14. INCOME TAXES
Loss before income taxes for the years ended December 31, 2017, 2016 and 2015 is summarized as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||||
|
|
|
2017 |
|
|
|
|
2016 |
|
|
2015 |
|
|||
|
United States |
|
$ |
(50,132 |
) |
|
|
|
$ |
(21,753 |
) |
|
$ |
(13,707 |
) |
|
Foreign |
|
|
(7,137 |
) |
|
|
|
|
(19,609 |
) |
|
|
— |
|
|
|
|
$ |
(57,269 |
) |
|
|
|
$ |
(41,362 |
) |
|
$ |
(13,707 |
) |
The components of the provision for (benefit from) income taxes are summarized as follows (in thousands):
|
|
|
As of December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
74 |
|
|
$ |
49 |
|
|
$ |
— |
|
|
State |
|
|
(4 |
) |
|
|
11 |
|
|
|
— |
|
|
Foreign |
|
|
68 |
|
|
|
32 |
|
|
|
— |
|
|
Total Current |
|
|
138 |
|
|
|
92 |
|
|
|
— |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
42 |
|
|
|
(251 |
) |
|
|
— |
|
|
State |
|
|
1 |
|
|
|
(49 |
) |
|
|
— |
|
|
Foreign |
|
|
(1,890 |
) |
|
|
(1,398 |
) |
|
|
— |
|
|
Total Deferred |
|
|
(1,847 |
) |
|
|
(1,698 |
) |
|
|
— |
|
|
Provision for (benefit from) income taxes |
|
$ |
(1,709 |
) |
|
$ |
(1,606 |
) |
|
$ |
— |
|
The Company’s actual provision for tax differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income as a result of the following:
|
|
|
Year Ended December, 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal tax at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
Stock-based compensation |
|
|
-0.2 |
% |
|
|
-0.5 |
% |
|
|
-1.9 |
% |
|
Change in valuation allowance |
|
|
38.0 |
% |
|
|
-16.8 |
% |
|
|
-31.1 |
% |
|
Foreign rate differential |
|
|
-1.1 |
% |
|
|
-1.3 |
% |
|
|
0.0 |
% |
|
Warrant revaluation |
|
|
-17.5 |
% |
|
|
-0.2 |
% |
|
|
0.0 |
% |
|
Interest expense |
|
|
-1.8 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
Acquisition costs |
|
|
0.0 |
% |
|
|
-1.2 |
% |
|
|
-3.2 |
% |
|
Goodwill impairment |
|
|
-1.2 |
% |
|
|
-10.8 |
% |
|
|
0.0 |
% |
|
Impact of 2017 Tax Cuts and Jobs Act on change in deferred tax assets |
|
|
-46.5 |
% |
|
|
— |
|
|
|
— |
|
|
Other |
|
|
-0.7 |
% |
|
|
0.7 |
% |
|
|
2.2 |
% |
|
Effective income tax rate |
|
|
3.0 |
% |
|
|
3.9 |
% |
|
|
0.0 |
% |
Deferred income tax assets and liabilities consist of the following: (in thousands):
|
|
|
As of December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
49,374 |
|
|
$ |
71,925 |
|
|
Tax credit carryforwards |
|
|
5,798 |
|
|
|
4,947 |
|
|
Accruals |
|
|
583 |
|
|
|
1,274 |
|
|
Property and equipment |
|
|
1,184 |
|
|
|
195 |
|
|
Other |
|
|
633 |
|
|
|
1,088 |
|
|
Gross deferred tax assets |
|
|
57,572 |
|
|
|
79,429 |
|
|
Valuation allowance |
|
|
(54,934 |
) |
|
|
(76,295 |
) |
|
Total deferred tax assets |
|
|
2,638 |
|
|
|
3,134 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Purchased intangibles |
|
|
(7,554 |
) |
|
|
(8,979 |
) |
|
Other |
|
|
(17 |
) |
|
|
(212 |
) |
|
Total deferred tax liabilities |
|
|
(7,571 |
) |
|
|
(9,191 |
) |
|
Net deferred tax liabilities |
|
$ |
(4,933 |
) |
|
$ |
(6,057 |
) |
Accounting standards provide for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company’s sources of taxable income including historical operating performance, the Company has provided a valuation allowance on the deferred tax asset that is not realizable. The valuation allowance decreased by $21.4 million and increased by $6.2 million during the years ended December 31, 2017 and 2016, respectively.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017, the Tax Act, was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. The Company has calculated the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing which did not result in any additional income tax expense in the fourth quarter of 2017. In December 2017, Staff Accounting Bulletin No. 118, or SAB 118, was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, additional work may be necessary for a more detailed analysis of the Company's deferred tax assets and liabilities. Any subsequent adjustment to the provisional amounts will be recorded in 2018 when the analysis is complete.
Under ASC Topic 740, Accounting for Income Taxes, the enactment of the Tax Act also requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. Consequently, the Company accounted for a provisional estimated reduction of the U.S. deferred tax assets from $72.5 million to approximately $45.9 million with a corresponding decrease of $27.0 million to the Company’s valuation allowance. The Company expects the new law to significantly reduce its tax rate in future periods, and its tax footnote reflects the effects of a federal tax rate reduction net of its valuation allowance. In addition, the Company is still evaluating the realizability of certain deferred tax assets.
Beginning in 2018, companies may be subject to global intangible low tax income (“GILTI”), which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations as well as the new base erosion anti-abuse tax (“BEAT”) under the Tax Act. GILTI will be effectively taxed at a tax rate of 10.5%. Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes under the SAB 118. The Company has not yet made an election with respect to GILTI. The Company will continue to review the GILTI and BEAT rules to determine their applicability to the company as the rules become effective.
As of December 31, 2017, the Company had domestic federal net operating loss carryforwards of $204.2 million, domestic state net operating loss carryforwards of $75.9 million, and foreign net operating loss carryforwards of $5.3 million that can reduce future taxable income. The domestic federal and state net operating loss carryforwards will begin to expire in 2018 and 2028, respectively. The foreign net operating loss carryforwards can be carried forward indefinitely.
As of December 31, 2017, the Company had credit carryforwards of approximately $4.3 million and $5.3 million available to reduce future taxable income, if any, for domestic federal and California state income tax purposes, respectively. The domestic federal credit carryforwards begin to expire in 2021. California credits have no expiration date.
Utilization of the Company's net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. Based on a preliminary review of the Company's equity transactions since inception, the Company believes a portion of its net operating loss carryforwards and credit carryforwards may be limited due to equity financings which occurred in 2000, 2004, 2007, 2014 and through the current period.
A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at beginning of year |
|
$ |
5,252 |
|
|
$ |
2,431 |
|
|
$ |
2,054 |
|
|
Additions based on tax positions related to current year |
|
|
186 |
|
|
|
332 |
|
|
|
372 |
|
|
Additions (decreases) based on tax positions related to prior years |
|
|
(2,274 |
) |
|
|
2,489 |
|
|
|
5 |
|
|
Balance at end of year |
|
$ |
3,164 |
|
|
$ |
5,252 |
|
|
$ |
2,431 |
|
Approximately $0.5 million of the $3.2 million of net unrecognized tax benefit as of December 31, 2017, if recognized, would impact the Company's effective tax rate. During the year ended December 31, 2016, given the Company's valuation allowance, the uncertain tax benefits would not have impacted the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2017 and December 31, 2016, the Company has $0.3 million and $0.3 million, respectively, of cumulative interest and penalties related to unrecognized tax benefits. There were no accruals of interest expense during the year ended December 31, 2015. The Company does not anticipate a significant change in the unrecognized tax benefits over the next twelve months.
The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to net operating loss and credit carryovers, the domestic federal and state income tax returns are subject to tax authority examination from inception. In jurisdictions where the Company files income tax returns, the statutes of limitations with respect to these jurisdictions vary from jurisdiction to jurisdiction and range from 3 to 6 years.