Income Taxes

The components of income (loss) before income taxes are as follows (in thousands):



	Year Ended March 31,
	2019			2018			2017
Domestic	$	(46,838	)	$	(47,489	)	$	(62,526	)
Foreign	5,779			3,128			1,713
Total	$	(41,059	)	$	(44,361	)	$	(60,813	)

The components of the provision for income taxes are as follows (in thousands):



	Year Ended March 31,
	2019			2018		2017
Current Provision:
Federal	$	(269	)	$	—	$	—
State	32			89		18
Foreign	1,742			870		333
Total current provision	1,505			959		351
Deferred Provision:
Federal	(568		)	—		—
State	—			—		—
Foreign	(240		)	—		(87		)
Total deferred provision	(808		)	—		(87		)
Total income tax provision	$	697		$	959	$	264

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consist of the following:



	Year Ended March 31,
	2019		2018		2017
Federal statutory rate	21.0	%	30.8	%	34.0	%
Effect of:
State taxes, net of federal benefits	5.0		3.2		2.4
Stock-based compensation	35.2		82.4		(1.8	)
Research and development credits, net of ASC 740-10	8.7		6.5		3.5
Tax Cuts and Jobs Act	—		(71.0	)	—
Permanent items	(3.9	)	(2.1	)	—
Foreign taxes	(0.3	)	(0.6	)	—
Business combination	1.4		—		—
Other	0.7		0.6		0.4
Valuation allowance	(69.5	)	(52.0	)	(38.9	)
Effective tax rate	(1.7	)%	(2.2	)%	(0.4	)%

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 for the periods presented (in thousands):



	As of March 31,
	2019			2018
Deferred tax assets:
Accrued expenses	$	3,768		$	2,558
Depreciation and amortization	2,461			3,585
Net operating loss carryforwards	126,125			98,338
Stock based compensation	6,754			5,248
Research and development credits	15,960			12,351
Other	—			—
Gross deferred tax assets	155,068			122,080
Valuation allowance	(126,793		)	(117,353		)
Total deferred tax assets	28,275			4,727
Deferred tax liabilities:
Prepaids	(2,889		)	(2,647		)
Intangibles	(2,349		)
Capitalized research and development	(2,165		)	(1,942		)
Deferred contract acquisition costs	(12,515		)	—
Convertible debt	(7,570		)	—
Total deferred tax liabilities	(27,488		)	(4,589		)
Total net deferred tax assets/(liabilities)	$	787		$	138

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Acts (“the TJCA”) was enacted into law. The TCJA includes significant changes to the U.S corporate Internal Revenue Code of 1986, as amended (the “Code”). The TCJA changes include, but are not limited to, reduction in the U.S. corporate tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, limitations on the deductibility of executive compensation, interest expense and net operating loss (“NOL”) immediate expensing of capital expenditures, transition of the U.S. international taxation from a “worldwide” system to a territorial system of taxation and the introduction of a base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) and a new minimum tax on certain foreign earnings. The reduction of the U.S. corporate tax rate required us to remeasure our U.S. deferred tax assets and liabilities to the newly enacted federal rate of 21%.

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 allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The amounts recorded for the Tax Act no longer remain provisional as we completed our accounting for the effect of the Tax Act within the measurement period, under the SEC guidance, which did not have a material impact on our consolidated financial statements. We were subject to the one-time mandatory transition tax of $2.7 million due to cumulative foreign earnings as of December 31, 2017. We also elected to record the taxes for GILTI as period costs. However, the amounts recorded for the transition tax, the remeasurement of deferred taxes, and reassessment of indefinitely reinvested earnings, valuation allowances and uncertain tax positions may be impacted by factors including future guidance and clarification regarding available tax accounting methods and elections, earnings and profits computations, and state tax conformity to federal tax changes, among others.

The Company accounts for deferred taxes under ASC 740, Income Taxes, which requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization threshold. This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. The evaluation of the recoverability of the deferred tax assets requires that we weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. Based upon the weight of available evidence, which includes the Company’s historical operating performance and the U.S. cumulative net losses in all prior periods, the Company has provided a valuation allowance against its U.S. and Japan deferred tax assets. Overall, the valuation allowance increased by $9.0 million and $23.0 million for the years ended March 31, 2019 and 2018, respectively.

As of March 31, 2019, the Company has U.S. federal and state net operating losses of approximately $518.0 million and $270.0 million respectively, which expire beginning in the years 2028 and 2022. Of the $518.0 million federal net operating losses, $97.0 million are carried forward indefinitely but are limited to 80% of taxable income and $99.0 million are carried forward indefinitely with no limitation when utilized. The remaining $319.0 million begin to expire in 2028. As of March 31, 2019, the Company also has Federal, California and Oregon research and development credits of $17.2 million, $2.8 million, and $2.9 million, respectively. The federal tax credit carryforwards will expire beginning in 2028 if not utilized. The California credit carryforwards do not expire. The Oregon tax credit carryforwards begin to expire in 2020.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Code, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Section 382 of the Code (“Section 382”) ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of the Company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company did experience one or more ownership changes in financial periods ending on or before March 31, 2019. In this regard, the Company has determined that based on the timing of the ownership changes and the corresponding Section 382 limitations, none of its net operating losses or other tax attributes are subject to such limitation.

The Company has adopted authoritative guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company had unrecognized tax benefits of $8.0 million, $6.7 million, and $5.0 million as of March 31, 2019, 2018, and 2017. As of March 31, 2019, if recognized, the unrecognized tax benefit of $8.0 million would not affect income tax expense before consideration of any valuation allowance. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.




Balance at March 31, 2016	$	3,489
Additions based on tax positions taken during the current period	1,503
Additions based on tax positions taken during the prior period	—
Reductions based on tax positions taken during the prior period	(7		)
Balance at March 31, 2017	4,985
Additions based on tax positions taken during the current period	1,938
Reductions based on tax positions taken during the prior period	(187		)
Balance at March 31, 2018	6,736
Additions based on tax positions taken during the current period	1,566
Reductions based on tax positions taken during the prior period	(305		)
Balance at March 31, 2019	$	7,997

Accrued interest and penalties have not been material for the fiscal years ended March 31, 2019, 2018, and 2017.