Income Taxes (Notes)

12 Months Ended

Dec. 31, 2019

Loss before income taxes was as follows for the years ended December 31, 2019, 2018 and 2017 (in thousands):



	Year Ended December 31,
	2019			2018			2017
United States	$	(1,783	)	$	(1,054	)	$	(1,965	)
Foreign	143			120			34
	$	(1,640	)	$	(934	)	$	(1,931	)

The components of income tax expense (benefit) were as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current:
U.S. federal & state	$	12		$	(10	)	$	183
Foreign	52			37			15
	64			27			198
Deferred:
U.S. federal & state	116			(32		)	(620		)
Foreign	(11		)	(2		)	(6		)
	105			(34		)	(626		)
Income tax expense (benefit)	$	169		$	(7	)	$	(428	)

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, including, but not limited to, a corporate tax rate decrease to 21% effective January 1, 2018. In accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), the Company recorded a $0.6 million income tax benefit in the year ended December 31, 2017 in relation to the remeasurement of its deferred tax liabilities.

A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is presented below:



	Year Ended December 31,
	2019		2018		2017
Federal income taxes at statutory rate	21.0	%	21.0	%	34.0	%
U.S. state income taxes	(7.8	)	4.6		(9.5	)
Equity compensation	177.2		828.5		189.1
Change in valuation allowance	(184.2	)	(857.4	)	(229.6	)
Meals and entertainment	(4.9	)	(5.4	)	(3.0	)
Nondeductible fines and settlements	(9.2	)	(2.1	)	—
Other, net	(11.6	)	(8.6	)	2.0
Change in federal tax rate	—		—		32.1
Credits	9.2		20.2		7.1
Effective income tax rate	(10.3	)%	0.8	%	22.2	%

The principal components of the Company’s deferred tax assets and liabilities were as follows (in thousands):



	Year Ended December 31,
	2019			2018
Deferred tax assets:
Deferred revenue	$	2,219		$	1,371
Accruals and reserves	885			475
Net operating loss carryforwards	30,569			26,566
Depreciation and amortization	240			346
Equity compensation	2,102			1,690
Credits	547			397
Other	243			430
Total deferred tax assets	36,805			31,275
Deferred tax liabilities:
Deferred costs	(398		)	(279		)
Intangible assets	(1,117		)	(1,002		)
Other	(775		)	(250		)
Total deferred tax liabilities	(2,290		)	(1,531		)
Total deferred taxes	34,515			29,744
Less deferred tax asset valuation allowance	(35,609		)	(30,701		)
Net deferred tax liability	$	(1,094	)	$	(957	)

At December 31, 2019, the Company had U.S. federal and state net operating loss carryforwards of $30.6 million (tax-effected) and U.S. federal income tax credits of $0.5 million. Use of carryforwards is limited based on the future income of the Company. The federal net operating loss carryforwards will begin to expire in 2027. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the Company’s net operating loss carryforwards and credit carryforwards may be limited if the Company experiences an ownership change. As of December 31, 2019, the utilization of approximately $0.5 million of net operating losses are subject to limitation as a result of prior ownership changes; however, subsequent ownership changes may further affect the limitation in future years.

A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against its U.S. Federal deferred tax assets as of December 31, 2019 and 2018 because the Company’s management has determined that it is more likely than not that these assets will not be fully realized.

For the year ended December 31, 2019, the Company recognized a net increase of $4.9 million in valuation allowance against its net deferred tax assets associated with U.S. federal and certain state jurisdictions, primarily attributable to current year activity.

The Company is open to examination by the U.S. federal tax jurisdiction for the years ended December 31, 2016 through 2019. The Company is also open to examination for 2007 and forward with respect to net operating loss carryforwards generated and carried forward from those years in the United States. The Company is open to examination by the Canada Revenue Agency for the years ended December 31, 2015 through 2019 for all corporate tax matters, and open for the years ended December 31, 2012 through 2019 for transactions with non-arm’s length non-Canadian residents.

For the year ended December 31, 2019, the Company considers its foreign earnings to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business operations. While, following the enactment of the Tax Act, distributions from majority owned foreign affiliates are, generally, not subject to U.S. income tax, such distributions may be subject to non-U.S. withholding taxes. A deferred tax liability related to such withholding taxes, and U.S. taxes related to non-majority owned foreign investments have not been recorded.

The Tax Act implemented a new tax on foreign subsidiary income. The Company books Global Intangible Low-Taxed Income ("GILTI") on a current basis and does not book deferred taxes related to GILTI.

The Company accounts for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the taxing authority, including resolution of any appeals or litigation, on the basis of the technical merits of the position. If the tax position meets the more-likely-than-not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the relevant tax authority is recognized in the financial statements. No significant changes in uncertain tax positions are expected in the next twelve months.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):



	Year Ended December 31,
	2019		2018			2017
Balance, beginning of year	$	89	$	327		$	120
Increases (decreases) to tax positions related to prior periods	19		(243		)	91
Increases to tax positions related to the current year	5		5			116
Balance, end of year	$	113	$	89		$	327