Income Taxes
Loss before income taxes for the years ended December 31 consisted of the following (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Domestic | $ | (44,324 | ) | | $ | (47,562 | ) | | $ | (46,065 | ) |
Foreign | 966 |
| | 589 |
| | 650 |
|
Loss before income taxes | $ | (43,358 | ) | | $ | (46,973 | ) | | $ | (45,415 | ) |
Significant components of our provision for income taxes for the years ended December 31 are as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Domestic | $ | — |
| | $ | — |
| | $ | — |
|
Foreign | 204 |
| | 116 |
| | 166 |
|
Total provision for income taxes | $ | 204 |
| | $ | 116 |
| | $ | 166 |
|
The Tax Cuts and Jobs Act, or the Act, was enacted on December 22, 2017, which reduced the U.S. federal corporate tax rate from 35% to 21%, among other changes. The Company’s accounting for the elements of the Act is complete and resulted in a $37.7 million reduction in its net deferred tax assets as of December 31, 2017 to reflect the new statutory rate. The rate adjustment to the deferred tax assets was fully offset by a decrease in the valuation allowance, resulting in no rate impact to the Company.
A reconciliation of the federal statutory income tax rate to the effective income tax rate for the years ended December 31 are as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Income tax provision at statutory rate | $ | (15,076 | ) | | $ | (16,010 | ) | | $ | (15,662 | ) |
Tax on repatriated foreign earnings and other nondeductible items | 179 |
| | 135 |
| | 401 |
|
Change in tax credits | (2,361 | ) | | (1,449 | ) | | (792 | ) |
Change in valuation allowance | (19,792 | ) | | 17,824 |
| | 16,706 |
|
Change in tax rate | 37,690 |
| | — |
| | — |
|
Foreign tax and other | (436 | ) | | (384 | ) | | (487 | ) |
Total provision for income taxes | $ | 204 |
| | $ | 116 |
| | $ | 166 |
|
Net operating loss (“NOL”) carryforwards created by excess tax benefits from the exercise of non-qualified stock options are not recorded as deferred income tax assets. To the extent such NOL carryforwards are utilized, the benefit realized will increase stockholders’ equity. At December 31, 2017, for income tax return purposes the Company has gross federal and state NOL carryforwards totaling $232.8 million and tax credit carryforwards of $7.0 million. These carryforwards may be subject to limitations under the Internal Revenue Code and applicable state tax law. If not utilized, a portion of the carryforwards will begin to expire in 2025 through 2038.
The Company does not expect to utilize any of its net operating loss and tax credit carryforwards in the near term. The Company may have already experienced one or more ownership changes. Depending on the timing of any future utilization of its carryforwards, the Company may be limited as to the amount that can be utilized each year as a result of such previous ownership changes. However, the Company does not believe such limitations will cause its carryforwards to expire unutilized.
Future changes in the Company’s stock ownership as well as other changes that may be outside the Company’s control could potentially result in further limitations on the Company’s ability to utilize its net operating loss and tax credit carryforwards.
The effect of temporary differences and carryforwards that give rise to deferred tax assets for the years ended December 31 were as follows (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Net operating loss carryforwards | $ | 49,662 |
| | $ | 70,694 |
|
Research and development tax credit carryforwards | 6,505 |
| | 4,572 |
|
Foreign tax credit carryforwards | 448 |
| | — |
|
Stock-based compensation | 5,664 |
| | 5,360 |
|
Other | 6,382 |
| | 7,827 |
|
Total deferred tax assets | 68,661 |
|
| 88,453 |
|
Less: Valuation allowance | (68,661 | ) | | (88,453 | ) |
Net deferred tax assets | $ | — |
|
| $ | — |
|
The Company has recorded a full valuation allowance related to its deferred tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets.
The table below summarizes changes in the deferred tax asset valuation allowance for the years ended December 31 (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Balance at beginning of year | $ | 88,453 |
| | $ | 70,629 |
| | $ | 53,923 |
|
Charged to costs and expenses | 17,898 |
| | 17,824 |
| | 16,706 |
|
Impact of change in tax rate | (37,690 | ) | | — |
| | — |
|
Balance at end of year | $ | 68,661 |
| | $ | 88,453 |
| | $ | 70,629 |
|
The total balance of unrecognized gross tax benefits for the years ended December 31, resulting from research and development tax credits claimed on the Company’s annual tax return was as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Unrecognized tax benefits at beginning of year | $ | 1,524 |
| | $ | 1,041 |
| | $ | 777 |
|
Additions based on current year tax positions | 644 |
| | 483 |
| | 264 |
|
Unrecognized tax benefits at end of year | $ | 2,168 |
|
| $ | 1,524 |
|
| $ | 1,041 |
|
The Company classifies applicable interest and penalties on amounts due to tax authorities as a component of the provision for income taxes. The amount of accrued interest and penalties recorded in 2017, 2016 or 2015 was not significant. The Company does not anticipate that the amount of its existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Due to the presence of net operating loss carryforwards in most jurisdictions, the Company’s tax years remain open for examination by U.S. taxing authorities back to 2004.