INCOME TAXES | INCOME TAXES The components of income (loss) before income taxes for the years ended December 31, 2019 , 2018 and 2017 were as follows (in thousands): 2019 2018 2017 Domestic $ 1,994 $ (10,552 ) $ (11,089 ) Foreign 2,177 3,565 (5,184 ) Total income (loss) before income taxes $ 4,171 $ (6,987 ) $ (16,273 ) The provision for income tax expense included the following for the years ended December 31, 2019 , 2018 and 2017 (in thousands): 2019 2018 2017 Current: Federal $ (10 ) $ (20 ) $ (39 ) Foreign 168 141 193 Total 158 121 154 Deferred: Federal — (211 ) (73 ) State (18 ) 12 15 Foreign 549 692 188 Total 531 493 130 Total tax expense $ 689 $ 614 $ 284 Additionally, for the year ended December 31, 2019, the Company recorded $0.1 million of foreign current income tax expense in other comprehensive loss. The Tax Cuts and Jobs Act, or Tax Act, which went into effect on December 22, 2017, significantly revised the Internal Revenue Code of 1986, as amended, or IRC. The Tax Act contains, among other things, significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), repeal of the alternative minimum tax, limitation of the deduction for net operating losses to 80% of current year taxable income, indefinite net operating loss carryforward period and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, creation of the base erosion anti-abuse tax, the global intangible low taxed income inclusion, which the Company accounts for as a period cost, the foreign derived intangible income deduction and modifying or repealing many business deductions and credits. As of December 31, 2019, the U.S Internal Revenue Service, or IRS, is still in the process of issuing guidance to taxpayers to address changes enacted in the Tax Act. The Company has prepared the income tax provision for years ended December 31, 2019 and 2018 based on available guidance. However, if final guidance is issued that modifies the existing temporary guidance issued by the IRS or if the final guidance contradicts positions taken by the Company in the absence of any IRS guidance, this could have a material impact on the Company's consolidated financial statements. The components of the Company's net deferred tax assets as of December 31, 2019 and 2018 were as follows (in thousands): 2019 2018 Deferred tax assets: Domestic tax loss carryforwards $ 31,974 $ 31,904 Foreign tax loss carryforwards 6,098 6,177 Stock-based compensation 3,129 3,707 Tax credits 3,860 3,037 Operating lease liability 3,121 — Lease incentive obligation — 790 Other assets 2,062 2,242 Valuation allowance (38,603 ) (39,040 ) Total deferred tax assets 11,641 8,817 Deferred tax liabilities: Fixed assets 821 460 Intangible assets 491 557 Capitalized contract costs 4,468 3,898 Right of use assets 2,478 — Other liabilities 21 — Total deferred tax liabilities 8,279 4,915 Net deferred tax asset $ 3,362 $ 3,902 The Company adopted ASC 606 effective January 1, 2018. As a result of this adoption, the Company recorded $2.0 million of deferred tax liabilities, partially offset by a $1.4 million reduction to its valuation allowance. This adjustment was applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit. The recognition upon adoption resulted in a $0.6 million increase to accumulated deficit as of January 1, 2018. At December 31, 2019 and 2018 , the Company had federal net operating loss, or NOL, carryforwards of $128.7 million and $127.2 million , respectively, which expire beginning in 2022. At December 31, 2019 and 2018 , the Company had state NOL carryforwards of $151.1 million and $154.5 million , respectively, which expire beginning in 2020. At December 31, 2019 and 2018 , the Company had U.S. federal income tax credit carryforwards of $5.1 million and $4.0 million , respectively, which expire beginning in 2034. The utilization of the NOL and tax credit carryforwards may be subject to limitation under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state and foreign tax laws. Prior to the utilization of these tax attributes, the Company will assess any limitations, particularly related to NOL carryforwards from its acquired entities. For each of the periods ended December 31, 2019 and 2018 , the Company also had foreign NOL carryforwards for use against future tax in those jurisdictions of $32.3 million and $32.6 million , respectively. The majority of the Company's foreign NOLs can be carried forward indefinitely. A valuation allowance has been recognized to offset deferred tax assets, primarily attributable to NOL carryforwards that the Company has determined are not more likely than not to be realized. There was a net increase in the valuation allowance of $1.0 million during the year ended December 31, 2018, which was comprised of a net increase of $2.4 million that was allocable to operations, and a $1.4 million decrease resulting from the Company's adoption of ASC 606 that was allocable to accumulated deficit. There was a net decrease in the valuation allowance of $0.4 million during the year ended December 31, 2019 that was allocable to operations. The Company does not generally consider deferred tax liabilities on indefinite-lived assets as a source of future taxable income available to be able to realize deferred tax assets. However, the Company considers the deferred tax liability associated with an indefinite-lived intangible asset as a source of future taxable income available to be able to realize the deferred tax asset recorded for the U.S. federal alternative minimum tax credit and U.S. federal NOL carryforwards generated in years ending after December 31, 2017, which can be carried forward indefinitely. Since both the deferred tax liability and the deferred tax asset have indefinite lives, they offset each other to arrive at the net deferred tax asset, which is offset by a valuation allowance. Generally, undistributed earnings of the Company's foreign subsidiaries are indefinitely reinvested offshore and, accordingly, no provision for U.S. federal, state or foreign income taxes has been provided thereon. In the year ended December 31, 2019, the Company determined that the undistributed earnings of its foreign subsidiary located in China are no longer permanently reinvested. Accordingly, the Company recorded a deferred tax liability for this temporary difference. The amount of the deferred tax liability is nominal. The cumulative amount of undistributed earnings of the Company's non-U.S. subsidiaries for the years ended December 31, 2019 and 2018 was no minal. The determination of the deferred tax liability, which requires complex analysis of international tax situations related to repatriation, is not practicable at this time. The Company is presently investing in international operations located in Europe, Australia and South America. The Company is funding the working capital needs of its foreign operations through its U.S. operations. In the future, the Company will utilize any foreign undistributed earnings, as well as continued funding from its U.S. operations, to support its continued investment in foreign growth. A reconciliation of the difference between the effective income tax rate and the statutory federal income tax rate for the years ended December 31, 2019 , 2018 and 2017 is as follows: 2019 2018 2017 U.S. statutory federal rate 21.0 % 21.0 % 34.0 % Increase (decrease) resulting from: State taxes, net of federal benefit 3.7 7.8 2.5 Change in U.S. federal statutory rate — — (102.2 ) Nondeductible expenses 8.0 (13.5 ) (10.5 ) Effect of foreign tax rate differential 2.3 (0.5 ) (5.3 ) Uncertain tax positions 4.9 (3.3 ) (1.6 ) Research and development credit (24.8 ) 15.1 5.6 Change in valuation allowance (12.0 ) (36.4 ) 77.1 Expiration of NOL 4.0 (1.0 ) (0.2 ) Change in U.S. state statutory rate 4.0 0.6 (1.7 ) Other 5.4 1.4 0.6 Effective tax rate 16.5 % (8.8 )% (1.7 )% The Company's effective tax rates for the years ended December 31, 2019, 2018 and 2017 are lower than the U.S. federal statutory rates of 21%, 21% and 34% , respectively, primarily due to operating losses which are subject to a valuation allowance. The Company cannot recognize the tax benefit of operating loss carryforwards generated in certain jurisdictions due to uncertainties relating to future taxable income in those jurisdictions in terms of both its timing and its sufficiency, which would enable the Company to realize the benefits of those carryforwards. In 2017, the Company remeasured its U.S. net deferred tax assets to reflect the newly enacted U.S. statutory tax rate of 21% which resulted in tax expense of $16.6 million . This was offset by a corresponding reduction to the valuation allowance of $16.7 million . The net result from the change in the U.S. federal statutory tax rate was a tax benefit of $0.1 million . The increase in the effective tax rate impact from state taxes, net of federal benefit, research and development credits and foreign tax rate differential for the year ended December 31, 2018 compared to the year ended December 31, 2017, was primarily due to the decrease in the U.S. federal statutory tax rate. The increase in effective tax rate impact from nondeductible expenses, foreign tax rate differential, uncertain tax positions, and expiration of NOLs and the decrease in the effective tax rate impact from the tax effects of research and development credits for the year ended December 31, 2019 compared to the years ended December 31, 2018 and 2017 was primarily due to the shift from loss before tax for the years ended December 31, 2018 and 2017, to income before tax for the year ended December 31, 2019. The nondeductible expenses during the years ended December 31, 2019, 2018, and 2017 primarily related to stock-based compensation expense associated with nondeductible stock awards. The Company's foreign jurisdictions comprise a mix of income and loss making entities. In the years ended December 31, 2019 and 2018, foreign income exceeded foreign losses and in the year ended December 31, 2017, foreign losses exceeded foreign income. The Company accounts for uncertain tax provisions in accordance with Accounting Standards Codification Topic 740-10, Income Taxes ("ASC 740-10"). This guidance provides a comprehensive model for the recognition, measurement and disclosure in financial statements of uncertain income tax positions that a company has taken or expects to take on a tax return. The following table shows the changes in unrecognized tax benefits in accordance with ASC 740-10 for the years ended December 31, 2019 , 2018 and 2017 (in thousands): 2019 2018 2017 Balance as of January 1, $ 1,408 $ 1,282 $ 766 Increases related to current tax positions 183 217 199 Increases related to prior year tax positions 20 12 317 Decreases related to prior year tax positions (10 ) (103 ) — Balance as of December 31, $ 1,601 $ 1,408 $ 1,282 Although the ultimate timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that a de minimis amount of unrecognized tax benefits could reverse in the next twelve months. If the total unrecognized tax benefit was recognized, there would be a de minimis impact on the effective tax rate. As of December 31, 2019 and 2018 , the Company had no accrued interest or penalties related to the tax contingencies. The Company's policy for recording interest and penalties is to record them as a component of provision for income taxes. The Company has analyzed its filing positions in all significant federal, state and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state and local tax examinations by tax authorities for tax periods 2015 and prior, although carryforward attributes that were generated prior to 2016 may still be adjusted upon examination by the Internal Revenue Service if they either have been or will be used in a future period. The Company is no longer subject to examination in foreign tax jurisdictions for tax periods 2014 and prior. No income tax returns are currently under examination by taxing authorities. |