OOMA INC Income Taxes Disclosure

Note 10: Income Taxes

The income tax benefit of $2.1 million for fiscal 2026 was primarily attributable to the release of a $2.5 million valuation allowance on certain preexisting deferred tax assets realized as a result of deferred tax liabilities assumed in the Company's acquisition of Phone.com. The income tax benefit of $2.0 million for fiscal 2024 was primarily attributable to the release of a $3.1 million valuation allowance on certain preexisting deferred tax assets realized as a result of deferred tax liabilities assumed in the Company's acquisition of 2600Hz.

Rate Reconciliation

The Company adopted ASU 2023-09 Income Taxes (Topic 740): Improvements To Income Tax Disclosures' on a prospective basis beginning with the year ended January 31, 2026. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the Company's U.S. federal statutory tax amount and rate to its actual effective amount and rate for the year ended January 31, 2026 (dollars in thousands):

Management believes that, based upon the available evidence, both positive and negative, it is more likely than not that the deferred tax assets will not be utilized, such that a full valuation allowance has been recorded. The net change in the total valuation allowance was an increase of $4.6 million and an increase of $2.7 million for fiscal 2026 and 2025, respectively.

As of January 31, 2026, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $81.4 million and $96.9 million, respectively, which will begin to expire in fiscal 2033 and fiscal 2029, with $79.4 million of federal net operating loss carryforward lasting indefinitely. In addition, as of January 31, 2026, the Company had federal and state research credit carryforwards of approximately $14.5 million and $13.1 million, respectively, available to offset future taxes. If not utilized, the available federal credits will begin to expire in fiscal 2030 and the state credits can be carried forward indefinitely.

The Company’s ability to utilize the domestic net operating losses (NOLs) and tax credit carryforwards may be limited due to ownership change limitations that may have occurred or that could occur in the future, as required by Internal Revenue Code Section 382, as well as similar state provisions. An “ownership change,” as defined by the code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the NOL or tax credit carryforwards before utilization.

Uncertain Tax Positions

The Company has unrecognized tax benefits of approximately $11.5 million as of January 31, 2026. Deferred tax assets associated with these unrecognized tax benefits are fully offset by a valuation allowance. If recognized, these benefits would not affect the effective tax rate before consideration of the valuation allowance.

The Company had no interest or penalty accruals associated with uncertain tax benefits in its balance sheets and statements of operations. Because the Company has net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine the Company’s tax returns for all tax years from the fiscal year ended January 31, 2010 through the current period.

The Company files income tax returns in the U.S. federal, various state, and foreign jurisdictions with varying statutes of limitations. The Company is generally no longer subject to tax examinations for years prior to 2023 for federal purposes and 2022 for state purposes, except in certain limited circumstances.

The amount of cash income taxes paid by the Company during the years ended January 31, 2025 and January 31, 2024 was $0.6 million and $0.8 million, respectively.

On July 4, 2025, the U.S. government enacted The One Big Beautiful Bill Act of 2025 ("OBBBA") which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. Certain provisions are effective for the Company beginning in fiscal year 2026. The Company determined that the OBBBA did not have a material impact on the financial statements for the year ended January 31, 2026.