Income Taxes

The Company's income (loss) before provision (benefit) for income taxes for the years ended December 31, 2018, 2017, and 2016, respectively, was generated in the following jurisdictions (in thousands):



	Years Ended December 31,
	2018			2017			2016
Domestic	$	(50,938	)	$	(62,495	)	$	(50,651	)
Foreign	577			746			150
Total loss before income taxes	$	(50,361	)	$	(61,749	)	$	(50,501	)

The components of income tax expense (benefit) were as follows for the years ended December 31, 2018, 2017, and 2016, respectively (in thousands):



	Years Ended December 31,
	2018			2017			2016
Current expense (benefit):
U.S. Federal	$	4		$	(1	)	$	11
State	43			22			35
Foreign	99			80			51
Total current expense	146			101			97
Deferred expense (benefit):
U.S. Federal	(5		)	—			2
State	(2		)	—			1
Total deferred expense	(7		)	—			3
Provision for income taxes	$	139		$	101		$	100

The components of net deferred income taxes consisted of the following at December 31, 2018 and 2017, respectively (in thousands):



	As of December 31,
	2018			2017
Deferred income tax assets:
NOL and credit carryforwards	$	75,063		$	64,486
Compensation accruals	4,542			4,143
Accruals and reserves	1,401			2,207
State tax provision	7			5
Inventory adjustments	1,193			1,329
Intangible assets	498			455
Other	620			65
Gross deferred tax assets	83,324			72,690
Less: valuation allowance	(81,964		)	(71,464		)
Total deferred tax assets	1,360			1,226
Deferred income tax liabilities:
Depreciation	1,102			1,226
Contract acquisition costs	258			—
Total deferred tax liabilities	1,360			1,226
Net deferred tax assets (liabilities)	$	—		$	—

A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to the loss from operations is summarized for the years ended December 31, 2018, 2017, and 2016, respectively, as follows:



	Years Ended December 31,
	2018		2017		2016
U.S. Federal statutory income tax rate	21.0	%	34.0	%	34.0	%
Permanent differences	(0.2	)%	(0.2	)%	(0.3	)%
State taxes	3.0	%	2.8	%	2.3	%
Executive compensation limitation	(0.5	)%	(0.5	)%	(0.1	)%
Tax reform	0.1	%	(59.0	)%	—	%
Stock-based compensation	(2.6	)%	1.4	%	(3.5	)%
Other	0.1	%	0.2	%	(0.4	)%
Valuation allowance	(21.2	)%	21.1	%	(32.2	)%
Total tax provision	(0.3	)%	(0.2	)%	(0.2	)%

The Company had federal net operating loss (NOL) carryforwards available of approximately $306,800,000 as of December 31, 2018 after consideration of limitations under Section 382 of the Internal Revenue Code, or Section 382, as further described below. The net loss generated in 2018 of $42,200,000 will carry forward indefinitely and be available to offset up to 80% of future taxable income each year. Additionally, the Company had state NOL carryforwards available of $215,000,000 as of December 31, 2018. These federal and state NOLs may be used to offset future taxable income and will begin to expire in 2025 and 2019, respectively.

The Company adopted ASU 2016-09 in the first quarter of 2017. Under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies related to share-based payments to employees in additional paid-in capital. Instead, all income tax effects of awards will be recognized in the income statement when awards vest or are settled. All excess tax benefits not previously recognized were to be recorded to retained earnings as a cumulative effect adjustment upon adoption. Upon adoption, no adjustment to retained earnings was necessary due to the Company’s valuation allowance position. Approximately $1,976,000 attributable to excess tax benefits on stock compensation that had not been previously recognized was added to the deferred tax asset for NOLs with a corresponding increase to the valuation allowance.

The future utilization of the Company’s NOL carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by stockholders that hold 5% or more of the Company’s common stock. An assessment of such ownership changes under Section 382 was completed through December 31, 2018. As a result of this assessment, the Company determined that it experienced multiple ownership changes through 2018 which will limit the future utilization of NOL carryforwards. The Company has reduced its deferred tax assets related to NOL carryovers that are anticipated to expire unused as a result of ownership changes. These tax attributes have been excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on income tax expense or the effective tax rate. Additionally, future ownership changes may further impact the utilization of existing NOLs.

The Company has established a full valuation allowance for its deferred tax assets due to uncertainties that preclude it from determining that it is more likely than not that the Company will be able to generate sufficient taxable income to realize such assets. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three year period ended December 31, 2018. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth. Based on this evaluation, as of December 31, 2018, a valuation allowance of $81,964,000 has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence, such as estimates of future taxable income during carryforward periods and the Company's projections for growth.

The Tax Cuts and Jobs Act, or the Jobs Act, was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. Effective in 2018, the Jobs Act reduced the U.S. federal corporate tax rate from 34% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings. Due to the timing of the enactment and the complexity involved in applying the provisions of the Jobs Act, the Company applied the guidance in SEC Staff Accounting Bulletin (SAB) 118 by making reasonable estimates of the effects of the Jobs Act and recording provisional amounts in the consolidated financial statements as of December 31, 2017, March 31, 2018, June 30, 2018, and September 30, 2018. We have completed our accounting for the tax effects of the Jobs Act and recorded adjustments to the provisional amounts previously recorded. As of December 31, 2017, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, by recording a provisional expense of $36,400,000, which was fully offset by a corresponding decrease in the valuation allowance. Upon further analysis of certain aspects of the Jobs Act and refinement of our calculations during the year ended December 31, 2018, we determined that an adjustment of $(56,374) was necessary to our provisional amount for the remeasurement of deferred tax assets and liabilities, which was fully offset by a corresponding increase in the valuation allowance. The one-time transition tax is based on the total post-1986 earnings and profits (E&P) previously deferred from U.S. income taxes. In aggregate, the Company has a deficit in post-1986 E&P from its foreign subsidiaries resulting in no increase in income tax expense as a result of the transition tax. No amounts have been provided for any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income (GILTI), states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Because we were evaluating the provision of GILTI as of December 31, 2017, we recorded no GILTI-related deferred amounts in 2017. After further consideration in the current year, we have elected to account for GILTI in the year the tax is incurred.

The Company applies the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. There were no unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016.

At December 31, 2018 and December 31, 2017, the Company had not accrued any interest or penalties related to uncertain tax positions. The Company does not anticipate that there will be a significant change in the amount of unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company's Federal and state tax returns since inception are subject to examination due to the carryover of net operating losses. As of December 31, 2018, the Company’s tax years from 2012 through 2013 are subject to examination by the United Kingdom tax authorities. The statute of limitations for the assessment and collection of income taxes related to other foreign tax returns varies by country. In the foreign countries where the Company has operations, these time periods generally range from three to five years after the year for which the tax return is due or the tax is assessed.