Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Income before Income Tax, Domestic and Foreign

Income before income taxes included the following components for the years ended December 31 (in thousands):



	2018		2017		2016
United States	$	25,751	$	14,978	$	38,414
Foreign	2,353		783		(6,917		)
Total	$	28,104	$	15,761	$	31,497

Significant Components of the Provision for Income Taxes

Significant components of the provision for income taxes are as follows for the years ended December 31 (in thousands):



	2018			2017			2016
Current:
Federal	$	4,900		$	6,039		$	16,346
State	1,377			1,263			1,534
Foreign	228			656			1,050
Total current	6,505			7,958			18,930
Deferred:
Federal	(8,382		)	4,539			(4,145		)
State	(364		)	(1,631		)	(977		)
Foreign	(3		)	(78		)	(45		)
Total deferred	(8,749		)	2,830			(5,167		)
Tax impact of unrecorded tax benefits liability	1,143			(234		)	437
Provision for income taxes (Income tax benefit)	$	(1,101	)	$	10,554		$	14,200

Reconciliation of the Company's Effective Income Tax Rate to the Federal Statutory Rate

A reconciliation of our effective income tax rate to the federal statutory rate follows for the years ended December 31 (in thousands):



	2018			2017			2016
Federal income tax at the statutory rate	$	5,902		$	5,518		$	11,024
State income taxes, net of federal benefit	(215		)	339			889
Difference between statutory and foreign tax rates	7			(560		)	1,521
Permanent differences ⁽¹⁾	725			300			(457		)
Executive compensation limitation	1,167			—			—
Research and development	(6,908		)	(2,380		)	(1,928		)
Return to provision adjustment	1,780			23			327
Change in liability for unrecognized tax benefits	1,768			7			700
Excess stock-based compensation benefit ⁽²⁾	(8,907		)	(1,819		)	(77		)
Change in valuation allowance	1,984			1,949			1,779
Tax effects of intercompany transactions	1,004			(277		)	630
Adjustments to deferred tax assets, net resulting from enactment of new tax law⁽³⁾	—			7,601			—
Other	592			(147		)	(208		)
Provision for income taxes (Income tax benefit)	$	(1,101	)	$	10,554		$	14,200
Effective tax rate	(3.9		)%	66.9		%	45.1		%


⁽¹⁾	Permanent differences include certain expenses that are not deductible for tax purposes including meals and entertainment, certain transaction costs, lobbying fees, and unfavorable income as a result of GILTI offset by favorable items including the domestic production activities deduction, for tax years 2017 and 2016, and a deduction for FDII for 2018.

⁽²⁾

For the years ended December 31, 2018 and 2017, the provision for income taxes included $8.9 million and $1.8 million, respectively, of benefits resulting from excess stock-based compensation that were recorded as a decrease in the provision for income taxes. For the year ended December 31, 2016, we included $1.4 million of benefits resulting from excess stock-based compensation that were recorded as increases to additional paid-in capital in the consolidated statement of changes in stockholders' equity.


⁽³⁾	The adjustment to deferred tax assets of $7.6 million was a result of the impact of changes in the U.S. federal effective tax rate, as well as a reduction of the stock-based compensation deferred tax asset due to expected permanent limitations on its deductibility for certain key executives under the Tax Act.

Components of Deferred Income Tax Assets and Liabilities

Significant components of our deferred income tax assets and liabilities are as follows at December 31 (in thousands):



	2018			2017
Deferred income tax assets:
Net operating loss carryforward	$	2,347		$	3,691
Deferred revenue	13,304			9,442
Deferred compensation	858			1,109
Inventory reserve	1,294			702
Non-qualified and non-employee stock option expense	3,758			3,704
Capitalized research and development	—			485
Amortization	412			—
Research and development tax credit carryforward	5,193			3,817
Reserves, accruals, and other	3,094			1,921
Total deferred income tax assets	30,260			24,871
Deferred income tax liabilities:
Depreciation	(2,195		)	(2,027		)
Amortization	(57		)	(1,398		)
Other	(1,232		)	(256		)
Total deferred income tax liabilities	(3,484		)	(3,681		)
Net deferred income tax assets before valuation allowance	26,776			21,190
Valuation allowance	(7,429		)	(5,435		)
Net deferred income tax assets	$	19,347		$	15,755

Roll Forward of Liability for Unrecognized Tax Benefits Exclusive of Accrued Interest

The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest, as of December 31 (in thousands):



	2018			2017			2016
Balance, beginning of period	$	4,243		$	4,050		$	3,396
Increase in previous year tax positions	213			379			206
Increase in current year tax positions	1,982			587			448
Decrease due to lapse of statutes of limitations	(380		)	(773		)	—
Balance, end of period	$	6,058		$	4,243		$	4,050