Phreesia, Inc.PHR
Phreesia, Inc. Income Taxes Disclosure
Income taxes
The Company recorded a tax provision of $2,716, $1,543 and $483, for the years ended January 31, 2025, 2024 and 2023, respectively. The Company's provision for income taxes was 4.9%, 1.1% and 0.3% of loss before income taxes for the years ended January 31, 2025, 2024 and 2023, respectively. The Company's effective tax rate differs from the U.S. statutory tax rate of 21% primarily because the Company records a valuation allowance against its
U.S. deferred tax assets, and due to foreign income tax expense related to its Canadian branch and its subsidiary in India.
Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. Management of the Company has evaluated the positive and negative evidence pertaining to the realizability of its deferred tax assets, including the Company’s history of losses, and concluded that it is more likely than not that the Company will not recognize the benefits for the majority of its deferred tax assets. On the basis of this evaluation, the Company has recorded a valuation allowance against its deferred tax assets that are not more likely than not to be realized at both January 31, 2025 and 2024.
The Company’s loss before income taxes was primarily generated in the United States for fiscal 2025, 2024 and 2023.
The Company's income tax provision consisted of the following for fiscal 2025, 2024 and 2023:
| Fiscal years ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 102 | 76 | 49 | ||||||||||||||
| Foreign | 2,400 | 1,239 | — | ||||||||||||||
| Deferred tax | |||||||||||||||||
| Federal | 214 | 38 | 109 | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | 190 | 325 | ||||||||||||||
| Total provision for income taxes | $ | 2,716 | $ | 1,543 | $ | 483 | |||||||||||
A reconciliation of the statutory U.S. federal income tax rate to the Company's effective tax rate for fiscal 2025, 2024 and 2023 is as follows:
| Fiscal years ended January 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal income tax benefit at statutory rate | 21 | % | 21 | % | 21 | % | |||||||||||
| State and local tax, net of federal benefit | 4 | % | 3 | % | 5 | % | |||||||||||
| Permanent differences | 1 | % | — | % | — | % | |||||||||||
| Equity compensation | (6) | % | — | % | — | % | |||||||||||
| Foreign taxes | (3) | % | (1) | % | — | % | |||||||||||
| Other | — | % | — | % | — | % | |||||||||||
| Change in valuation allowance | (22) | % | (24) | % | (26) | % | |||||||||||
| Effective income tax rate | (5) | % | (1) | % | — | % | |||||||||||
The significant components of the Company's deferred tax assets and liabilities as of January 31, 2025 and 2024 are as follows:
| January 31, | ||||||||||||||
| Deferred tax assets: | 2025 | 2024 | ||||||||||||
| Net operating loss carryforwards | $ | 160,998 | $ | 160,791 | ||||||||||
| Stock based compensation | 9,495 | 9,278 | ||||||||||||
| Accruals, reserves, and other expenses | 15,248 | 3,668 | ||||||||||||
| Reserve for bad debts | 704 | 793 | ||||||||||||
| Disallowed interest expense | 969 | 1,041 | ||||||||||||
| Depreciation and amortization | 1,412 | 1,829 | ||||||||||||
| Total deferred tax assets | $ | 188,826 | $ | 177,400 | ||||||||||
| Less: valuation allowance | (188,712) | (176,641) | ||||||||||||
| Net deferred tax assets | $ | 114 | $ | 759 | ||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Depreciation and amortization | $ | — | $ | — | ||||||||||
| Intangible assets | (340) | (569) | ||||||||||||
| Deferred contract acquisition costs | (258) | (460) | ||||||||||||
| Total deferred tax liabilities | $ | (598) | $ | (1,029) | ||||||||||
| Net deferred tax liabilities | $ | (484) | $ | (270) | ||||||||||
The Company has accumulated a U.S. Federal net operating loss carryforward of approximately $596,509 and $598,975 as of January 31, 2025 and 2024, respectively. This carryforward may be available to offset future U.S. Federal income tax liabilities and will expire beginning in 2025. As of January 31, 2025, the Company's foreign branch had no net operating loss carryforwards. The Company utilized the net operating loss carryforwards related to its foreign branch to offset taxable income in Canada during the year ended January 31, 2025. The Company’s unutilized research and development tax credit carryforwards may be carried forward for a period of up to 20 years.
Due to the uncertainty regarding the ability to realize the benefit of the U.S. deferred tax assets primarily relating to net operating loss carryforwards, valuation allowances have been established to reduce the U.S. deferred tax assets to an amount that is more likely than not to be realized.
On the basis of this evaluation, as of January 31, 2025 and 2024, the Company recorded a valuation allowance of $188,712 and $176,641, respectively, to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The $12,071 increase in the valuation allowance recorded during the fiscal year ended January 31, 2025 relates primarily to deferred tax assets established and recorded during the fiscal year ended January 31, 2025. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable foreign income during the carryforward period are reduced.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change by value in its equity ownership over a three-year period), the corporation’s ability to use its pre-ownership change net operating loss carryforwards and other pre-ownership change tax attributes to offset its post-change income may be limited. As of January 31, 2025, the Company has U.S. net operating loss carryforwards of approximately $596,509. The Company has completed a Section 382 study and as a result of the analysis, it is not more likely than not that the Company has experienced an “ownership change”. Accordingly, if the Company earns net taxable income, it is not more likely than not that the Company's ability to use its pre-ownership change net operating loss carryforwards to offset U.S. federal taxable income will be subject to limitations, which could potentially result in increased future tax liability.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and foreign jurisdictions, where applicable. The Company’s tax years are still open from 2020 to present and, to the extent utilized in future years' tax returns, net operating loss carryforwards at January 31, 2025 will remain subject to examination until the respective tax year is closed.
The Company records unrecognized tax benefits as liabilities or as reductions to deferred tax assets and adjusts these balances when its judgement changes as a result of the evaluation of new information previously not
available. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of January 31, 2025 the Company has reduced the balance of deferred tax assets for $1,605 of unrecognized tax benefits. The Company’s unrecognized tax benefits would not affect the effective tax rate if recognized because the Company has a full valuation allowance on its U.S. deferred tax assets. As of January 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions.
The following is a roll-forward of the Company's total gross unrecognized tax benefits for fiscal 2025:
| Balance, January 31, 2023 | $ | — | |||
| Increases for income tax positions related to prior years | 844 | ||||
| Increases for income tax positions related to current years | 396 | ||||
| Balance, January 31, 2024 | $ | 1,240 | |||
| Increases for income tax positions related to prior years | — | ||||
| Increases for income tax positions related to current years | 365 | ||||
Balance, January 31, 2025 | $ | 1,605 | |||
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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.