Income Taxes

12 Months Ended

Dec. 31, 2019

For the year ended December 31, 2019, 2018, and 2017 no income tax expense was recorded due to the Company’s net operating losses (NOLs) and full valuation allowance.

The components of loss before provision for (benefit from) income taxes during the three years ended December 31, 2019 consisted of the following:



	Year Ended December 31,
	2019			2018			2017
United States	$	(116,749	)	$	(208,735	)	$	(245,264	)
Foreign	(16,244		)	(12,602		)	(8,973		)
	(132,993		)	(221,337		)	(254,237		)

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Income tax benefit using U.S. federal statutory rate	$	(27,918	)	$	(46,464	)	$	(86,426	)
State income taxes, net of federal benefit	(5,486		)	(6,694		)	(5,570		)
Stock-based compensation	4,379			(12		)	(5,909		)
Research and development tax credits	(2,491		)	(3,743		)	(2,468		)
Effect of federal tax law change	—			—			86,035
Other adjustments - ASU 2016-09 adoption	—			—			6,135
Change in the valuation allowance	26,918			49,550			(39,045		)
Convertible note	(128		)	(128		)	47,016
Permanent items	457			883			543
Uncertain Tax Positions	—			—			3,056
Foreign rate differential	3,414			2,649			—
Other	855			3,959			(3,367		)
Income tax expense	$	—		$	—		$	—

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



	December 31,
	2019			2018
Deferred tax assets:
NOL carryforwards	$	243,063		$	225,285
Capitalized research and development	4,099			3,919
Research and development credits	9,608			8,380
Interest Expense	2,729			1,125
Accrued expenses	5,342			2,644
Stock-based compensation	14,952			14,377
UNICAP	103			86
Allowance for bad debt	1,832			840
Operating lease liability	1,696			—
Other	119			106
Gross non-current deferred tax assets	283,543			256,762
Valuation allowance	(255,242		)	(228,322		)
Net non-current deferred tax assets	$	28,301		$	28,440
Deferred tax liabilities:
Depreciation	$	(216	)	$	(347	)
Right-of-Use asset	(1,677		)	—
Convertible debt	(26,408		)	(28,093		)
Gross non-current deferred tax liabilities	(28,301		)	(28,440		)
Net non-current deferred tax assets (liabilities)	$	—		$	—

FASB ASC 740-Income Taxes requires that a valuation allowance be established to reduce a deferred tax asset to its realizable value when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence needs to be considered, including the utilization of past tax credits and length of carry-back and carry-forward periods, reversal of temporary differences, tax planning strategies, our current and past performance, the market environment in which we operate, and the evaluation of tax planning strategies to generate future taxable income.

The Company has recorded a valuation allowance against its net deferred tax assets in each of the years ended December 31, 2019, 2018, and 2017, because the Company’s management believes that it is more likely than not that these

assets will not be realized. The increase in the valuation allowance of $26.9 million in 2019 primarily relates to the net loss incurred by the Company.

As of December 31, 2019, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $974.3 million and $681.8 million, respectively, which may be used to offset future taxable income. Of the federal NOL amount, approximately $754.2 million will expire at various dates through 2037 and $220.1 million will carryforward indefinitely. The state NOLs will expire at various dates through 2039.

As of December 31, 2019, the Company also had federal and state tax credits of $8.0 million and $2.1 million, respectively, to offset future tax liabilities. The federal general business credits will expire at various dates through 2039 and the state research and development tax credits will expire at various dates through 2034.

In 2016, the Company completed an evaluation of our tax attributes through December 31, 2015 as outlined under Section 382 of the Internal Revenue Code, which resulted in a reduction of its NOL and credit carryforwards. The Company has adjusted its NOL and credit carryforwards, and the related valuation allowance, according to the results of this evaluation. As no additional evaluations have been completed since 2016, the NOLs could be subject to further limitations.

The Company applies the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of December 31, 2019, the unrecognized tax benefit was $2.6 million which, if recognized, will not affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets which would be subject to a full valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows (in thousands):



	Uncertain Tax Position
Balance at December 31, 2018	$	2,239
Decreases related to prior year tax positions	(285		)
Increases related to prior year tax positions	92
Decreases related to current year tax positions	—
Increases related to current year tax positions	517
Balance at December 31, 2019	$	2,563

The Company and its subsidiaries file income tax returns in the United States, as well as various state and foreign jurisdictions. Generally, the tax years 2016 through 2018 remain open to examination by the major taxing jurisdictions to which the Company is subject. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state or foreign tax authorities, to the extent utilized in a future period.

No material interest or penalties have been recorded for the years ended December 31, 2019, 2018, or 2017. The Company does not expect any significant change in its uncertain tax positions in the next 12 months.