INCOME TAXES

The domestic and foreign components of income (loss) before the provision for income taxes for the years ended December 31, 2014, 2013 and 2012 were as follows (in thousands):



	Years Ended December 31,
	2014		2013			2012
Domestic	$	13,107	$	(1,015	)	$	13,235
Foreign	1,023		905			1,231
Total	$	14,130	$	(110	)	$	14,466

During the years ended December 31, 2014, 2013 and 2012, the Company’s income tax expense (benefit) was as follows (in thousands):



	Years Ended December 31,
	2014			2013			2012
Current expense:
Federal	$	8,224		$	1,880		$	—
State	999			143			317
Foreign	1,257			1,006			762
Total current expense	10,480			3,029			1,079
Deferred benefit:
Federal	(2,936		)	(3,445		)	(13,805		)
State	(1,259		)	(1,172		)	(4,467		)
Foreign	(345		)	(311		)	(45		)
Total deferred benefit	(4,540		)	(4,928		)	(18,317		)
Total income tax expense (benefit)	$	5,940		$	(1,899	)	$	(17,238	)

The difference between the income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate to the income (loss) before income taxes is as follows (in thousands):



	Years Ended December 31,
	2014			2013			2012
Federal statutory rate	$	4,945		$	(38	)	$	4,918
State taxes, net of federal income tax benefit	602			86			417
Non-deductible expenses	246			209			134
Stock-based compensation	2,209			1,535			701
Preferred stock warrant liability	—			—			966
Acquisition cost	—			110			—
Foreign tax deduction	(153		)	(101		)	—
Tax credits	(2,502		)	(4,020		)	(884		)
Foreign tax rate differential	393			324			273
Other items not individually material	200			(4		)	116
Change in statutory rate	—			—			(262		)
Change in valuation allowance	—			—			(23,617		)
Total income tax expense (benefit)	$	5,940		$	(1,899	)	$	(17,238	)

The Company records deferred tax assets if the realization of such assets is more likely than not. Significant management judgment is required in determining whether a valuation allowance against the Company’s deferred tax assets is required. The Company has considered all available evidence, both positive and negative, such as historical levels of income and predictability of future forecasts of taxable income, in determining whether a valuation allowance is required. The Company is also required to forecast future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant management judgment.

As of December 31, 2014, the Company had cumulative net income before tax for the three years then ended. Based on its historical operating performance, as well as the Company’s expectation that its operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets, the Company has concluded that it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets in the future. As a result, the Company did not record a valuation allowance against its net deferred tax assets during the year ended December 31, 2014.

The Company will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist on a quarterly basis. Any adjustment to the deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	As of December 31,
	2014			2013
Deferred tax assets:
Accruals and reserves	$	2,645		$	1,641
Tax credits	4,416			6,719
Fixed assets and intangibles, other than goodwill	3,913			3,402
Net operating losses	1,426			1,645
Stock-based compensation	11,023			7,131
Deferred revenue	2,560			1,448
Other	2,177			1,517
Total deferred tax assets	28,160			23,503
Deferred tax liabilities
Intangible assets	(850		)	(1,020		)
Goodwill	(535		)	(305		)
Net deferred tax assets	$	26,775		$	22,178
As reported:
Current deferred tax asset	$	6,205		$	7,715
Non-current deferred tax assets	21,166			15,317
Non-current deferred tax liabilities	(596		)	(854		)
Net deferred tax assets	$	26,775		$	22,178

As of December 31, 2014, the Company had net operating loss carryforwards of approximately $39.5 million for federal purposes, $50.1 million for state purposes, and $3.8 million for foreign purposes. If not utilized, these carryforwards will begin to expire in 2033 for federal purposes and 2019 for state purposes. Foreign carryforwards will not expire. As a result of certain realization requirements of the accounting guidance for stock-based compensation, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2014 and 2013 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Approximately $39.4 million of federal net operating losses, $29.9 million of state net operating losses, and $2.3 million of foreign net operating losses relate to stock compensation deductions in excess of book expense, the tax effect of which would be to credit additional paid-in capital if realized.

The Company has research credit carryforwards of approximately $7.9 million for federal purposes and $8.3 million for California purposes. If not utilized, the federal carryforward will begin to expire in 2024. The California credit carryforward will not expire. The Federal research credits and $3.9 million of the California research credits, when realized, will result in a credit to additional paid-in capital.

The Company uses the accounting guidance on a with and without approach under ASC Topic 740 Income Taxes, for the purpose of determining when excess tax benefits have been realized.

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in certain situations where stock ownership changes occur. In the event the Company has had a change in ownership, the future utilization of the Company’s net operating loss and tax credit carryforwards could be limited.

The undistributed earnings from the Company’s foreign subsidiaries are not subject to a United States tax provision because it is management’s intention to permanently reinvest such undistributed earnings outside of the United States. The Company evaluates its circumstances and reassesses this determination on a periodic basis. As of December 31, 2014, the determination of the unrecorded deferred tax liability related to these earnings was immaterial. If circumstances change and it becomes apparent that some or all of the undistributed earnings of the Company’s foreign subsidiaries will be remitted in the foreseeable future, the Company will be required to recognize a deferred tax liability on those amounts.

The Company has foreign tax credit carryforwards of approximately $0.5 million for federal purposes. If not utilized, the federal carryforward will begin to expire in 2019.

The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. As of December 31, 2014, 2013 and 2012, the Company’s total amount of unrecognized tax benefit was approximately $3.3 million, $2.4 million, and $0.8 million, respectively. These amounts are primarily related to the Company’s research and development tax credits and tax accruals.

As of December 31, 2014, the Company’s total amount of unrecognized tax benefit was approximately $3.3 million. If recognized, approximately $2.7 million would impact the effective tax rate. The Company does not expect its unrecognized tax benefits to change materially over the next 12 months.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):



	As of December 31,
	2014			2013		2012
Balance at beginning of year	$	2,397		$	836	$	937
Additions related to current year tax positions	858			1,394		218
Additions related to prior year tax positions	—			167		—
Reductions related to prior year tax positions	(3		)	—		(319		)
Balance at end of year	$	3,252		$	2,397	$	836

During the year ended December 31, 2014 and cumulatively, the Company recognized an immaterial amount of interest and penalties associated with unrecognized tax benefits.

The Company files income tax returns with the United States federal government, various states and certain foreign jurisdictions. The Company’s tax years ended December 31, 2003 through December 31, 2014 remain open to audit for federal and California purposes. These years are open due to net operating losses and tax credits unutilized from such years. The Company’s tax years ended December 31, 2009 through December 31, 2014 remain open to audits for its foreign subsidiaries.