11. Income Taxes

Income Tax Provision:

Pretax loss was as follows:

	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Loss before provision (benefit) for income taxes:
Domestic	$	(57,513	)	$	(46,908	)	$	(37,481	)
Foreign		(10,858	)		(8,524	)		(9,851	)

Total	$	(68,371	)	$	(55,432	)	$	(47,332	)

The provision (benefit) for income taxes consists of the following:

	Year Ended December 31,
	2015		2014			2013
	(in thousands)
Current tax provision:
Federal	$	1	$	1		$	—
State		24		15			10
Foreign		353		164			83

Total current tax provision		378		180			93
Federal		—		(286	)		—
State		—		(45	)		—
Foreign		330		(326	)		(65	)

Total deferred tax benefit		330		(657	)		(65	)

Total provision (benefit) for income taxes	$	708	$	(477	)	$	28

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 December 31,
	2015			2014			2013
Federal statutory rate		34.00	%		34.00	%		34.00	%
Stock-based compensation		(1.15	)		(0.74	)		(1.59	)
Valuation allowance		(36.51	)		(34.38	)		(28.31	)
Foreign rate differential		(3.11	)		(2.52	)		(5.00	)
Federal research and development credit		3.28			2.48			1.19
Other		2.42			2.03			(0.35	)

Effective income tax rate		(1.06	)%		0.87	%		(0.06	)%

Deferred tax assets and liabilities:

The components of deferred tax assets and liabilities are as follows:

	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful accounts	$	166		$	130		$	92
Compensated absences, principally due to accruals for financial reporting purposes		2,880			1,867			2,993
Net operating loss carryforwards		69,369			54,949			42,704
Federal tax credits		3,657			2,437			1,766
State tax credits net of federal benefit		2,010			1,521			1,166
Other deductible temporary differences		2,234			1,311			964
Stock-based compensation		12,106			7,289			1,508
Foreign Credit		22			24			25

Total deferred tax assets	$	92,444		$	69,528			51,218
Deferred tax liabilities:
Capitalized software development		(566	)		(278	)		(149	)
Acquired intangible assets		(1,208	)		(1,983	)		(1,979	)

Total deferred tax liability		(1,774	)		(2,261	)		(2,128	)
Valuation allowance		(90,892	)		(67,159	)		(49,388	)

Net deferred taxes	$	(222	)	$	108		$	(298	)

The net valuation allowance increased by $23.7 million and $17.8 million for the years ended December 31, 2015 and 2014, respectively.

As of December 31, 2015, the Company's deferred tax assets consist primarily of the federal and state net operating loss and research and development credit. In assessing the realizability of deferred tax assets, management determined that it is more likely than not that none of the deferred tax assets will be realized. Therefore, the Company has provided a full valuation allowance against the U.S. federal and state deferred tax assets at December 31, 2015.

The Company has not provided for withholding taxes on the undistributed earnings of its foreign subsidiaries because the Company intends to reinvest such earnings indefinitely. As of December 31, 2015, the amount of undistributed earnings considered indefinitely reinvested was not material.

The Company had net operating loss carryforwards as follows:

	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Federal	$	258,566	$	204,361	$	130,797
State		186,450		146,399		102,606
Foreign		31,015		24,780		17,673

Total	$	476,031	$	375,540	$	251,076

The federal and state net operating losses include $91.1 million and $51.9 million of excess stock based compensation that will result in increases to additional paid in capital, when realized.

Net operating loss carryforwards are available to offset future federal, California and foreign taxable income. Federal and California net operating loss carryforwards begin to expire in 2026 and 2016, respectively. Ireland net operating loss carryforwards do not expire. Japan net operating loss carryforwards begin to expire in 2022.

The Company had research and development credit carryforwards as follows:

	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Federal	$	3,657	$	2,437	$	1,766
California		3,045		2,305		1,767
International		22		24		25

Total	$	6,724	$	4,766	$	3,558

Federal and California and the foreign research and development tax credit carryforwards are available to reduce future regular income taxes. Federal research and development credit carryforwards begin to expire in 2026. California research and development tax credit carryforwards do not expire.

On December 18, 2015, The Consolidated Appropriations Act of 2014 was signed into law, which retroactively reinstated and made permanent the federal research tax credit provisions from January 1, 2015 through December 31, 2015. The benefit of the reinstated credit did not impact the income statement in the period of enactment, which was the fourth quarter of 2015, as the research and development credit carryforwards are offset by a full valuation allowance.

Federal and California laws impose restrictions on the utilization of net operating loss carryforwards and R&D credit carryforwards in the event of a change in ownership of the Company, which constitutes an 'ownership change' as defined by Internal Revenue Code Sections 382 and 383. The Company experienced an ownership change in the past that does not materially impact the availability of its net operating losses and tax credits. The amounts indicated in the above tables reflect reduction of approximately $1.1 million of net operating losses and $8,000 of research and development credits as a result of previous ownership changes that the Company experienced. Nevertheless, should there be an ownership change in the future, the Company's ability to utilize existing carryforwards could be substantially restricted.

The Company files tax returns in the US, certain states, Israel, Ireland, Australia and Japan. All of the tax years, from the date of inception, are open for examination.

Uncertain Tax Positions

The Company accounts for uncertainty in income taxes in accordance with ASC 740. Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognized in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The following table summarizes the activity related to unrecognized tax benefits:

	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Unrecognized benefit—beginning of period	$	991	$	472	$	—
Gross increases (decreases)—prior period tax positions		75		34		—
Gross increases (decreases)—current period tax positions		765		485		472

Unrecognized benefit—end of period	$	1,831	$	991	$	472

All of the unrecognized tax benefits as of December 31, 2015 are accounted for as a reduction in the Company's deferred tax assets. Due to the Company's valuation allowance, none of the $1.8 million of unrecognized tax benefits would affect the Company's effective tax rate, if recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. There is no interest or penalties accrued related to unrecognized tax benefits for the 2015, 2014 and 2013 and no liability for accrued interest and penalties related to unrecognized tax benefits as of December 31, 2015.

The Company does not expect any significant change in its unrecognized tax benefits during the next twelve months.