Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

12. Income Taxes

For the years ended December 31, 2009, 2010 and 2011, the U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):

	2009			2010			2011
Domestic	$	4,545		$	(1,203	)	$	(4,906	)
Foreign		(3,715	)		(2,294	)		948
Total income (loss) before income taxes	$	830		$	(3,497	)	$	(3,958	)

For the years ended December 31, 2009, 2010 and 2011, income tax provision consisted of the following (in thousands):

	2009			2010			2011
Current expense
Federal	$	4,020		$	580		$	26
State		657			245			6
Foreign		—			188			665
Deferred expense (benefit)
Federal		(1,681	)		(333	)		9,282
State		(142	)		(149	)		884
Foreign		—			(353	)		(244	)
Total provision for income taxes	$	2,854		$	178		$	10,619

A reconciliation of the Company’s effective tax rate to the statutory federal income tax rate for the years ended December 31, 2009, 2010 and 2011 is as follows:

	2009			2010			2011
Statutory federal tax rate		35	%		35	%		35	%
State income taxes, net of benefit		29			—			6
Effect of foreign losses		24			—			(5	)
Non-deductible compensation		145			(28	)		(19	)
Other non-deductible expenses		14			(11	)		13
Effect of uncertain tax positions		—			(3	)		(5	)
Changes in valuation allowance		97			2			(293	)
		344	%		(5	)%		(268	)%

The provision for income taxes for the years ended December 31, 2009 and 2010 differed from the expected tax provision computed by applying the U.S. federal statutory rate to income or loss before income taxes primarily due to operating losses in foreign jurisdictions for which no tax benefit is currently available, non-deductible compensation and, to a lesser extent, state income taxes and certain other non-deductible expenses.

The provision for income taxes for the year ended December 31, 2011 differed from the expected tax provision computed by applying the U.S. federal statutory rate to income or loss before income taxes primarily due to the establishment of the valuation allowance and, to a lesser extent, operating losses in foreign jurisdictions for which no tax benefit is currently available, non-deductible compensation and, to a lesser extent, state income taxes and certain other non-deductible expenses.

In the fourth quarter of 2011, the Company established a full valuation allowance against its U.S. federal and state net deferred tax assets because management concluded that it is more likely than not that it will not realize the benefits of its deferred tax assets based on recent operating results and current projections of future losses and, therefore, recorded a valuation allowance to reduce the carrying value of these net deferred tax assets to zero. As a result, the valuation allowance on the Company’s net U.S. deferred tax assets increased by $11,821,000 during the year ended December 31, 2011.

As of December 31, 2010 and 2011, the Company maintained a full valuation against certain of its foreign deferred tax assets. The Company has historically maintained a full valuation allowance on deferred tax assets of its foreign subsidiaries because management determined that it is more likely than not that it will not realize the benefits of its foreign deferred tax assets and, therefore, recorded a valuation allowance to reduce the carrying value of these foreign deferred tax assets to zero.

The Company’s deferred tax components consisted of the following (in thousands):

	December 31,
	2010			2011
Deferred tax assets:
NOL carryforwards	$	1,894		$	6,425
Allowance for doubtful accounts		31			71
Deferred revenue		297			145
Accrued expenses		394			1,184
Intangible asset amortization		2,183			3,751
Stock-based compensation		7,359			5,218
Other		403			1,227
Total deferred tax assets		12,561			18,021
Valuation allowance		(1,997	)		(13,654	)
Net deferred tax assets		10,564			4,367
Deferred tax liabilities:
Capitalized software development		(510	)		(538	)
Depreciation		(282	)		(2,760	)
Goodwill and intangible asset amortization		(1,910	)		(3,623	)
Other		(268	)		(236	)
Total deferred tax liabilities		(2,970	)		(7,157	)
Net deferred tax asset (liability)	$	7,594		$	(2,790	)

The Company has not provided for U.S. income taxes on the undistributed earnings and the other outside basis temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside of the U.S.

As of December 31, 2011, the Company had net operating loss (NOL) carryforwards for federal and state tax purposes of approximately $23,997,000 and $11,136,000, respectively, which will begin to expire in 2026. The Company’s foreign subsidiaries generated NOL carryforwards of $8,880,000 which will begin to expire in 2015. The utilization of the equity award related portion of the worldwide NOL carryforwards will result in a realization of approximately $4,801,000, of tax effected benefit that will be recorded to additional paid-in capital.

The exercise and vesting of equity awards has generated income tax deductions in excess of amounts recorded for financial reporting purposes. In 2009 and 2010, the Company realized a tax benefit from the utilization of NOLs related to stock-based compensation and the exercise and vesting of equity awards. The Company recorded a tax benefit from equity awards to additional paid-in capital for the years ended December 31, 2009 and 2010. The Company recorded a tax deficiency from equity awards to additional paid-in capital for the year ended December 31, 2011, as certain equity awards that vested and were exercised in 2011 resulted in a shortfall, however, as the Company generated sufficient excess tax benefits in the previous years, the shortfall only reduced the cumulative additional paid-in capital from excess tax benefits. The Company has elected to use the “with and without” method for recognition of excess tax benefits related to equity awards.

The Company had no material uncertain tax positions or interest and penalties related to uncertain tax positions at December 31, 2009. During the first quarter of 2011, the Company finalized the calculation of the uncertain tax positions relating to certain acquired foreign subsidiaries. The final calculation resulted in a reduction of $547,000 to the acquired goodwill. As of December 31, 2010 and 2011, included in other liabilities is the estimated liability for the Company’s uncertain tax positions of approximately $758,000 and $937,000, respectively, including interest and penalties of $403,000 and $436,000, respectively. The Company does not believe its unrecognized tax positions will materially change over the next twelve months.

The change in unrecognized tax benefits, excluding accrued interest, for the years ended December 31, 2010 and 2011, were as follows (in thousands):

Balance as of January 1, 2010	$	—
Additions based on tax positions taken in the current year		50
Additions for tax positions of prior years		305
Balance as of December 31, 2010		355
Additions based on tax positions taken in the current year		36
Additions for tax positions of prior years		110
Balance as of December 31, 2011	$	501

As of December 31, 2010, the total amount of gross unrecognized tax benefits was $758,000, if recognized, would favorably impact the Company’s effective tax rate. As of December 31, 2011, the total amount of gross unrecognized tax benefits was $937,000, if recognized, would favorably impact the Company’s effective tax rate. For the year ended December 31, 2010 and 2011, the Company recognized $73,000 and $33,000, respectively of interest expense in connection with tax matters which is included in income tax expense.