Gitlab Inc

1. Organization and Description of Business

GitLab Inc. (the “Company”) began as an open source project in 2011 and was incorporated in Delaware on September 12, 2014. The Company operates on an all-remote model. The Company is a technology company and its primary offering is “GitLab”, a complete DevSecOps platform delivered as a single application. GitLab is used by a wide range of organizations. The Company also provides related training and professional services. GitLab is offered on both self-managed and software-as-a-service ("SaaS") models. The principal markets for GitLab are currently located in the United States, Europe, and Asia Pacific. The Company is focused on accelerating innovation and broadening the distribution of its platform to companies across the world to help them become better software-led businesses.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP.

Fiscal Year

The Company's fiscal year ends on January 31. For example, references to fiscal year 2025 and 2024 refer to the fiscal year ending January 31, 2025 and the fiscal year ended January 31, 2024, respectively.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, allocation of revenue to the license element in the Company's self-managed subscriptions, estimating the amortization period for capitalized costs to obtain a contract, allowance for doubtful accounts, stock-based compensa tion expense, fair value of contingent consideration, fair valuation of retained interest in an investee on loss of control, estimation of income tax liabilities related to the bilateral advance pricing agreement (“BAPA”), valuation allowance for deferred income taxes, reserves for unrecognized income tax benefits, valuation of acquired intangibles assets and impairment of goodwill and equity method investments. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.

Principles of Consolidation

The condensed consolidated financial statements include 100% of the accounts of wholly owned and majority owned subsidiaries as well as a variable interest entity for which the Company is the primary beneficiary. The ownership interest of other investors is recorded as noncontrolling interest. All intercompany accounts and transactions have been eliminated in consolidation.

Summary of Significant Accounting Policies

There were no significant changes to the Company’s significant accounting policies disclosed in “Note 2” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Recently Issued Accounting Pronouncements

Aside from the new accounting pronouncements already discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, there were no additional pronouncements issued or effective during the period that would materially affect our condensed consolidated financial statements.

3. Revenues

Disaggregation of Revenue

The following table shows the components of revenues and their respective percentages of total revenue for the periods indicated (in thousands, except percentages):

Total Revenue by Geographic Location

The following table summarizes the Company’s total revenue by geographic location based on the region of the Company’s contracting entity, which may be different than the region of the customer (in thousands):

During thethree and nine months ended October 31, 2024, the United States accounted for 81% of total revenue for each period presented. During the three and nine months ended October 31, 2023, the United States accounted for 82% of total revenue for each period presented. No other individual country exceeded 10% of total revenue for any of the periods presented.

The Company operates its business as a single operating segment.

Deferred Revenue

During the three and nine months ended October 31, 2024, $145.0 million and $276.6 million, respectively, of revenue was recognized, which was included in the corresponding deferred revenue balance at the beginning of the periods presented. During thethree and nine months ended October 31, 2023, $102.1 million and $200.8 million, respectively, of revenue was recognized, which was included in the corresponding deferred revenue balance at the beginning of the periods presented.

Remaining Performance Obligations

As of October 31, 2024 and January 31, 2024, the aggregate amount of the transaction price allocated to billed and unbilled remaining performance obligations for which revenue has not yet been recognized was approximately $811.8 million and $673.8 million, respectively. As of October 31, 2024, the Company expects to recognize approximately 63% of the transaction price as product or services revenue over the next 12 months and 88% over the next 24 months.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, and accounts receivable. At times, cash deposits may be in excess of insured limits. The Company believes that the financial institutions or corporations that hold its cash, cash equivalents, and short-term investments are financially sound and, accordingly, minimal credit risk exists with respect to these balances. The Company maintains allowances for potential credit losses on accounts receivable when deemed necessary.

The Company uses various distribution channels. As of October 31, 2024, three channel partners represented 10%,11% and 14% of the accounts receivable balance, respectively; while as of January 31, 2024, two channel partners represented 12% and 13% of the accounts receivable balance, respectively. There were no individual customers whose balance represented more than 10% of accounts receivable as of October 31, 2024 and January 31, 2024.

There were no individual customers whose revenue represented more than 10% of total revenue duringthe three and nine months ended October 31, 2024 and 2023.

4. Cash Equivalents and Short-Term Investments

The following table summarizes the Company’s cash equivalents and short-term investments by category (in thousands):

(1) Included in “cash and cash equivalents” in our condensed consolidated balance sheet as of October 31, 2024, in addition to cash of $82.1 million.

(1) Included in “cash and cash equivalents” in our condensed consolidated balance sheet as of January 31, 2024, in addition to cash of$81.0 million.

The fair value of the Company’s Level 1 financial instruments, such as money market funds which are traded in active markets, is based on quoted market prices for identical instruments. The fair value of the Company’s Level 2 financial instruments such as commercial paper, corporate debt and U.S. government securities are obtained from an independent pricing service, which may use inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security that may not be actively traded. The Company’s marketable securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

The Company uses the specific-identification method to determine any realized gains or losses from the sale of the Company’s short-term investments classified as available-for-sale. For the three and nine months ended October 31, 2024 and 2023, the Company did not have any material realized gains or losses as a result of maturities or sales of short-term investments.

During thethree and nine months ended October 31, 2024, the Company recorded $12.6 million and $37.4 million of interest income on cash and cash equivalents and short-term investments, respectively, which includes $3.8 million and $12.9 million of net amortization of premiums or discounts on short-term investments during the three and nine months ended October 31, 2024, respectively. During thethree and nine months ended October 31, 2023, the Company recorded $10.9 million and $27.3 million of interest income on cash equivalents and short-term investments, respectively, which includes $5.9 million and $14.4 million of net amortization of premiums or discounts on short-term investments during the three and nine months ended October 31, 2023, respectively.

The following table summarizes unrealized losses on the Company’s cash equivalents and short-term investments aggregated by category and the length of time such aggregated investments have been in a continuous unrealized loss position as of the periods presented (in thousands):

The following table classifies the Company’s short-term investments by contractual maturities (in thousands):

All available-for-sale securities have been classified as current, based on management’s ability to use the funds in current operations.

Liabilities are measured at fair value on a recurring basis. The Company hadcontingent cash consideration from a business combination which was determined based upon the satisfaction of certain defined operational milestones and was remeasured at fair value at each reporting period through earnings. As the fair value is based on unobservable inputs, the liability is included in Level 3 of the fair value measurement hierarchy.

The Company reassessed the fair value of outstanding operational milestones during thethree and nine months ended October 31, 2024. The Company recorded zero and a $3.8 million change in fair value for thethree and nine months ended October 31, 2024, respectively. The change in fair value was included in general and administrative expenses in the condensed consolidated statement of operations for thethree and nine months ended October 31, 2024. There wereno changes to the fair value during thethree and nine months ended October 31, 2023.

In October 2024, the remaining milestones were achieved, and the Company paid $6.9 million of contingent cash consideration during thethree months ended October 31, 2024. The Company had $0.6 million and $3.6 million of Level 3 contingent consideration as of October 31, 2024 and January 31, 2024, respectively.

Interest accretion expense was$0.1 million andimmaterial for the three months ended October 31, 2024 and 2023, respectively, and$0.1 million for both the nine months ended October 31, 2024 and 2023.

5. Supplemental Financial Statement Information

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

(1)Refer to “Note 12. Income Taxes”.

(2) Refer to “Note 4. Cash Equivalents and Short-Term Investments”.

Other Income (Expense), Net

Other income (expense), net consisted of the following (in thousands):

6. Acquisitions

Rezilion

On May 23, 2024 (the “Asset Acquisition Date”), the Company completed its acquisition of certain assets, primarily software intellectual property, of Rezilion Inc. and its subsidiary, Rezilion Ltd. (collectively, “Rezilion”) for approximately $7.3 million in cash.

The Rezilion transaction was accounted for as an asset acquisition because substantially all of the fair value of gross assets acquired were concentrated in the developed intellectual property. Acquisition-related direct transaction costs were capitalized as a component of the cost of the assets acquired.

On the Asset Acquisition Date, the fair value of the developed technology was $7.7 million including $0.4 million of acquisition-related direct costs. The developed technology acquired has an estimated useful life ofthree years.

Oxeye

On March 20, 2024 (the “Acquisition Date”), the Company completed the acquisition of Oxeye Security Limited (“Oxeye”), a cloud-native application security and risk management solution company based in Israel. The Company believes this acquisition will allow the Company to strengthen its product offerings.

The transaction was accounted for as a business combination. The Acquisition Date fair value of the consideration transferred consisted of the following (in thousands):

Total consideration includes $3.6 million deposited in an escrow account as partial security for post-closing indemnification claims made within 15 months of the Acquisition Date. As the Company is not the legal owner of the escrow account, it is not recorded on the condensed consolidated balance sheet as of October 31, 2024.

As part of the acquisition, there was also a holdback in the amount of $3.2 million (the “holdback”). The holdback will be paid to thetwo co-founders (the “founder holdback”) inthree equal tranches of 33.3%. The first such payment will be paid if certain milestones are achieved on or before the first anniversary of the closing date, provided such founder is employed by the Company upon completion of the milestones. The second and third tranches will be paid provided such founder is employed by the Company on the second and third anniversaries of the closing dates, respectively. As the founder holdback arrangement represents compensation for post-combination services, the Company has excluded the entire $3.2 million from the purchase price to be allocated, and will recognize the amount as expense over the period of services rendered after factoring in the likelihood of achieving the milestones in the first year.

During thethree months ended October 31, 2024, the milestones attached to the first payment tranche were achieved and$1.1 million was paid out to thetwo co-founders. The Company recorded$0.1 million and $1.1 million of the founder holdback in general and administrative expenses in its condensed consolidated statement of operations for the three and nine months ended October 31, 2024, respectively.

Acquisition related transaction costs were $1.2 million for thenine months ended October 31, 2024, and were recorded by the Company in general and administrative expenses in its condensed consolidated statement of operations.

The Company recorded the assets acquired and liabilities assumed at their estimated fair values, with the difference between the fair value of the net assets acquired and the purchase consideration reflected in goodwill. The total purchase price of $20.3 million was allocated using information available to the Company at the time of acquisition. The Company may continue to adjust the preliminary purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed, tax-related items and revisions of preliminary estimates. During thethree and nine months ended October 31, 2024, there were no measurement period adjustments identified and recorded.

The following table reflects the fair values of assets acquired and liabilities assumed (in thousands):

As of March 20, 2024, developed technology of the acquired business had an estimated useful life ofthree years. The fair value of the developed technology intangible asset was estimated using the replacement cost method, which utilizes assumptions for the cost to replace it, such as time and resources required, as well as a theoretical profit margin and opportunity costs. The goodwill is primarily attributed to the synergies expected to be realized following the acquisition. The goodwill is not deductible for Israeli income tax purposes.

Results of operations of the business acquired have been included in the Company’s condensed consolidated financial statements subsequent to the date of acquisition. The revenue and net income (loss) earned by the business acquired following the acquisition are not material to the Company’s condensed consolidated results of operations; and accordingly, pro forma financial statements have not been presented.

7. Goodwill and Intangible Assets, Net

Goodwill

The carrying amount of goodwill was as follows (in thousands):

There wasno goodwill impairment for any periods presented.

Intangible Assets

Intangible assets, net consisted of the following (in thousands):

(1) The amounts in the tables above include cumulative foreign currency translation adjustments, reflecting movement in the currencies of the underlying intangibles.

(2) During the three months ended October 31, 2024, the Company wrote off $0.9 million of fully amortized intangible assets as the technology had become obsolete.

Amortization expense was $2.5 million and $5.9 million for the three and nine months ended October 31, 2024, respectively, and $0.5 million and $1.6 million for thethree and nine months ended October 31, 2023, respectively.

As of October 31, 2024, future amortization expense related to the intangibles assets is expected to be as follows (in thousands):

8. Team Member Benefit Plans

The Company contributes to defined contribution plans in a number of countries including a 401(k) savings plan for U.S. based team members and defined contribution arrangements in the United Kingdom, Australia, New Zealand and select other countries based on the legislative and tax requirements of the respective countries. Total contributions to these plans were$1.1 million and $4.1 million for the three and nine months ended October 31, 2024, respectively, and $0.9 million and$3.6 million for the three and nine months ended October 31, 2023, respectively.

9. Equity

Common Stock

The Company had shares of common stock reserved for future issuance as follows (in thousands):

Equity Incentive Plans

In September 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”) as a successor of the Company’s 2015 Equity Incentive Plan (together the “Plans”).

The awards available for grant under the above Plans for the periods presented were as follows (in thousands):

In the event that shares previously issued under the above Plans are reacquired by the Company, such shares shall be added to the number of shares then available for issuance under the 2021 Plan. In the event that an outstanding stock option for any reason expires or is canceled, the shares allocable to the unexercised portion of such stock option will be added to the number of shares then available for issuance under the 2021 Plan.

Both Plans allow the grantees to early exercise stock options.

Stock Options, RSUs and PSUs

The following table summarizes options activity under the Plans, and related information:

During the three and nine months ended October 31, 2024, the Company recorded $3.1 million and $10.0 million stock-based compensation expense related to options, respectively. During the three and nine months ended October 31, 2023, the Company recorded $4.3 million and $13.8 million stock-based compensation expense related to options, respectively.

As of October 31, 2024, approx imately $9.6 million of total unrecognized compensation cost was related to stock options granted, that is expected to be recognized over a weighted-average period of 1.1 years. The expected stock compensation expense remaining to be recognized reflects only outstanding stock awards as of the periods presented, and assumes no forfeitures.

The following table summarizes the Company’s RSU activity:

(1) The table above does not include 3 million RSUs granted to the Company’s founder and the Chief Executive Officer (“CEO”) described below.

These RSUs aregrants of shares of the Company’s Class A common stock, the vesting of which is based on the requisite service requirement. Generally, the Company’s RSUs are subject to forfeiture and are expected to vest overtwo tofour years ratably on a combination of bi-annual and quarterly basis. During the three and nine months ended October 31, 2024, the Company recorded $40.3 million and $117.1 million stock-based compensation expense related to RSUs, respectively. During thethree and nine months ended October 31, 2023, the Company recorded$31.7 million and $84.9 million stock-based compensation expense related to RSUs, respectively.

As of October 31, 2024, approximately $401.7 million of total unrecognized compensation cost was related to RSUs granted to team members other than the CEO, that is expected to be recognized over a weighted-average period of 2.7 years. The expected stock compensation expense remaining to be recognized reflects only outstanding stock awards as of the periods presented, and assumes no forfeitures.

In June 2022, the Company granted 0.4 million PSUs to senior members of its management team subject to revenue performance condition and service conditions. The number of awards granted represents 100% of the target goal; under the terms of the awards, the recipient may earn between 0% and 200% of the original grant. The performance condition is setto be achieved in fiscal year 2025 and the service condition in calendar year 2025. The Company recorded $0.9 million and $1.8 million of stock-based compensation expense related to PSUs during the three and nine months ended October 31, 2024, respectively. The Company recorded a $0.4 million and $0.7 million of stock-based compensation related to PSUs during the three and nine months ended October 31, 2023, respectively. As of October 31, 2024, unrecognized stock-based compensation expense related to these PSUs was $1.4 million to be recognized over a period of 1.1 years.

CEO Performance Award

In May 2021, the Company granted 3 million RSUs tied to its Class B common stock to Sytse Sijbrandij, the Company’s co-founder and CEO, with an estimated aggregate grant date fair value of $8.8 million. During the three and nine months ended October 31, 2024, the Company recorded $0.3 million and $1.0 million of stock-based compensation expense related to the CEO RSU, respectively. During thethree and nine months ended October 31, 2023, the Company recorded $0.4 million and $1.2 million of stock-based compensation expense related to the CEO RSU, respectively.

As measured from the grant date, the derived service period of the respective tranches ranges from 3 to 7 years. As of October 31, 2024, unrecognized stock-based compensation expense related to these RSUs was $3.3 million which will be recognized over 4.1 years.

2021 Employee Stock Purchase Plan (“ESPP”)

In September 2021, the Company’s board of directors and its stockholders approved the ESPP and participation of eligible team members.

The Company recorded $2.5 million and $8.6 million of stock-based compensation expense related to the ESPP during the three and nine months ended October 31, 2024, respectively. The Company recorded $4.0 million and $15.2 million of stock-based compensation expense related to the ESPP duringthe three and nine months ended October 31, 2023, respectively. As of October 31, 2024, approximately $8.5 million of total unrecognized compensation cost was related to the ESPP that is expected to be recognized over 1.6 years.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense as follows (in thousands):

(1) The table above includes stock-based compensation of JiHu. Refer to “Note 11. Joint Venture and Equity Method Investment” for further discussion.

The corporate income tax benefit recognized in thecondensed consolidated statements of operations for stock-based compensation expense waszero for both the three and nine months ended October 31, 2024, and 2023, respectively.

Charitable Donation of Common Stock

In September 2021, the Company’s board of directors approved the reservation of up to 1,635,545 shares of Class A common stock for issuance to charitable organizations. In March 2024 and 2023, the Company’s board of directors approved the donation of $11.8 million and $10.7 million aggregate principal amount of shares of Class A common stock to the GitLab Foundation (the “Foundation”), a California nonprofit public benefit corporation, respectively. The Foundation is also a related party as certain of the Company’s officers serve as directors of the Foundation. These donations shall occur infour equal quarterly distributions.

During the three and nine months ended October 31, 2024, the Company donated 52,940 shares and 173,181 shares of Class A common stock at fair value to the Foundation, respectively. During the three and nine months ended October 31, 2023, the Company donated 53,510 shares and 186,899 shares of Class A common stock at fair value to the Foundation, respectively. The fair value of the common stock was determined based on the quoted market price on the grant date.

The donation expense of $3.0 million and $8.9 million was recorded in general and administrative expense in the condensed consolidated statements of operations for the three and nine months ended October 31, 2024, respectively. The donation expense of $2.7 million and $8.0 million was recorded in general and administrative expense in the condensed consolidated statements of operations for the three and nine months ended October 31, 2023, respectively.

10. Restructuring and Other Related Charges

In fiscal year 2025, the Company restructured certain departments to better align functions and recognized total restructuring charges of $0.1 million and$1.9 million during the three and nine months ended October 31, 2024, respectively.

In fiscal year 2024, the Company reduced its total global headcount by approximately 7%. As a result, the Company recognized total restructuring charges of animmaterial amount and $7.8 million during the three and nine months ended October 31, 2023, respectively.

The Company recognized severance and other termination benefit costs as follows (in thousands):

(1)Excludes stock-based compensation of $1.3 million for thenine months ended October 31, 2023.

The changes in liabilities resulting from the restructuring charges and related accruals were as follows(in thousands):

11. Joint Venture and Equity Method Investment

Joint Venture

In February 2021, the Company along with Sequoia CBC Junyuan (Hubei) Equity Investment Partnership (Limited Partnership) and Suzhou Gaocheng Xinjian Equity Investment Fund Partnership (Limited Partnership) executed an investment agreement (the “Investment Agreement”) to establish GitLab Information Technology (Hubei) Co., LTD (“JiHu”), a legal entity in the People’s Republic of China. The Company accounted for JiHu as a variable interest entity and consolidated the entity in accordance with ASC Topic 810, Consolidation. As of October 31, 2024, the Company retains control over JiHu with its equity stake at approxima tely 54%.

Since fiscal year 2023, JiHu has maintained an employee stock option plan (“JiHu 2022 ESOP”) for its employees. In June 2024, the board of directors of JiHu approved a new employee stock option plan (“JiHu 2024 ESOP”) for its employees in order to grant additional shares. The fair value of restricted stock awards (“RSAs”) and stock option awards is measured on the date of grant and compensation costs related to these awards are recognized on a graded attribution method; as the grants include a performance condition for both the JiHu 2022 ESOP and JiHu 2024 ESOP (“JiHu ESOPs”).

As a result of forfeitures triggered by the departure of key executives from JiHu, during the three and nine months ended October 31, 2024, the Company reversed stock-based compensation previously recorded which resulted in a $1.0 million stock-based compensation net expense and a $0.8 million stock-based compensation net expense, respectively. As a result of forfeitures triggered by the departure of certain executives during the three and nine months ended October 31, 2023, the Company reversed stock-based compensation previously recorded for such executives. The Company recorded a $0.6 million stock-based compensation net expense and a $2.1 million net gain for thethree and nine months ended October 31, 2023, respectively.

As of October 31, 2024, approximately $8.5 million of total unrecognized compensation cost was related to the JiHu ESOPs that is expected to be recognized over 3.9 years.

Operating Leases

JiHu entered into three new operating leases during the nine months ended October 31, 2024 and has various non-cancelable long-term operating leases maturing by May 25, 2027 with total lease payments of $0.5 million and a total present value of lease liabilities of $0.5 million. In addition, JiHu has various other short-term leases. Lease expense associated with short-term leases wasimmaterial and$0.1 million during the three and nine months ended October 31, 2024, respectively.

The Company recognized $0.1 million and $0.4 million of operating lease expense during thethree and nine months ended October 31, 2024, respectively. The Company recognized $0.2 million and $0.5 million of operating lease expense during thethree and nine months ended October 31, 2023, respectively.

The table below presents supplemental information related to operating leases for the nine months ended October 31, 2024 (in thousands, except weighted-average information):

Selected Financial Information

Selected financial information of JiHu, post intercompany eliminations, is as follows (in thousands):

Equity Method Investment

In April 2021, the Company reorganized Meltano Inc. (“Meltano”), now operating as Arch Data, Inc. (“Arch”), which started as an internal project within the Company in July 2018, into a separate legal entity.

The Company recorded an impairment charge of $8.9 million in other income (expense), net in thecondensed consolidated statement of operations during the year ended January 31, 2024 which reduced the equity method investment value tozero as of January 31, 2024.

During the three and nine months ended October 31, 2024, the Company recorded a loss from equity method investment ofzero. During thethree and nine months ended October 31, 2023, the Company recognized a loss from equity method investment of $0.7 million and $2.4 million, net of tax on the condensed consolidated statements of operations, respectively.

12. Income Taxes

For the three and nine months ended October 31, 2024, the Company recorded an income tax benefit of $39.4 million and $66.1 million on pretax loss of $11.2 million and $80.5 million, respectively. Included in these amounts is an income tax benefit for the three and nine months ended October 31, 2024 of $8.3 millionand $46.4 million, respectively, related to the conclusion of negotiations relating to a BAPA between the U.S. Internal Revenue Service (“IRS”) and Dutch Tax Authority (“DTA”), and a benefit of $31.6 million for three and nine months ended October 31, 2024 related to the conclusion of an agreement with the DTA on a reduced rate of tax on the gain from the transfer of the economic intellectual property (“IP”) rights.

The Company executed the BAPA agreements with the IRS and DTA on October 10, 2024, and October 22, 2024, respectively. On October 28, 2024, the Company paid $187.7 million to satisfy the tax assessment issued by the DTA, which reflected the BAPA negotiations and the agreement to reduce the rate of tax on the gain from the transfer of economic IP rights. As a result of the BAPA and Dutch assessment, the 2015 through 2017 tax years are closed for GitLab B.V. Pursuant to the terms in the BAPA, the Company will file amended returns for the 2018 through 2023 fiscal years; the tax returns for the fiscal year ended January 31, 2024 were not yet due as of the end of the current fiscal quarter. All U.S. federal and state tax net operating losses (“NOLs”) and credits, as well as Netherlands NOLs, are not yet recognized due to the determination that they are not more likely than not to be realized.

For the three and nine months ended October 31, 2023, the Company recorded income tax expense of $256.8 million and $262.3 million on pretax loss of $28.8 million and $125.8 million, respectively. The income tax expense for the three and nine months ended October 31, 2023 was primarily related to an increase in tax expense for unrecognized tax benefit relating to the BAPA, and the Company's foreign and domestic operations.

The Company's provision for income taxes is based on its worldwide estimated annualized effective tax rate, except for jurisdictions for which a loss is expected for the year and no benefit can be realized for those losses, jurisdictions for which forecasted pre-tax income or loss cannot be estimated, and the tax effect of discrete items occurring during the period. The tax provision for jurisdictions for which a forecast cannot be estimated is based on actual taxes and tax reserves for the quarter.

Under the provisions of ASC 740, Income Taxes, the determination of the Company’s ability to recognize its deferred tax asset requires an assessment of both negative and positive evidence when determining the Company’s ability to recognize its deferred tax assets. As in prior years, the Company maintained that it was not more likely than not that the Company could recognize deferred tax assets in certain jurisdictions. The evidence evaluated by the Company included operating results during the most recent three-year period and future projections. More weight was given to historical results than to expectations of future profitability, which are inherently uncertain. Certain entities’ net losses in recent periods represented sufficient negative evidence to require a valuation allowance against its net deferred tax assets. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of deferred tax assets.

As of October 31, 2024, unrecognized tax benefits were $9.9 million, of which $0.5 million would affect the effective tax rate if recognized. As of January 31, 2024, the unrecognized tax benefits were $396.8 million, of which $207.8 million would affect the effective tax rate if recognized. The Company has settled and paid the BAPA tax liability with the DTA, thereby reducing the current tax liability previously classified as an unrecognized tax benefit. For unrecognized tax benefits unrelated to the BAPA, the Company is unable to reasonably estimate the timing of the remaining long-term payments or the amount by which the liability will increase or decrease.

It is the Company's policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties were $0.3 million as of October 31, 2024 and $52.1 million as of January 31, 2024, respectively.

As of October 31, 2024, the Company’s U.S. federal 2018 through 2024 tax years were open and subject to potential examination in one or more jurisdictions. In addition, in the United States, any NOLs or credits that were generated in prior years but not yet fully utilized in a year that is closed under the statute of limitations may also be subject to examination. The Company’s Netherlands tax years are currently open from tax years 2018 to 2024, subject to adjustments as a result of the recently negotiated BAPA. The Company believes that it has adequately reserved for the outcome of the BAPA. The Company regularly assesses the likelihood of adverse outcomes resulting from all existing and potential examinations to determine the adequacy of its provision for income taxes. The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.

13. Net Income (Loss) per Share

The following table sets forth basic and diluted income (loss) per share for each of the periods presented (in thousands, except per share data):

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):

14. Commitments and Contingencies

Contractual Obligations and Commitments

The Company’s purchase oblig ations of$140.5 million asof October 31, 2024, represent third-party non-cancelable hosting infrastructure agreements, subscription arrangements and other commitments used in the ordinary course of business to meet operational requirements.

Loss Contingencies

In accordance with ASC 450, Loss Contingencies, the Company accrues for contingencies when losses become probable and reasonably estimable. Accordingly, the Company has recorded an estimated liability related to certain labor matters regarding its use of contractors in certain foreign countries. As of October 31, 2024 and January 31, 2024, the estimated liability relating to these matters was $2.2 million recorded for each period presented in other non-current liabilities on the condensed consolidated balance sheets, respectively.

Warranties and Indemnifications

The Company enters into service level agreements with customers which warrant defined levels of uptime and support response times and permit those customers to receive credits for prepaid amounts in the event that those performance and response levels are not met. To date, the Company has not experienced any significant failures to meet defined levels of performance and response. In connection with the service level agreements, the Company has not incurred any significant costs and has not accrued any liabilities in the condensed consolidated financial statements.

In the ordinary course of business, the Company enters into contractual arrangements under which the Company agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from the Company’s platform or the Company’s acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments.

In addition, the Company has agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.

Legal Proceedings

On September 4, 2024, a putative class action was filed in the United States District Court for the Northern District of California against the Company and certain of its current officers and directors. The complaint purports to assert claims under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), SEC Rule 10b-5, and Section 20(a) of the Exchange Act, on behalf of persons and entities who acquired the Company’s Class A common stock between June 6, 2023 and March 4, 2024 (the “Class Period”). Plaintiff alleges that, during the Class Period, defendants made material misrepresentations or omissions regarding the Company’s use of AI features and ability to monetize its AI capabilities that artificially inflated the Company’s stock price. Plaintiff seeks, among other things, damages in an unspecified amount, as well as fees and costs. The action is in the preliminary stage and a lead plaintiff has not yet been appointed. The time for defendants to respond to the complaint has not yet passed and the Company intends to move to dismiss the complaint at the appropriate time. Based on the preliminary nature of the proceedings in this action, the outcome remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

In addition to the matter described above, the Company is, and from time to time may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. The Company is not presently a party to any legal proceedings that in the opinion of management, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, financial condition or operating results.

Defending such proceedings is costly and can impose a significant burden on management and team members. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

15. Subsequent Event

On December 5, 2024, the Company announced that Sytse Sijbrandij, co-founder of the Company, will resign from his position as the Company’s Chief Executive Officer, effective December 5, 2024. In connection with his resignation, Mr. Sijbrandij was appointed as the Executive Chair of the Company’s board of directors. On December 5, 2024, the Company also announced that William Staples has been appointed as Chief Executive Officer and a member of the Company’s board of directors.