jul. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

For the three and six months ended July 31, 2023, the Company recorded income tax expense of $4.0 million and $5.5 million on pretax loss of $46.3 million and $96.9 million, respectively. The income tax expense for the three and six months ended July 31, 2023 was primarily related to an increase in tax expense for unrecognized tax benefits and the Company's foreign and domestic operations as compared to the same periods last year.

For the three and six months ended July 31, 2022, the Company recorded income tax benefit of $0.1 million and income tax expense of $2.5 million on pretax loss of $60.7 million and $84.6 million, respectively. The income tax benefit for the three months ended July 31, 2022 was primarily related to an increase in domestic losses from operations as compared to the same period last year. The income tax expense for the six months ended July 31, 2022 related primarily to the Company's foreign and domestic operations and the establishment of a deferred tax liability relating to the deconsolidation of a majority-owned entity, Meltano, and simultaneous establishment of the Company's equity method investment.

The Company's provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses, jurisdictions for which forecasted pre-tax income or loss cannot be estimated, and the tax effect of discrete items occurring during the period. The tax provision for jurisdictions for which a forecast cannot be estimated is based on actual taxes and tax reserves for the quarter.

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.

As of July 31, 2023, unrecognized tax benefits approximated $8.1 million, of which $2.6 million would affect the Company’s effective tax rate if recognized. As of January 31, 2023, unrecognized tax benefits approximated $7.5 million, of which $0.5 million would affect the Company’s effective tax rate if

recognized. The Company anticipates an immaterial amount of unrecognized tax benefits to reverse in the next 12 months.

It is the Company’s policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties were $0.2 million as of July 31, 2023 and $0.2 million as of January 31, 2023, respectively.

At July 31, 2023, the Company’s U.S. federal 2019 through 2022 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.