10. Income Taxes
Loss before provision for income taxes was as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
United States |
|
$ |
(39,741 |
) |
|
$ |
(41,649 |
) |
|
$ |
(43,626 |
) |
|
Foreign |
|
|
(10,472 |
) |
|
|
(11,752 |
) |
|
|
(9,235 |
) |
|
Total |
|
$ |
(50,213 |
) |
|
$ |
(53,401 |
) |
|
$ |
(52,861 |
) |
The components of the provision (benefit) for income taxes were as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
28 |
|
|
|
49 |
|
|
|
16 |
|
|
Foreign |
|
|
216 |
|
|
|
183 |
|
|
|
65 |
|
|
Total |
|
|
244 |
|
|
|
232 |
|
|
|
81 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(632 |
) |
|
|
24 |
|
|
|
41 |
|
|
State |
|
|
(6 |
) |
|
|
3 |
|
|
|
5 |
|
|
Foreign |
|
|
3 |
|
|
|
(92 |
) |
|
|
(10 |
) |
|
Total |
|
|
(635 |
) |
|
|
(65 |
) |
|
|
36 |
|
|
Provision (benefit) for income taxes |
|
$ |
(391 |
) |
|
$ |
167 |
|
|
$ |
117 |
|
The following reconciles the differences between income taxes computed at the federal statutory rate of 21% and the provision for income taxes:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Expected income tax benefit at the federal statutory rate |
|
$ |
(17,072 |
) |
|
$ |
(18,156 |
) |
|
$ |
(17,972 |
) |
|
State tax net of federal benefit |
|
|
(3,853 |
) |
|
|
(1,767 |
) |
|
|
(1,703 |
) |
|
Stock-based compensation |
|
|
(10,202 |
) |
|
|
1,101 |
|
|
|
2,921 |
|
|
Stock warrant liability |
|
|
33 |
|
|
|
(21 |
) |
|
|
222 |
|
|
Difference in foreign tax rates |
|
|
1,449 |
|
|
|
1,553 |
|
|
|
1,090 |
|
|
Research and development credits |
|
|
(1,636 |
) |
|
|
(552 |
) |
|
|
(397 |
) |
|
Change in valuation allowance |
|
|
5,865 |
|
|
|
17,798 |
|
|
|
15,615 |
|
|
Change in tax rate |
|
|
24,762 |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
263 |
|
|
|
211 |
|
|
|
341 |
|
|
Income tax provision (benefit) |
|
$ |
(391 |
) |
|
$ |
167 |
|
|
$ |
117 |
|
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
61,906 |
|
|
$ |
53,693 |
|
|
$ |
37,152 |
|
|
Research and development credits |
|
|
4,211 |
|
|
|
2,027 |
|
|
|
1,372 |
|
|
Accruals and reserves |
|
|
2,639 |
|
|
|
3,614 |
|
|
|
3,285 |
|
|
Depreciation |
|
|
386 |
|
|
|
382 |
|
|
|
157 |
|
|
Stock-based compensation |
|
|
1,986 |
|
|
|
2,310 |
|
|
|
1,349 |
|
|
Total deferred tax assets |
|
|
71,128 |
|
|
|
62,026 |
|
|
|
43,315 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(2,283 |
) |
|
|
(73 |
) |
|
|
(47 |
) |
|
Capitalized costs |
|
|
(2,744 |
) |
|
|
(1,774 |
) |
|
|
(952 |
) |
|
Total deferred tax liabilities |
|
|
(5,027 |
) |
|
|
(1,847 |
) |
|
|
(999 |
) |
|
Valuation allowance |
|
|
(65,988 |
) |
|
|
(60,122 |
) |
|
|
(42,324 |
) |
|
Net deferred tax assets |
|
$ |
113 |
|
|
$ |
57 |
|
|
$ |
(8 |
) |
At December 31, 2017, we had $61,906,000 in tax-effected federal, state and foreign net operating loss carryforwards that, if unused, begin expiring in 2018. Additionally, at December 31, 2017, we had $6,845,000 in income tax credits, consisting primarily of federal and state research and development tax credits. These tax credits, if unused, begin expiring in 2023.
We review all available evidence to evaluate our recovery of deferred tax assets, including our recent history of accumulated losses in all tax jurisdictions over the most recent three years as well as our ability to generate income in future periods. We have provided a valuation allowance against our U.S. net deferred tax assets as it is more likely than not that these assets will not be realized given the nature of the assets and the likelihood of future utilization.
The valuation allowance increased by $5,866,000 and $17,798,000 in 2017 and 2016, respectively, due to the increase in the deferred tax assets primarily due to the increase in the net operating loss carryforwards.
U.S. income taxes on the undistributed earnings of our non-U.S. subsidiaries have not been provided for as we currently plan to indefinitely reinvest these amounts and have the ability to do so. Cumulative undistributed foreign earnings were not material at December 31, 2017 and December 31, 2016.
We have federal net operating loss carryforwards of $206,976,000 and $127,438,000 at December 31, 2017 and 2016, respectively, which expire at various dates through 2034.
We have federal research and development credit carryforwards of $5,100,000 at December 31, 2017 that expire at various dates through 2034. We also have state research and investment credit carryforwards of $1,700,000 that expire at various dates through 2028.
On December 18, 2015, the Tax Increase Prevention Act was signed into law, which contains provisions that permanently extended the federal research credit. The federal research credit provisions had previously expired at the end of 2015. A 2015 federal research credit of $610,000 is reflected in the consolidated financial statements.
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and the Company is currently evaluating the potential impacts of The Act. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, causing companies to revalue their deferred tax assets and deferred tax liabilities. It also requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.
The Company will record a revaluation of our deferred tax assets and liabilities as of December 31, 2017, at the new rate of 21 percent, based upon balances in existence at the date of enactment. The provisional amount recorded related to the remeasurement of our deferred tax balance was $24,762,000 with an equal offset to valuation allowance. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
The one-time transition tax is based on our total post-1986 earnings and profits (E&P) that we previously deferred from US income taxes. We have not booked a provisional amount for the one-time transition tax liability because the Company is currently estimating a provisional overall foreign loss position for E&P purposes. We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities is not practicable.
Uncertain Tax Positions
We account for uncertainty in income taxes using a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The following summarizes activity related to unrecognized tax benefits:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Unrecognized benefit—beginning of the year |
|
$ |
1,091 |
|
|
$ |
739 |
|
|
$ |
483 |
|
|
Gross increases (decreases)—prior period positions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Gross increases (decreases)—current period positions |
|
|
1,176 |
|
|
|
352 |
|
|
|
256 |
|
|
Unrecognized benefit—end of period |
|
$ |
2,267 |
|
|
$ |
1,091 |
|
|
$ |
739 |
|
All of the unrecognized tax benefits decrease deferred tax assets with a corresponding decrease to the valuation allowance. None of the unrecognized tax benefits would affect our effective tax rate if recognized in the future.
We have elected to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. No interest or penalties have been recorded through December 31, 2017.
We do not expect any significant change in our unrecognized tax benefits within the next 12 months.
We file tax returns in the United States, the United Kingdom, Australia, the Netherlands, Hong Kong, Sweden, Brazil and various state jurisdictions. All of our tax years remain open to examination by major taxing jurisdictions to which we are subject, as carryforward attributes generated in past years may still be adjusted upon examination by the Internal Revenue Service or state and foreign tax authorities if they have or will be used in future periods.