NOTE 12. INCOME TAXES

Income Taxes

Provision for (benefit from) income taxes by fiscal year consisted of the following:

During the fiscal years ended July 31, 2024 and 2025, our provision for income taxes was primarily attributable to foreign tax provisions in certain foreign jurisdictions in which we conduct business. During the fiscal year ended July 31, 2026, our benefit from income taxes was primarily attributable to the release of our valuation allowance on the majority of our U.S. federal and state deferred tax assets.

We regularly assess the need for a valuation allowance against our deferred tax assets based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing taxable temporary differences by jurisdiction. Ultimately, the realization of deferred tax assets is dependent upon the generation of future taxable income during those periods in which temporary differences become deductible and/or tax credits and tax loss carry-forwards can be utilized. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of deferred tax assets to determine, based on the weight of all available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will be realized.

As of July 31, 2026, we reported a cumulative three-year U.S. pre-tax profit and sustained profitability in recent operating periods. This information is both objective and verifiable; thereby representing strong positive evidence that carries significant weight. In addition, based on our available financial forecast, we expect continuing profitability in the U.S. We also considered forecasts of future taxable income and evaluated the utilization of net operating loss and tax credit carryforwards prior to their expiration. Based on all available positive and negative evidence, including the objective and verifiable positive evidence as described above and anticipated future earnings, we concluded it is more-likely-than-not that a majority of our U.S. federal and state deferred tax assets will be realizable. We continue to maintain a valuation allowance against the California R&D credits as of July 31, 2026, as we expect California R&D tax credit generation to exceed our ability to use these credits in future periods.

The valuation allowance on deferred tax assets was $1.3 billion and $124.4 million as of July 31, 2025 and 2026, respectively. The net change in the total valuation allowance for the fiscal years ended July 31, 2025 and 2026 was an increase of $112.3 million and a decrease of $1,193.7 million, respectively.

As of July 31, 2026, we had approximately $1.7 billion of federal net operating loss carryforwards and $1.3 billion of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in fiscal 2027. In addition, we had approximately $246.3 million of federal research credit carryforwards, $183.7 million of state research credit carryforwards and $93.2 million of foreign tax credit carryforwards available to reduce future tax liability. The federal credits will begin to expire in fiscal 2035 and the state credits can be carried forward indefinitely. The foreign credits will begin to expire in fiscal 2029.

Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If an ownership change occurred, utilization of the net operating loss and tax credit carryforwards could be significantly reduced.

We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries, as such earnings are to be reinvested offshore indefinitely. It is not practicable to estimate the withholding tax liability if these earnings were to be repatriated.

We recognize uncertain tax positions in our financial statements if that position will more likely than not be sustained on audit, based on the technical merits of the position. A reconciliation of our unrecognized tax benefits, excluding accrued interest and penalties, is as follows:

As of July 31, 2026, if uncertain tax positions are fully recognized in the future, it would result in a $79.6 million impact to our effective tax rate and the remaining amount would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance.

We recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of July 31, 2026, we had recognized $1.0 million of accrued interest and penalties related to uncertain tax positions. During the fiscal year ended July 31, 2026, we recognized a tax benefit of $7.0 million related to interest and penalties.

We file income tax returns in the U.S. federal jurisdiction as well as various U.S. states and foreign jurisdictions. The tax years 2009 and forward remain open to examination by the major jurisdictions in which we are subject to tax. These fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. We are subject to the continuous examination of income tax returns by various tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the provision for income taxes. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations.

The Organisation for Economic Co-operation and Development has established a framework for a global minimum corporate tax of 15%, known as Pillar Two, which will be applied on a country-by-country basis to companies with global revenues and profits above certain thresholds. Although the United States has not enacted legislation to adopt Pillar Two, and its future adoption is uncertain, several countries where we operate have enacted such legislation, and others are in the process of doing so. We do not expect Pillar Two to have a material impact on our effective tax rate or our financial condition and results of operations.

The One Big Beautiful Bill Act ("OBBBA") includes significant changes to U.S. income tax laws, including the repeal of mandatory capitalization of domestic research and development expenditures, extensions of bonus depreciation, and modifications to the international tax regimes. The effects of these provisions have been evaluated and reflected in our income tax provision for the fiscal year ended July 31, 2026.