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Income Taxes
 12 Months Ended
Jan. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
13. Income Taxes
The components of total loss from continuing operations before income taxes are as follows (in thousands):
Fiscal Year Ended January 31,
202420232022
US$14,328 $(4,877)$19,486 
Foreign(174,480)(170,453)(178,557)
Loss before income taxes$(160,152)$(175,330)$(159,071)
The provision for (benefit from) income taxes consisted of the following (in thousands):
Fiscal Year Ended January 31,
202420232022
Current:
Federal and State$(1,768)$1,432 $(863)
Foreign256,296 822 671 
Total current$254,528 $2,254 $(192)
Deferred:
Federal and State$(810)$614 $(1,443)
Foreign10,339 30 124 
Total deferred$9,529 $644 $(1,319)
Provision for (benefit from) income taxes$264,057 $2,898 $(1,511)
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,
202420232022
Tax at federal statutory rate21.0 %21.0 %21.0 %
State, net of federal benefit(0.1)(0.2)0.2 
Stock-based compensation2.4 (0.4)5.0 
Non-deductible Executive Compensation(4.8)(1.6)(0.5)
Research tax credit6.3 2.7 1.0 
Foreign rate differential(1.8)5.5 6.1 
Change in valuation allowance(83.5)(29.0)(30.3)
Foreign derived intangible income deduction— 0.6 0.3 
Unrecognized tax benefits(104.9)(0.5)(1.3)
Other0.5 0.2 (0.6)
Total(164.9)%(1.7)%0.9 %
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,
20242023
Deferred tax assets:
Net operating loss carryforwards$85,348 $144,016 
Research tax credits14,031 2,359 
Deferred revenue6,812 5,876 
Accruals and other assets6,237 3,590 
Capitalized R&D70,921 — 
Intangibles110,160 8,278 
Interest expense limitation35,085 — 
Stock-based compensation6,679 5,040 
Gross deferred tax assets335,273 169,159 
Valuation allowance(328,385)(159,470)
Net deferred tax assets6,888 9,689 
Deferred tax liabilities:
Deferred contract acquisition costs(7,019)(6,095)
Acquired intangibles— (863)
Equity method investment— (2,892)
Fixed assets(191)(499)
Unrealized foreign exchange adjustments(10,024)— 
Other(23)(189)
Net deferred tax liabilities$(10,369)$(849)
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. As in prior years, the Company maintained that it was not more likely than not that the Company could recognize deferred tax assets in certain jurisdictions. The evidence evaluated by the Company included operating results during the most recent three-year period and future projections. More weight was given to historical results than to 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 $168.9 million in the valuation allowance for the year ended January 31, 2024 is primarily due to the addition of certain deferred tax assets from the estimated result of the settlement with the Internal Revenue Service and Dutch tax authorities. As of January 31, 2024, the Company recorded $10.4 million of net deferred tax liabilities.
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, 2024, the amount of unrecognized U.S federal deferred income tax liability for undistributed earnings is immaterial.
As of January 31, 2024, the Company had federal net operating loss carryforwards of approximately $285.6 million, state net operating loss carryforwards of approximately $336.7 million and foreign net operating loss carryforwards of approximately $31.7 million. The federal net operating loss carryforwards do not expire as they were generated after the enactment of the 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 2025. 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 $17.9 million for federal purposes. The U.S. Federal Research & Experimentation (R&E) credit, if not utilized, will begin to expire in 2038. The Company also has research tax credit carryforwards of approximately $3.9 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.
Uncertain Tax Positions
The Company has been in BAPA negotiations between the IRS and the DTA relating to the Company’s transfer pricing arrangements between the United States and the Netherlands. In the year ended January 31, 2024, the Company for the first time discussed with the IRS and DTA a framework to finalize its transfer pricing arrangements for the proposed BAPA period consisting of tax years ending December 31, 2018 through January 31, 2027. The proposed agreements between the Company, the IRS and the DTA are not yet final; in anticipation of the agreements, $254.9 million of net tax expense was recorded in the year ended January 31, 2024. This amount represents the unrecognized tax benefit relating to the BAPA. The unrecognized tax benefit represents the Company’s best estimate of the tax expense associated with the proposed agreements and their related effects.
As of January 31, 2024, the Company’s U.S. federal 2018 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 the tax years ended December 31, 2015 and 2016. The Company expects negotiations to continue to the middle of fiscal 2025. The Company believes that it has adequately reserved for the outcome of this audit. 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, 2024, unrecognized tax benefits approximated $396.8 million, of which $207.8 million would affect the effective tax rate if recognized. We have classified approximately $207.3 million of the unrecognized tax benefit as a current tax liability due to the anticipated timing of the settlement with the IRS and DTA and their associated payments, which are expected to be made within the next 12 months. 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.
The reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):
January 31,
20242023
Beginning balance$7,460 $5,557 
Gross increases due to tax positions taken in prior periods324,364 685 
Gross increases due to tax position taken in current period65,001 1,369 
Gross decreases due to lapses in applicable statutes of limitations(1)(151)
Ending balance$396,824 $7,460 
The Company believes that it is reasonably possible that $389.0 million of the unrecognized tax benefit will be realized in the coming year due to the settlement of the BAPA. 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, 2024, 2023 and 2022, the Company recognized interest and penalties of $52.1 million, $0.2 million and $0.1 million, respectively.