Income Taxes

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



	Year Ended December 31,
	2017			2016			2015
U.S.	$	(115,674	)	$	(107,685	)	$	(85,928	)
Foreign	3,518			4,879			2,214
Total	$	(112,156	)	$	(102,806	)	$	(83,714	)

The income tax provision is composed of the following (in thousands):



	Year Ended December 31,
	2017			2016			2015
Current tax provision:
Federal	$	(2,636	)	$	—		$	1
State	104			74			(3		)
Foreign	1,476			3,096			1,693
	(1,056		)	3,170			1,691
Deferred tax provision:
Federal	—			(49		)	(16		)
State	—			—			—
Foreign	(462		)	(2,128		)	(1,337		)
Total provision for (benefit from) income taxes	$	(1,518	)	$	993		$	338

Significant components of deferred tax assets are as follows (in thousands):



	As of December 31,
	2017			2016
Deferred tax assets:
Tax credit carryforward	$	733		$	762
Net operating loss carryforward	115,237			73,611
Share-based compensation	6,072			13,306
Accrued liabilities and reserves	3,968			4,877
Other	5,086			5,325
Total deferred tax assets	131,096			97,881
Less: valuation allowance	(126,321		)	(92,125		)
Deferred tax assets, net of valuation allowance	4,775			5,756
Deferred tax liabilities:
Depreciation and amortization	(3,053		)	(4,474		)
Net deferred tax assets	$	1,722		$	1,282

The following is a reconciliation of the statutory federal income tax rate and the effective tax rates:



	Year Ended December 31,
	2017		2016		2015
Tax at federal statutory rate	34.0	%	34.0	%	34.0	%
Tax reform rate change impact	(58.2	)	—		—
Excess tax benefit from share-based compensation	42.8		—		—
Valuation allowance	(20.7	)	(23.3	)	(29.2	)
Share-based compensation	6.4		(6.1	)	(5.5	)
Other	(4.4	)	0.3		0.3
Benefit from other comprehensive gain	1.5		—		—
Intercompany dividend	—		(5.9	)	—
Effective tax rate	1.4	%	(1.0	)%	(0.4	)%

We have not provided income taxes on foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2017 because we intend to permanently reinvest such earnings outside of the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of December 31, 2017, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $0.4 million. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

As of December 31, 2017, we had net operating loss carryforwards of approximately $464.5 million for federal income taxes and $218.4 million for state income taxes. If not utilized, these carryforwards will begin to expire in 2029 for federal purposes and 2031 for state purposes. As of December 31, 2017, we had research and development credit carryforwards of approximately $7.4 million and $8.3 million for federal and state income taxes, respectively. If not utilized, the federal carryforwards will begin to expire in 2029. The state tax credit can be carried forward indefinitely. Internal Revenue Code Section 382 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event that we had a change of ownership, utilization of the net operating loss and tax credit carryforwards may be restricted. In addition, we have $9.7 million of net operating loss carryforwards in France, of which approximately $3.0 million were obtained as part of our acquisition of WAC. These carryforward losses do not expire, however, utilization of these carryforwards may be subject to annual limitations. In addition, the right to the carryforward losses could be challenged if the French tax authorities determined that a significant change in the company’s actual business has occurred.

We account for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. We regularly assess the need for a valuation allowance against our deferred tax assets by considering both positive and negative evidence to determine whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. We recorded a valuation allowance to fully offset our U.S. deferred tax assets, as we consider our cumulative loss in recent years to be strong negative evidence for retaining the valuation allowance. The valuation allowance increased by $34.2 million during the twelve months ended December 31, 2017. We will continue to assess the future realization of our deferred tax assets in each applicable jurisdiction and adjust the valuation allowance accordingly.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) for the two years ending December 31, 2017 is as follows (in thousands):



Balance at December 31, 2014	$	5,955
Decrease from tax positions related to the prior year	(57		)
Additions from tax positions related to the current year	2,605
Lapse of statutes of limitations	—
Balance at December 31, 2015	$	8,503
Additions from tax positions related to the prior year	279
Additions from tax positions related to the current year	3,639
Decrease related to settlements with taxing authorities	(621		)
Lapse of statutes of limitations	(14		)
Balance at December 31, 2016	11,786
Additions from tax positions related to the current year	4,141
Lapse of statutes of limitations	(283		)
Balance at December 31, 2017	$	15,644

As of December 31, 2017, we had no interest and penalties related to the uncertain tax positions. We have elected to record interest and penalties in the financial statements as a component of provision for income taxes. Included in the balance of unrecognized tax benefits at December 31, 2017, 2016 and 2015 are potential benefits of none, $0.4 million and $0.1 million, respectively, which if recognized, would affect the effective tax rate.

We are currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation in this estimate over the next 12 months.

We are subject to taxation in the United States and foreign jurisdictions. Our tax years 2009 to 2016 remain subject to examination in most jurisdictions.

On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax assets at December 31, 2017, which were fully offset by a valuation allowance.

The Tax Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits, or E&P, through the year ended December 31, 2017. Our preliminary calculations show that we had negative net undistributed foreign E&P and are not subject to the deemed mandatory repatriation for the year ended December 31, 2017.

While the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income, or GILTI, provisions and the base-erosion and anti-abuse tax, or BEAT, provisions.

The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Based on our preliminary calculations, we do not expect that we will be subject to incremental U.S. tax on GILTI income. We have elected to account for GILTI tax in the period in which it is incurred, and therefore have not provided any deferred tax impacts of GILTI in our consolidated financial statements for the year ended December 31, 2017.

The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum tax if greater than regular tax. We are currently beneath the revenue threshold in which this tax applies and therefore have not included any tax impacts of BEAT in our consolidated financial statements for the year ended December 31, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118, or SAB 118, was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.