v3.22.0.1
Income Taxes
 12 Months Ended
Jan. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes The Company’s geographical breakdown of its loss before provision for income taxes for the fiscal years ended January 31, 2022, January 31, 2021, and January 31, 2020 is as follows (in thousands):
Year Ended January 31,
202220212020
Domestic$(179,334)$(94,713)$(149,807)
International19,311 6,844 10,025 
Loss before provision for income taxes$(160,023)$(87,869)$(139,782)
The components of the provision for income taxes during the fiscal years ended January 31, 2022, January 31, 2021, and January 31, 2020 are as follows (in thousands):
Year Ended January 31,
202220212020
Current
Federal$— $— $— 
State611 401 104 
Foreign85,700 5,811 2,574 
Total current86,311 6,212 2,678 
Deferred
Federal(363)(136)(362)
State(63)(317)(57)
Foreign(13,530)(999)(262)
Total deferred(13,956)(1,452)(681)
Provision for income taxes$72,355 $4,760 $1,997 
The following table provides a reconciliation between income taxes computed at the federal statutory rate and the provision for income taxes during the fiscal years ended January 31, 2022, January 31, 2021, and January 31, 2020 (in thousands):
As of January 31,
202220212020
Provision for income taxes at statutory rate$(33,605)$(18,453)$(29,354)
State income taxes, net of federal benefits673 — 25 
Foreign tax rate differential
574 1,994 207 
Research and other credits(19,113)(9,373)(1,534)
Stock-based compensation(145,964)(140,489)(43,477)
Non-deductible expenses2,783 2,212 1,773 
Change in unrecognized tax benefits— — (2,659)
Change in valuation allowance210,680 168,869 77,016 
Tax impact of restructuring57,236 — — 
Other (909)— — 
Provision for income taxes$72,355 $4,760 $1,997 
The Company recognized an income tax expense of $72.4 million, $4.8 million, and $2.0 million for the fiscal years January 31, 2022, January 31, 2021 and January 31, 2020, respectively. The tax expense for the fiscal years ended January 31, 2021 and January 31, 2020 was primarily attributable to pre-tax foreign earnings and withholding taxes related to customer payments in certain foreign jurisdictions in which the Company conducts business. The tax expense for the fiscal year ended January 31, 2022 was primarily attributable to pre-tax foreign earnings and the intercompany sale of intellectual property from Humio. The Company transferred acquired intellectual property from the foreign subsidiary to the U.S. Although the transfer of the intellectual property between consolidated entities did not result in any gain in the consolidated statement of operations, the Company generated a taxable gain in the foreign jurisdiction resulting in an additional tax expense of $57.2 million.
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 used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities as of January 31, 2022 and January 31, 2021 are as follows (in thousands):
As of January 31,
20222021
Deferred tax assets
Net operating loss carryforwards$428,238 $289,889 
Research and other credit carryforwards56,539 22,778 
Intangible assets61,008 — 
Stock-based compensation33,202 20,154 
Deferred revenue34,425 21,595 
Accrued expenses12,550 7,791 
Operating lease liabilities10,144 10,718 
Capitalized research and development154,625 63,158 
Other, net4,514 — 
Gross deferred assets795,245 436,083 
Less: Valuation allowance(770,861)(413,828)
Total deferred tax assets24,384 22,255 
Deferred tax liabilities
Property and equipment, net(8,769)(4,446)
Capitalized Commissions(1,632)(2,960)
Intangible assets— (3,697)
Operating right-of-use assets(9,256)(9,610)
Other, net— (302)
Total deferred tax liabilities(19,657)(21,015)
Net deferred tax assets (liabilities)$4,727 $1,240 
At each reporting date, the Company has established a valuation allowance against its U.S. net deferred tax assets due to the uncertainty surrounding the realization of those assets. During the fiscal year ended January 31, 2020, the Company has established a valuation allowance against its net U.K. deferred tax assets due to uncertainty surrounding the realization of those assets. The Company periodically evaluates the recoverability of the deferred tax assets and, when it is determined to be more-likely-than-not that the deferred tax assets are realizable, the valuation allowance is reduced. During the fiscal years ended January 31, 2022, January 31, 2021, and January 31, 2020, the valuation allowance increased by $357.0 million, $206.2 million, and $87.2 million, respectively. The increase in the valuation allowance during the fiscal years ended January 31, 2022, January 31, 2021 and January 31, 2020 was primarily driven by losses generated in the United States and United Kingdom. As of January 31, 2022, January 31, 2021, and January 31, 2020 the valuation allowance for deferred taxes balance was $770.9 million, $413.8 million, and $207.6 million, respectively.
As of January 31, 2022, the Company had aggregate federal and California net operating loss carryforwards of $1.6 billion and $168.9 million, respectively, which may be available to offset future taxable income for income tax purposes. The federal and California net operating loss carryforwards begin to expire in fiscal 2031 through fiscal 2042. In addition, for federal losses generated after December 31, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) modified the maximum deduction of net operating loss, eliminated carryback, and provided an indefinite carryforward. As of January 31, 2022, net operating loss carryforwards for other states total $868.0 million which begin to expire in fiscal 2023 through fiscal 2042. As of January 31, 2022, net operating loss carryforwards for United Kingdom total $81.1 million which are carried forward indefinitely.
As of January 31, 2022, the Company had federal and California research and development credit (“R&D credit”) carryforwards of $65.6 million and $13.7 million, respectively. The federal R&D credit carryforwards will begin to expire in fiscal 2035 though fiscal 2042. The California R&D credits are carried forward indefinitely.
Realization of these net operating loss and research and development credit carryforwards depends on future income, and there is a risk that the Company’s existing carryforwards could expire unused and be unavailable to offset future income tax liabilities.
The Internal Revenue Code imposes limitations on a corporation’s ability to utilize net operating loss (“NOLs”) and credit carryovers if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50% over a three-year period. If an ownership change has occurred, or were to occur, utilization of the Company’s NOLs and credit carryovers could be restricted. The Company’s net operating losses and credit carryovers are not currently subject to a limitation due to an ownership change.
The total gross unrecognized tax benefit as of January 31, 2022, January 31, 2021 and January 31, 2020 were $26.3 million, $24.4 million, and $5.5 million, respectively. As of January 31, 2022, the Company had $1.9 million of unrecognized tax benefits, which, if recognized, would affect the Company’s effective tax rate. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as part of the income tax provision in the consolidated statements of operations. The Company had incurred insignificant amounts of interest and penalties related to unrecognized tax benefits as of January 31, 2022 and did not accrue interest and penalties in prior periods. During the fiscal years ended January 31, 2022 and 2021, the net increase in uncertain tax benefits was a result of research and development credits. During the fiscal year ended January 31, 2020, the uncertain tax benefits balance decreased due to the application of IRS directive in determining the research credit. The potential change in unrecognized tax benefits during the next 12 months is not expected to be material.
The following is a rollforward of the total gross unrecognized tax benefits for the fiscal years ended January 31, 2022, January 31, 2021, and January 31, 2020 (in thousands):
Balance as of February 1, 2019$8,128 
Decreases in current period tax positions(2,659)
Balance as of January 31, 20205,469 
Increases in prior period tax positions6,926 
Increase in current period tax positions12,052 
Balance as of January 31, 202124,447 
Increases in prior period tax positions186 
Decreases in prior period tax positions(9,772)
Increase in current period tax positions11,463 
Balance as of January 31, 2022$26,324 
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Tax years 2011 and onwards remain subject to examination by U.S. taxing authorities due to the Company’s net operating losses and R&D credit carryforwards.
The Company does not provide for federal and state income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested offshore indefinitely. As a result of the Tax Act, if the Company repatriated these earnings, the tax impact of future distributions of foreign earnings would generally be limited to withholding tax from local jurisdictions, and the resulting income tax liability would be insignificant.