9. Income Taxes
The components of the Company’s loss before income taxes were as follows:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Domestic |
|
$ |
(39,370 |
) |
|
$ |
(34,258 |
) |
|
$ |
(68,919 |
) |
|
Foreign |
|
|
4,120 |
|
|
|
4,103 |
|
|
|
2,654 |
|
|
Total loss before income taxes |
|
$ |
(35,250 |
) |
|
$ |
(30,155 |
) |
|
$ |
(66,265 |
) |
The components of the provision for income taxes are as follows (in thousands):
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
170 |
|
|
|
181 |
|
|
|
34 |
|
|
Foreign |
|
|
1,238 |
|
|
|
1,442 |
|
|
|
1,132 |
|
|
Total current |
|
|
1,408 |
|
|
|
1,623 |
|
|
|
1,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total deferred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
1,408 |
|
|
$ |
1,623 |
|
|
$ |
1,166 |
|
Income tax expense differs from the amount computed by applying the statutory federal income tax rate as follows:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax at statutory federal rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
State tax, net of federal benefit |
|
|
(0.4 |
)% |
|
|
(0.4 |
)% |
|
|
0.0 |
% |
|
Other |
|
|
(4.4 |
)% |
|
|
(3.7 |
)% |
|
|
(3.5 |
)% |
|
Foreign rate differential |
|
|
0.5 |
% |
|
|
(0.2 |
)% |
|
|
(0.5 |
)% |
|
Tax credits |
|
|
4.5 |
% |
|
|
3.2 |
% |
|
|
1.6 |
% |
|
Excess tax benefits related to stock-based compensation |
|
|
21.5 |
% |
|
|
— |
% |
|
|
— |
% |
|
Effect of Tax Cuts and Jobs Act of 2017 |
|
|
(121.1 |
)% |
|
|
— |
% |
|
|
— |
% |
|
Change in valuation allowance |
|
|
61.4 |
% |
|
|
(38.4 |
)% |
|
|
(33.4 |
)% |
|
Total |
|
|
(4.0 |
)% |
|
|
(5.5 |
)% |
|
|
(1.8 |
)% |
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Net operating loss carryforwards |
|
$ |
60,999 |
|
|
$ |
60,610 |
|
|
Tax credits |
|
|
10,198 |
|
|
|
7,655 |
|
|
Depreciation |
|
|
133 |
|
|
|
26 |
|
|
Stock-based compensation |
|
|
6,983 |
|
|
|
5,207 |
|
|
Accruals and reserves |
|
|
7,280 |
|
|
|
7,559 |
|
|
Other |
|
|
2,525 |
|
|
|
4,671 |
|
|
Deferred tax assets |
|
|
88,118 |
|
|
|
85,728 |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
— |
|
|
|
— |
|
|
Deferred tax liabilities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(88,118 |
) |
|
|
(85,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The 2017 Tax Act reduces the U.S. statutory corporate tax rate to 21% for the Company’s tax years beginning in 2018, which resulted in the re-measurement of the Company’s federal deferred tax assets as of December 31, 2017 from 34% to the new 21% tax rate. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding realization of these assets.
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $2.4 million, $18.7 million and $23.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company adopted the guidance under ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first quarter of fiscal 2017 and, as a result, excess tax benefits from share-based award activity for fiscal 2017 are reflected as a reduction of the provision for income taxes whereas previously they were recognized in equity. Before consideration of the required re-measurement under the 2017 Tax Act, the adoption resulted in an $18.6 million increase within the above disclosure of federal NOL carryforwards offset by an equal increase in the valuation allowance. As of December 31, 2017, the Company had net operating loss carryforwards (NOLs) for federal and state income tax purposes of approximately $260.7 million and $101.5 million, respectively. These NOLs are available to reduce future taxable income, if any. The federal NOLs begin expiring in 2026, and the state NOLs begin expiring in 2020.
As of December 31, 2017, the Company had research and development credit carryforwards of approximately $7.7 million and $5.5 million for federal and California state income tax purposes, respectively. The federal credit carryforward begins expiring in 2026, and the state credits carry forward indefinitely.
Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize NOLs or other tax attributes such as research tax credits, in any taxable year may be limited if the Company experiences, or has experienced, a Section 382 “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of the Company’s stock, increase their ownership by a greater than 50 percentage point change (by value) over a rolling three-year period. Similar rules may apply under state tax laws. As a result of the Company’s June 2015 underwritten public offering, the Company experienced a Section 382 “ownership change.” The Company currently estimates that this “ownership change” will not inhibit its ability to utilize its NOLs. However, the Company may, in the future, experience one or more additional Section 382 “ownership changes” as a result of subsequent changes in its stock ownership, some of which changes are outside the Company’s control. If so, the Company may not be able to utilize a material portion of its NOLs and tax credits, even if the Company achieves profitability.
The Company had unrecognized tax benefits (UTBs) of approximately $4.2 million as of December 31, 2017. The deferred tax assets associated with these UTBs are fully offset by a valuation allowance. The following table summarizes the activity related to UTBs (in thousands):
|
Balance at December 31, 2014 |
|
$ |
1,962 |
|
|
Increases related to current year tax provisions |
|
|
813 |
|
|
Increases related to prior year tax provisions |
|
|
1,069 |
|
|
Balance at December 31, 2015 |
|
|
3,844 |
|
|
Increases related to current year tax provisions |
|
|
1,059 |
|
|
Decreases related to prior year tax provisions |
|
|
(1,519 |
) |
|
Balance at December 31, 2016 |
|
|
3,384 |
|
|
Increases related to current year tax provisions |
|
|
790 |
|
|
Increases related to prior year tax provisions |
|
|
193 |
|
|
Decreases related to prior year tax provisions |
|
|
(134 |
) |
|
Balance at December 31, 2017 |
|
$ |
4,233 |
|
All of these UTBs, if recognized, would affect the effective tax rate before consideration of the valuation allowance.
In accordance with ASC 740, Income Taxes, the Company is classifying interest and penalties as a component of tax expense. There were no interest or penalties accrued at December 31, 2017, December 31, 2016, and December 31, 2015.
The Company files U.S. federal and state income tax and foreign income tax returns with varying statues of limitations. The Company’s tax years from inception in 2006 will remain open to examination due to the carryover of the unused NOLs and tax credits. The Company does not have any tax audits or other proceedings pending.
The Company does not expect any material changes to the estimated amount of liability associated with its uncertain tax positions within the next twelve months.