INCOME TAXES

The components of the Company’s loss before provision (benefit) for income taxes are as follows (in thousands):



	Years Ended December 31,
	2016			2015			2014
United States	$	(39,107	)	$	(59,797	)	$	(59,249	)
Foreign	(26,523		)	(24,538		)	(4,795		)
Loss before provision for income taxes	$	(65,630	)	$	(84,335	)	$	(64,044	)

The components of the provision (benefit) for income taxes attributable to continuing operations are as follows (in thousands):



	Years Ended December 31,
	2016			2015			2014
Current income tax provision:
Federal	$	—		$	—		$	—
State	105			147			40
Foreign	1,838			1,139			822
Total current income tax provision	1,943			1,286			862
Deferred income tax benefit:
Federal	—			—			—
State	—			—			—
Foreign	(736		)	(105		)	(7		)
Total deferred income tax benefit	(736		)	(105		)	(7		)
Total income tax provision (benefit)	$	1,207		$	1,181		$	855

On a consolidated basis, the Company has incurred operating losses and has recorded a full valuation allowance against its United States, United Kingdom, New Zealand, Hong Kong and Brazil deferred tax assets for all periods to date and, accordingly, has not recorded a provision (benefit) for income taxes for any of the periods presented other than a provision (benefit) for certain foreign and state income taxes. Certain foreign subsidiaries and branches of the Company provide intercompany services and are compensated on a cost-plus basis, and therefore, have incurred liabilities for foreign income taxes in their respective jurisdictions.

The differences in the total provision for income taxes that would result from applying the 34% federal statutory rate to loss before provision for income taxes and the reported provision for income taxes are as follows (in thousands):



	Years Ended December 31,
	2016			2015			2014
U.S. Federal tax benefit at statutory rates	$	(22,310	)	$	(28,681	)	$	(21,795	)
State income taxes, net of federal tax benefit	(855		)	(1,632		)	(2,013		)
Foreign rate differential	3,711			3,964			734
Stock based compensation	4,467			4,673			4,121
Other permanent differences	(750		)	(99		)	941
Other	1,494			536			(82		)
Valuation allowance	15,450			22,420			18,949
Total income tax (benefit) provision	$	1,207		$	1,181		$	855

Major components of the Company’s deferred tax assets (liabilities) at December 31, 2016 and 2015 are as follows (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Accrued expenses	$	3,037		$	1,508
Long-lived intangible assets and fixed assets — basis difference	22,146			12,766
Net operating loss carryforwards	68,356			68,395
Stock-based compensation	19,515			15,049
Deferred revenue	4,060			2,828
Convertible note hedge	6,387			10,299
Other	2,276			1,418
Total deferred tax assets	125,777			112,263
Valuation allowance	(111,775		)	(96,326		)
Deferred tax assets, net of valuation allowance	14,002			15,937
Deferred tax liabilities:
Prepaid expenses and deferred commissions	(7,718		)	(7,401		)
Convertible note discount	(4,721		)	(7,688		)
Other	(591		)	(612		)
Total deferred tax liabilities	(13,030		)	(15,701		)
Net deferred tax assets (liabilities)	$	972		$	236

At December 31, 2016, the Company had federal, state and foreign net operating losses of approximately $254.7 million, $255.6 million and $59.6 million, respectively. The federal net operating loss carryforward will begin expiring in 2019, the state net operating loss carryforward began expiring in 2016, and the foreign net operating loss has an unlimited carryforward period. The Internal Revenue Code of 1986, as amended, imposes substantial restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Due to the effects of historical equity issuances, the Company has determined that the future utilization of a portion of its net operating losses is limited annually pursuant to IRC Section 382. The Company has determined that none of its net operating losses will expire because of the annual limitation. The Company acquired federal and state R&D credits as a result of the Evolv acquisition in the amounts of $0.4 million and $0.5 million, respectively. The federal R&D credit will begin to expire in 2030 and the state credit has an indefinite carryforward.

The Company has recorded a full valuation allowance against its otherwise recognizable United States, United Kingdom, New Zealand, Hong Kong and Brazil deferred income tax assets as of December 31, 2016. Management has determined, after evaluating all positive and negative historical and prospective evidence, that it is more likely than not that these assets will not be realized. The net increase to the valuation allowance of $15.5 million, $22.4 million and $25.3 million for the years ended December 31, 2016, 2015 and 2014, respectively, was primarily due to additional net operating losses generated by the Company.

The Company has excluded excess windfall tax benefits resulting from stock option exercises as components of the Company’s gross deferred tax assets and corresponding valuation allowance disclosures, as tax attributes related to such windfall tax benefits should not be recognized until they result in a reduction of taxes payable. The tax effected amount of gross unrealized net operating loss carryforwards, and their corresponding valuation allowances resulting from stock option exercises was $39.4 million at December 31, 2016; the corresponding gross amount is $107.6 million. When realized, excess windfall tax benefits are credited to additional paid-in capital. The Company follows the with-and-without allocation approach to determine when such net operating loss carryforwards have been realized.

Deferred income taxes have not been provided on the undistributed earnings of the Company’s foreign subsidiaries because the Company’s practice and intent is to permanently reinvest these earnings. The cumulative amount of such undistributed earnings was $4.0 million and $2.2 million at December 31, 2016 and December 31, 2015, respectively. Any future distribution of these non-U.S. earnings may subject the Company to both U.S. federal and state income taxes, as adjusted for tax credits, and foreign withholding taxes that the Company estimates would be $0.8 million and $0.3 million at December 31, 2016 and 2015, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2016, 2015, and 2014 is as follows (in thousands):



	Years Ended December 31,
	2016		2015		2014
Balance at January 1	$	276	$	276	$	276
Additions for tax positions related to the current year	—		—		—
Balance at December 31	$	276	$	276	$	276

The provision for uncertain tax positions relate to business in territories outside of the United States.

The Company’s policy is to classify interest and penalties on uncertain tax positions as a component of tax expense. An insignificant amount of interest and penalties on unrecognized tax benefits were accrued during the 2016 tax year. The amount of accrued interest and penalties on unrecognized tax benefits was insignificant, as of December 31, 2016 and 2015. The Company does not expect the change in uncertain tax positions to have a material impact on its financial position, results of operations or liquidity. The recognition of previously unrecognized tax benefits on uncertain positions would result in a $0.4 million tax benefit. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within the next twelve months.

The Company is subject to United States federal income tax as well as to income tax in multiple state and foreign jurisdictions, including the United Kingdom. Federal income tax returns of the Company are subject to IRS examination for the 2013 through 2016 tax years. State income tax returns are subject to examination for the 2012 through 2016 tax years. Foreign income tax returns are subject to examination for the 2007 through 2016 tax years.