Braze, Inc.BRZE
Braze, Inc. Income Taxes Disclosure
Income Taxes
The components of the provision for income taxes are as follows (in thousands):
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State and local | 12 | 65 | 52 | ||||||||||||||
| Foreign | 3,584 | 2,380 | 496 | ||||||||||||||
| Total current | 3,596 | 2,445 | 548 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State and local | — | — | — | ||||||||||||||
| Foreign | (151) | (488) | 35 | ||||||||||||||
| Total deferred | (151) | (488) | 35 | ||||||||||||||
Provision for income taxes | $ | 3,445 | $ | 1,957 | $ | 583 | |||||||||||
The components of loss before income taxes are as follows (in thousands):
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (108,413) | $ | (130,927) | $ | (138,226) | |||||||||||
| Foreign | 7,811 | 2,455 | (1,937) | ||||||||||||||
| Loss before provision for income taxes | $ | (100,602) | $ | (128,472) | $ | (140,163) | |||||||||||
A reconciliation of the provision for income taxes to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Statutory income tax expense | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Foreign tax rate differential | (0.2) | % | — | % | 0.1 | % | |||||||||||
| State taxes | — | % | (0.1) | % | — | % | |||||||||||
| Permanent items | (2.0) | % | (0.2) | % | (0.3) | % | |||||||||||
| Change in valuation allowance | (25.2) | % | (28.9) | % | (23.6) | % | |||||||||||
| Stock-based compensation | 5.7 | % | 5.1 | % | 1.5 | % | |||||||||||
Non-deductible compensation | (5.3) | % | (2.5) | % | (1.1) | % | |||||||||||
| Tax credits | 8.6 | % | 4.1 | % | 1.5 | % | |||||||||||
Uncertain tax benefits | (6.0) | % | — | % | 0.5 | % | |||||||||||
| Effective tax rate | (3.4) | % | (1.5) | % | (0.4) | % | |||||||||||
Deferred Income Taxes
The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below (in thousands). The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.
| January 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Loss carryforwards | $ | 109,064 | $ | 98,834 | |||||||
| Compensation and benefits | 20,285 | 20,814 | |||||||||
| Operating lease liabilities | 21,853 | 22,597 | |||||||||
| Tax credits | 14,402 | 11,609 | |||||||||
| Capitalized costs | 33,178 | 15,064 | |||||||||
| Other | 5,682 | 5,612 | |||||||||
| Deferred tax assets | 204,464 | 174,530 | |||||||||
| Less: valuation allowance | (164,228) | (135,865) | |||||||||
| Deferred tax asset, net of valuation allowance | 40,236 | 38,665 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Deferred contract costs | $ | (18,627) | $ | (15,561) | |||||||
| Property, equipment and software | (2,139) | (2,362) | |||||||||
| Operating lease right-of-use assets | (19,052) | (20,240) | |||||||||
Intangible assets | (749) | (957) | |||||||||
| Deferred tax liabilities | (40,567) | (39,120) | |||||||||
| Net deferred tax assets/(liabilities) | $ | (331) | $ | (455) | |||||||
As of January 31, 2025, we had NOL carryforwards for federal and state income tax purposes of approximately $392.3 million and $284.2 million, respectively. Under current law, U.S. federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs is limited to 80% of taxable income in tax years beginning after December 31, 2020. Accordingly, $352.9 million of our NOLs may be carried forward indefinitely for federal tax purposes and $39.4 million, if not utilized, will expire at various times between 2035 and 2037. The majority of state NOLs if not utilized, will expire at various times between 2026 and 2045. We also had foreign NOL carryforwards as of January 31, 2025 of $32.3 million, the majority of which may be carried forward indefinitely. As of January 31, 2024, we had NOL carryforwards for federal, state, and foreign income tax purposes of approximately $355.4 million, $248.4 million, and $30.9 million, respectively.
At January 31, 2025, the Company had tax credit carryforwards of $21.8 million, the majority of which are related to credits for research activities, and if not utilized, will expire between 2037 and 2045. As of January 31, 2024, the Company has tax credit carryforwards of $11.9 million.
IRC Sections 382 and 383 place a limitation on the amount of taxable income that can be offset by carryforward tax attributes, such as net operating losses or tax credits, after a change in control. Generally, after a change in control, a loss corporation cannot deduct carryforward tax attributes in excess of the limitation prescribed by Sections 382 and 383. Therefore, certain of our carryforward tax attributes may be subject to an annual limitation regarding their utilization against taxable income in future periods. As a result of issuances of different classes of preferred stock to investors in 2013, 2014 and 2017, we triggered “ownership shifts” as defined in Internal Revenue Code Section 382 and related provisions. These ownership shifts resulted in a reduction of NOLs in the fiscal year ended January 31, 2021 of $13.8 million and credits of $0.7 million. Our utilization of our NOLs and credits is limited by these ownership shifts but those limitations do not have a significant impact to the financial statements since there is no utilization of the NOLs and credits and a full valuation allowance exists against the net operating losses and credits. Subsequent ownership changes may subject us to additional annual limitations of its net operating losses. Such annual limitation could result in the expiration of the NOLs and credits.
We determine our valuation allowance on deferred tax assets by considering both positive and negative evidence to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing, and amount of which are uncertain. Due to our history of losses, we believe that it is not more likely than not that jurisdictions where we have net deferred tax assets can be realized as of January 31, 2025. Accordingly, we have recorded a full valuation allowance against these respective net deferred tax assets. The valuation allowance increased by $28.4 million, and $42.7 million, during the fiscal years ended January 31, 2025, and 2024, respectively.
The Company has not provided for U.S. federal income and foreign withholding taxes on undistributed earnings from non-U.S. operations as of January 31, 2025 because the Company intends to reinvest such earnings indefinitely outside of the United States. The amount of any unrecognized deferred tax liability related to these earnings would not be material.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including penalties but excluding interest, is as follows (in thousands):
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at February 1 | $ | — | $ | — | $ | 647 | |||||||||||
| Additions for tax positions of prior years | 4,521 | — | — | ||||||||||||||
Additions based on tax positions related to current year | 2,540 | — | — | ||||||||||||||
| Reductions for tax positions of prior years | — | — | (647) | ||||||||||||||
| Balance at January 31 | $ | 7,061 | $ | — | $ | — | |||||||||||
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. As of January 31, 2025, 2024 and 2023, there were no interest and penalties recorded.
As of January 31, 2025, 2024 and 2023, accrued unrecognized tax benefits were $7.1 million, $0.0 million, and $0.0 million, respectively, and if recognized would affect the provision for income taxes, and our effective tax rate.
We are subject to income tax examinations in the United States and various state and foreign jurisdictions. Our most significant operations are in the United States and the earliest open tax year subject to potential examination is the period ended January 31, 2022. However, amounts reported as NOLs from these prior tax periods also remain subject to review by most tax authorities.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.