PagerDuty, Inc.PD
PagerDuty, Inc. Income Taxes Disclosure
Income Taxes
The components of income (loss) before (benefit from) provision for income taxes were as follows for the periods indicated (in thousands):
| Year ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Domestic | $ | 13,836 | $ | (44,009) | $ | (75,375) | |||||||||||
| Foreign | 6,329 | 2,256 | (2,004) | ||||||||||||||
| Income (loss) before (benefit from) provision for income taxes | $ | 20,165 | $ | (41,753) | $ | (77,379) | |||||||||||
The components of the (benefit from) provision for income taxes were as follows for the periods indicated (in thousands):
| Year ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (35) | $ | 433 | $ | — | |||||||||||
| State | 66 | 437 | 117 | ||||||||||||||
| Foreign | 932 | 999 | 466 | ||||||||||||||
| Total current tax expense | $ | 963 | $ | 1,869 | $ | 583 | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | (124,797) | $ | — | $ | (97) | |||||||||||
| State | (27,492) | — | (39) | ||||||||||||||
| Foreign | (1,218) | (86) | (459) | ||||||||||||||
| Total deferred tax benefit | $ | (153,507) | $ | (86) | $ | (595) | |||||||||||
| (Benefit from) provision for income taxes | $ | (152,544) | $ | 1,783 | $ | (12) | |||||||||||
A reconciliation of the statutory U.S. federal income taxes to benefit from income taxes after the adoption of ASU 2023-09 is as follows (in thousands):
| Year ended January 31, 2026 | |||||||||||
| U.S. federal statutory tax rate | $ | 4,235 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect (1) | (27,479) | (136.3) | % | ||||||||
| Foreign tax effects: | |||||||||||
| Canada | |||||||||||
| Research tax credit | (635) | (3.1) | % | ||||||||
| Other | 258 | 1.3 | % | ||||||||
| Japan | |||||||||||
| Changes in valuation allowance | 661 | 3.3 | % | ||||||||
| Other | (376) | (1.9) | % | ||||||||
| Portugal | |||||||||||
| Research tax credit | (1,828) | (9.1) | % | ||||||||
| Other | 40 | 0.2 | % | ||||||||
| United Kingdom | |||||||||||
| Stock Based Compensation | 266 | 1.3 | % | ||||||||
| Other | 101 | 0.5 | % | ||||||||
| Other Foreign Jurisdictions | 45 | 0.2 | % | ||||||||
| Tax credits: | |||||||||||
| Research tax credit | (1,379) | (6.8) | % | ||||||||
Changes in valuation allowances (2) | (139,127) | (689.9) | % | ||||||||
| Changes in unrecognized tax benefits | (224) | (1.1) | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Stock Based Compensation | 12,453 | 61.8 | % | ||||||||
| Other | 284 | 1.4 | % | ||||||||
Other Adjustments (3) | 161 | 0.8 | % | ||||||||
| Benefit from income taxes | $ | (152,544) | (756.5) | % | |||||||
(1) The state jurisdiction that contributes to the majority (greater than 50%) of the tax effect in this category is California.
(2)The Company released its valuation allowance on U.S. federal deferred tax assets. This is included on the change in valuation allowance line-item.
(3) Includes the tax effects of cross-border tax laws.
A reconciliation of statutory U.S. federal income taxes to provision for (benefit from) income taxes for the years prior to the adoption of ASU 2023-09 is as follows (in thousands):
| Year ended January 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Income taxes computed at U.S. federal statutory rate | $ | (8,768) | $ | (16,249) | |||||||
| State taxes, net of federal benefit | 1,075 | (2,029) | |||||||||
| Stock-based compensation | 14,760 | 8,695 | |||||||||
| Foreign rate differential | 419 | 428 | |||||||||
| Tax credits, net of FIN48 reserves | (1,460) | (1,956) | |||||||||
| Change in valuation allowance | (4,605) | 10,169 | |||||||||
| Foreign-derived intangible income benefit | (1,039) | — | |||||||||
| Other | 1,401 | 930 | |||||||||
| Provision for (benefit from) income taxes | $ | 1,783 | $ | (12) | |||||||
The amounts of cash income taxes paid by the Company were as follows (in thousands):
| Year ended January 31, 2026 | |||||
| Federal | $ | 220 | |||
| State and Local | 342 | ||||
| Foreign: | |||||
| Australia | 134 | ||||
| Portugal | 357 | ||||
| United Kingdom | 1,215 | ||||
| All other foreign | (52) | ||||
| Income taxes paid, net of amounts refunded | $ | 2,216 | |||
Deferred income taxes arise from temporary differences between the carrying values of assets and liabilities for financial reporting purposes and income tax reporting purposes, as well as operating losses and tax credit carryforwards.
Significant components of the Company’s deferred tax assets and liabilities were as follows as of the periods indicated (in thousands):
| January 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses | $ | 108,903 | $ | 110,076 | |||||||
| Capitalized research and development costs | 35,238 | 46,543 | |||||||||
| Allowances and accruals | 4,410 | 8,067 | |||||||||
| Stock-based compensation | 7,585 | 9,306 | |||||||||
| Charitable contributions | 25 | 74 | |||||||||
| Tax credits | 17,549 | 15,032 | |||||||||
| Lease liabilities | 4,373 | 2,947 | |||||||||
| Other | 184 | 457 | |||||||||
| Gross deferred tax assets | $ | 178,267 | $ | 192,502 | |||||||
| Less: valuation allowance | 3,722 | 172,538 | |||||||||
| Net deferred tax assets | $ | 174,545 | $ | 19,964 | |||||||
| Deferred tax liabilities: | |||||||||||
| Deferred commissions | $ | (9,915) | $ | (11,067) | |||||||
| Intangible assets | (9,516) | (9,353) | |||||||||
| Lease assets | (3,150) | (1,445) | |||||||||
| Other | (992) | (582) | |||||||||
| Gross deferred tax liabilities | $ | (23,573) | $ | (22,447) | |||||||
| Net deferred tax assets (liabilities) | $ | 150,972 | $ | (2,483) | |||||||
The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence in the various jurisdictions in which it operates related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. For the period ended January 31, 2026, the Company achieved cumulative U.S. income measured as pre-tax income adjusted for permanent book-tax differences. Based on all available positive and negative evidence, including the amount of the Company’s taxable income in recent years which is objective and verifiable, and taking into account anticipated future taxable earnings, the Company concluded that it is more likely than not that its U.S. federal and certain state deferred tax assets will be realizable which resulted in an income tax benefit of $169.2 million. The Company continues to maintain a valuation allowance of $0.8 million against other non-material state deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the more likely than not realization criteria.
Furthermore, based on available evidence, the Company believes it is more-likely-than-not that certain non-U.S. deferred tax assets will not be fully realizable in the future. The Company will continue to maintain a valuation allowance against such deferred tax assets. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. The valuation allowance against the Company’s various deferred tax assets decreased by $168.8 million and $4.5 million during the fiscal years ended January 31, 2026 and 2025, respectively.
As of January 31, 2026, the Company had federal net operating loss carryforwards as reported on the tax return in the amount of $397.3 million. Beginning in 2037, $5.3 million of the federal net operating losses will begin to expire. The remaining $392.0 million will carry forward indefinitely. As of January 31, 2026, the Company had state and foreign net operating loss carryforwards as reported on the tax return in the amount of $28.4 million and $8.3 million, respectively, which begin to expire in 2028 and 2033, respectively. Utilization of the Company’s net operating loss may be subject to annual limitations due to the ownership change limitations provided by section 382 of the Internal Revenue Code and similar state provisions. The Company’s net operating loss carryforwards could expire before utilization if subject to annual limitations.
As of January 31, 2026, the Company had federal, California, and foreign research and development credit carryforwards as reported on the tax return of $16.6 million, $6.9 million, and $4.9 million, respectively. The federal research and development credits will begin to expire in 2036, the California research and development credits have no expiration, and the foreign research and development credits will begin to expire in 2037.
The following table summarizes the activity related to the Company’s unrecognized tax benefits for the periods indicated (in thousands):
| Year ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Balance at beginning of period | $ | 10,275 | $ | 9,065 | $ | 7,723 | |||||||||||
| Additions related to prior years | 1,147 | — | 110 | ||||||||||||||
| Reductions related to prior years | (400) | (87) | (192) | ||||||||||||||
| Additions related to current year | 861 | 1,297 | 1,424 | ||||||||||||||
| Additions related to acquired positions | — | — | — | ||||||||||||||
| Balance at end of period | $ | 11,883 | $ | 10,275 | $ | 9,065 | |||||||||||
All of the Company’s tax years remain open for examination by U.S. federal and state tax authorities. The non-U.S. tax returns remain open for examination for the years 2018 and onwards. Due to its U.S. federal and state valuation allowance, $10.1 million, $0.9 million, and $0.9 million of unrecognized tax benefits as of January 31, 2026, 2025, and 2024, respectively, would affect the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits as provision for income taxes. The Company has accrued an immaterial amount of interest and penalties associated with its unrecognized tax benefits noted above as of January 31, 2026.
U.S. income tax has not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. As a result of current U.S. tax law, the tax impact of future distributions of foreign earnings would generally be limited to withholding tax from local jurisdictions.
On July 4, 2025, the U.S. enacted tax reform legislation through the One Big Beautiful Bill Act (“OBBBA”). Included in this legislation are provisions that allow for the immediate expensing of domestic research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. The Company has evaluated the provisions of the OBBBA and determined that the effects are not material to our consolidated financial statements for the year ended January 31, 2026. The Company will continue to monitor any future changes in its business, forthcoming guidance, or interpretations of the new tax law that could affect its tax position in subsequent periods.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Mar 12, 2026 | Showing above |
| 2025 | Mar 17, 2025 | |
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.