|
(18) |
Income Taxes |
The components of loss before income tax are as follows:
|
|
|
December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Domestic |
|
$ |
(24,353 |
) |
|
$ |
1,207 |
|
|
$ |
(10,002 |
) |
|
Foreign |
|
|
(27,607 |
) |
|
|
(32,519 |
) |
|
|
(2,516 |
) |
|
Loss before income taxes |
|
$ |
(51,960 |
) |
|
$ |
(31,312 |
) |
|
$ |
(12,518 |
) |
The components of income tax provision (benefit) are as follows:
|
|
|
December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(190 |
) |
|
$ |
298 |
|
|
$ |
83 |
|
|
State and local |
|
|
— |
|
|
|
18 |
|
|
|
3 |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
(190 |
) |
|
|
316 |
|
|
|
86 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(705 |
) |
|
$ |
(1,607 |
) |
|
$ |
(13,418 |
) |
|
State and local |
|
|
(985 |
) |
|
|
184 |
|
|
|
(2,219 |
) |
|
Foreign |
|
|
3,450 |
|
|
|
4,065 |
|
|
|
315 |
|
|
|
|
|
1,760 |
|
|
|
2,642 |
|
|
|
(15,322 |
) |
|
Change in valuation allowance |
|
|
(3,450 |
) |
|
|
(4,065 |
) |
|
|
(315 |
) |
|
|
|
$ |
(1,880 |
) |
|
$ |
(1,107 |
) |
|
$ |
(15,551 |
) |
A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate is as follows:
|
|
|
Year ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal statutory income tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
Foreign tax rate differential |
|
|
(11.4 |
)% |
|
|
(22.3 |
)% |
|
|
(4.3 |
)% |
|
State taxes, net of federal benefit |
|
|
1.9 |
% |
|
|
(0.1 |
)% |
|
|
2.6 |
% |
|
Nondeductible expenses |
|
|
0.2 |
% |
|
|
0.5 |
% |
|
|
4.2 |
% |
|
Research and development credits |
|
|
0.9 |
% |
|
|
4.5 |
% |
|
|
1.7 |
% |
|
Change in federal tax rate |
|
|
(15.2 |
)% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
Change in valuation allowance |
|
|
(6.6 |
)% |
|
|
(13.1 |
)% |
|
|
86.1 |
% |
|
Other |
|
|
(0.2 |
)% |
|
|
— |
|
|
|
— |
|
|
Effective income tax rate |
|
|
3.6 |
% |
|
|
3.5 |
% |
|
|
124.3 |
% |
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Net operating loss carryforwards |
|
$ |
10,704 |
|
|
$ |
6,742 |
|
|
Research and development credits |
|
|
3,389 |
|
|
|
3,108 |
|
|
Capitalized start-up costs |
|
|
1,431 |
|
|
|
2,343 |
|
|
Intangibles |
|
|
2,236 |
|
|
|
2,181 |
|
|
Contingent consideration |
|
|
6,588 |
|
|
|
5,364 |
|
|
Stock-based compensation |
|
|
2,873 |
|
|
|
2,718 |
|
|
Other temporary differences |
|
|
430 |
|
|
|
517 |
|
|
Gross deferred tax asset |
|
|
27,651 |
|
|
|
22,973 |
|
|
Valuation allowance |
|
|
(7,830 |
) |
|
|
(4,379 |
) |
|
Net deferred tax asset |
|
|
19,821 |
|
|
|
18,594 |
|
|
Deferred tax liability |
|
|
(1,248 |
) |
|
|
(1,534 |
) |
|
Net deferred taxes |
|
$ |
18,573 |
|
|
$ |
17,060 |
|
In assessing the realizability of the net deferred tax asset, the Company considers all relevant positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. During 2015, in connection with an international corporate restructuring, it was determined that the Company would more likely than not to realize its deferred tax assets associated with its U.S. operations. Accordingly, the Company recorded a benefit associated with the release of its prior year valuation allowance in the amount of $11,087. The Company believes that it is more likely than not that the Company’s deferred income tax asset associated with its foreign net operating losses will not be realized in the immediate future. As such, there is a full valuation allowance against the net deferred tax assets associated with foreign operations as of December 31, 2017 and 2016.
The following table summarizes carryforwards of Federal net operating losses and tax credits as of December 31, 2017:
|
|
|
Amount |
|
|
Expiration |
|
|
Federal net operating losses |
|
$ |
9,010 |
|
|
2028 – 2034 |
|
State net operating losses |
|
|
12,380 |
|
|
2028 – 2034 |
|
Foreign net operating losses |
|
|
62,646 |
|
|
No expiration |
|
Federal and state research and development credits |
|
|
3,389 |
|
|
2028 – 2034 |
A portion of the Company’s deferred tax asset is offset by a valuation allowance relating to foreign net operating losses (NOL). The valuation allowance reduces deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more than likely will be realized. At December 31, 2017, the Company had foreign NOL carryforwards of $62,646 and recorded a full valuation allowance against the amount.
Under the Tax Reform Act of 1986 (the Act), the utilization of a corporation’s net operating loss and research and development tax credit carryforwards is limited following a greater than 50% change in ownership during a three-year period. Any unused annual limitation may be carried forward to future years for the balance of the carryforward period. The Company has done an analysis to determine whether or not ownership changes, as defined by the Act, have occurred since inception. The Company determined that it experienced ownership changes, as defined by the Act, during the 2008, 2014 and 2016 tax years as a result of past financings; accordingly, the Company’s ability to utilize the aforementioned carryforwards will be limited. Although the carryforwards will be limited, the Company has determined that none of the net operating losses will expire prior to being utilized as a result of the changes. In addition, state net operating loss carryforwards may be further limited, including in Pennsylvania, which has a limitation of 30%, 35% or 40% of taxable income after modifications and apportionment on state net operating losses utilized in any one year during tax years beginning during 2017, 2018 or 2019 going forward, respectively.
The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2017, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations. Due to net operating loss and tax credit carry forwards that remain unutilized, income tax returns for tax years from inception through 2016 remain subject to examination by the taxing jurisdictions.
On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the one-time transition tax related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) additional limitations on the deductibility of interest expense, and (v) expanded limitations on executive compensation. The most significant impacts on the Company are as follows:
|
|
• |
The Company remeasured its existing U.S. federal deferred tax assets and liabilities at the rate that the Company expects to be in effect when those deferred taxes will be realized, which is now 21%. The Company recognized a one-time net expense from the deferred tax remeasurement of approximately $7.9 million. |
|
|
• |
A one-time tax is due on certain accumulated foreign earnings (Deemed Repatriation Tax), which is payable over eight years. The tax rate is generally 15.5% on the portion of the earnings held in cash and cash equivalents and 8% on the remainder. As the Company has an accumulated foreign deficit for its operations in Ireland, we are not currently subject to this Deemed Repatriation Tax. |
|
|
• |
The Company will be able to claim an immediate deduction for investments in qualified fixed assets acquired and placed in service beginning September 27, 2017 through 2022. This provision phases out through 2026. |
|
|
• |
The Company’s ability to deduct certain amounts of executive compensation could be limited given the expanded limitations |
While the Company has not yet completed its full assessment of the effects of the Tax Act, it is able to determine reasonable estimates for the impacts of the key items specified above, thus it reported provisional amounts for these items. In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), the Company has provided additional disclosures related to these provisional amounts.
The Company was unable to determine a reasonable estimate of the decrease to its stock compensation deferred tax asset, if any, under the Tax Act due to expanded limitations on the deductibility of executive compensation. Additionally, to the extent that any of the Company’s deferred tax estimates are different than actual, there will be a permanent adjustment to the effective tax rate in 2018. The Company will continue to apply its existing accounting under ASC 740 for this matter. The aforementioned provisional amounts related to the deferred tax balances are based on information available at this time and may change due to a variety of factors, including, among others, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act, (ii) potential additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the Tax Act, (iii) any impact resulting from our 2018 financial closing and reporting processes, and (iv) management’s further assessment of the Tax Act and related regulatory guidance. The Company will continue its assessment of the impact of the Tax Act on its business and consolidated financial statements throughout the one-year measurement period as provided by SAB 118.