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Income Taxes
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
        
The following table presents domestic and foreign components of loss before income taxes for the periods presented:
 
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
 
(In thousands)
United States
 
$
(328,902
)
 
$
(96,448
)
 
$
(46,737
)
International
 
(33,314
)
 
(24,710
)
 
(16,266
)
Loss before provision for income taxes
 
$
(362,216
)
 
$
(121,158
)
 
$
(63,003
)

Provision for income taxes consists of the following:
 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Current:
 
(In thousands)
Federal
 
$
—

 
$
—

 
$
99

State
 
198

 
139

 
78

Foreign
 
2,684

 
881

 
823

Total
 
2,882

 
1,020

 
1,000

Deferred:
 
 
 
 
 
 
Federal
 
(49,393
)
 
29

 
28

State
 
(7,474
)
 
19

 
10

Foreign
 
(1,168
)
 
(277
)
 
(333
)
Total
 
(58,035
)
 
(229
)
 
(295
)
Income tax provision (benefit)
 
$
(55,153
)
 
$
791

 
$
705


The following table presents a reconciliation of the statutory federal tax rate and the Company's effective tax rate:
 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Tax benefit at federal statutory rate
 
21
 %
 
21
 %
 
34
 %
State tax, net of federal benefit
 
8

 
15

 
10

Stock-based compensation
 
14

 
31

 
47

Credits
 
4

 
8

 
8

Foreign rate differential
 
(2
)
 
(4
)
 
(8
)
Change in valuation allowance
 
(29
)
 
(68
)
 
(46
)
Change in federal statutory rate
 
—

 
—

 
(45
)
Other
 
(1
)
 
(3
)
 
(1
)
Effective tax rate
 
15
 %
 
—
 %
 
(1
)%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company's deferred tax assets and liabilities:
 
 
As of December 31,
 
2019
 
2018
 
2017
Deferred tax assets:
 
(In thousands)
Net operating loss carryforwards
 
$
274,116

 
$
116,190

 
$
56,138

Accrued and prepaid expenses
 
11,828

 
11,594

 
9,140

Stock-based compensation
 
35,035

 
11,147

 
7,131

Research and development credits
 
65,955

 
32,206

 
16,212

Charitable contributions
 
3,172

 
3,100

 
1,233

Capped call
 
9,914

 
13,175

 
—

Debt issuance cost
 
493

 
638

 
—

Depreciable property
 
2

 
—

 
—

Lease liability
 
39,117

 
—

 
—

Other
 
—

 
194

 
472

Gross deferred tax assets
 
439,632

 
188,244

 
90,326

Valuation allowance
 
(255,893
)
 
(147,354
)
 
(78,900
)
Net deferred tax assets
 
183,739

 
40,890

 
11,426

Deferred tax liabilities:
 
 
 
 
 
 
Capitalized software
 
(13,032
)
 
(10,686
)
 
(7,664
)
Prepaid expenses
 
(1,157
)
 
(838
)
 
(1,015
)
Acquired intangibles
 
(107,281
)
 
(2,997
)
 
(2,101
)
Property and equipment
 
(1,578
)
 
(1,990
)
 
(2,380
)
Convertible debt
 
(20,745
)
 
(27,164
)
 
—

Right-of-use asset
 
(39,630
)
 
—

 
—

Deferred commissions
 
(7,446
)
 
(2,396
)
 
(718
)
Other
 
(405
)
 
—

 
—

Net deferred tax liability
 
$
(7,535
)
 
$
(5,181
)
 
$
(2,452
)

The following table summarizes our tax carryforwards, carryovers, and credits:
 
 
As of
December 31, 2019
 
Expiration Date
(If not utilized)
 
 
(In thousands)
 
 
Federal net operating loss carryforwards
 
$
1,159,329

 
Various dates beginning in 2029
Federal tax credits
 
$
58,404

 
Various dates beginning in 2029
Federal net operating loss carryforwards
 
$
902,507

 
Indefinite
State net operating loss carryforwards
 
$
630,151

 
Various dates beginning in 2025
State tax credits
 
$
38,817

 
Indefinite
Foreign net operating loss carryforwards
 
$
13,772

 
Indefinite


A limitation may apply to the use of the net operating loss and credit carryforwards, under provisions of the Internal Revenue Code of 1986, as amended, and similar state tax provisions that are applicable if the Company experiences an "ownership change." An ownership change may occur, for example, as a result of issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation, resulting in a potential reduction in the gross deferred tax assets before considering the valuation allowance.
The Company's accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company's deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the net deferred tax assets will be realized, accordingly, a full valuation allowance has been
established. The valuation allowance increased by approximately $108.5 million and $68.5 million during the years ended December 31, 2019 and 2018, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
 
 
(In thousands)
Unrecognized tax benefit, beginning of year
 
$
15,635

 
$
9,445

 
$
12,275

Gross increases for tax positions of prior years
 
12,939

 
1,233

 
493

Gross decrease for tax positions of prior years
 
(395
)
 
(4
)
 
(6,331
)
Gross increases for tax positions of current year
 
20,863

 
4,961

 
3,008

Unrecognized tax benefit, end of year
 
$
49,042

 
$
15,635

 
$
9,445


As of December 31, 2019, the Company had approximately $49.0 million of unrecognized tax benefits. If the $49.0 million is recognized, $1.7 million would affect the effective tax rate. The remaining amount would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance.
The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2019, the Company has accumulated $0.2 million in both interest and penalties related to uncertain tax positions.
The Company does not anticipate any significant changes within 12 months of December 31, 2019, in its uncertain tax positions that would be material to the consolidated financial statements taken as a whole because nearly all of the unrecognized tax benefit has been offset by a deferred tax asset, which has been reduced by a valuation allowance.
The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. As of December 31, 2019, the tax years 2008 through the current period remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. The Company is not currently subject to U.S. federal, state and local, or non-U.S. income tax examinations by any tax authorities.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act reduces the U.S. statutory corporate tax rate to 21%, effective January 1, 2018. Consequently, we recorded a decrease to the Company's federal deferred tax assets of $28.0 million, which was fully offset by a reduction in the Company's valuation allowance for the year ended December 31, 2017. The other provisions of the Tax Act, including the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, did not have a material impact on the Company's financial statements as of December 31, 2019 or 2018.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company's accounting for the Tax Act is complete and we did not have any significant adjustments to provisional amounts recorded as of December 31, 2017.
The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs' U.S. shareholder. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method") or (2) factoring such amounts into the measurement of its deferred taxes (the "deferred method"). The Company selected the period cost method.

In connection with the SendGrid acquisition, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets and, accordingly, during the year ended December 31, 2019, the Company released a total of $55.0 million of its U.S. valuation allowance. The Company continues to maintain a valuation allowance for its U.S. Federal and State net deferred tax assets.

The provision for income taxes recorded in the years ended December 31, 2018 and 2017, consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business. The Company’s U.S.
operations have been in a loss position and the Company maintains a full valuation allowance against its U.S. deferred tax assets.