Income Taxes

12 Months Ended

Dec. 31, 2019

The components of our (provision for)/benefit from income taxes are summarized as follows:



	Year Ended December 31,
(in thousands)	2019			2018			2017
Current:
Federal	$	(178	)	$	—		$	(273	)
State	(1,397		)	(27		)	(424		)
Foreign	(924		)	(1,897		)	—
Total (provision for) income taxes	(2,499		)	(1,924		)	(697		)
Deferred:
Federal	(5,237		)	875			(4,353		)
State	(2,243		)	690			151
Foreign	95			729			(1,848		)
Total deferred (provision for)/benefit from income taxes	(7,385		)	2,294			(6,050		)
Total (provision for)/benefit from income taxes	$	(9,884	)	$	370		$	(6,747	)

Reconciliations between expected income taxes computed at the federal statutory rate for each of the years ended December 31, 2019, 2018 and 2017, and the (provision for)/benefit from income taxes is as follows:



	Year Ended December 31,
(in thousands)	2019			2018			2017
Income tax (provision)/benefit at statutory rate	$	(8,342	)	$	(8,716	)	$	3,638
Permanent difference	2,532			9,127			392
(Increase)/decrease in valuation allowance	(1,305		)	714			(976		)
State income tax, net of federal benefit	(1,532		)	240			(213		)
Deferred tax asset adjustments	826			208			(485		)
Unrecognized tax benefit	(831		)	(1,547		)	—
Foreign rate differential	12			(36		)	(1,107		)
Tax Reform impact	—			—			(8,048		)
Rate change impact	(814		)	366			36
Other	(430		)	14			16
(Provision for)/benefit from income taxes	$	(9,884	)	$	370		$	(6,747	)

For the years ended December 31, 2019, 2018 and 2017, we recognized $5.0 million, $11.6 million and $1.5 million, respectively, of tax benefit from stock options exercised during the period as a component of our (provision for)/benefit from income taxes.

At December 31, 2019, we had federal net operating loss carryforwards of approximately $146.9 million to offset future federal taxable income expiring in various years starting in 2023 through 2037. At December 31, 2019, we had state net operating loss carryforwards of $73.7 million, which expire in various years starting in 2020 through 2039. We also had $121.1 million of foreign net operating loss carryforwards, which expire in various years starting in 2020 through 2026. We have recorded a valuation allowance against a portion of our foreign and state net operating losses.

The timing and manner in which we can utilize our net operating loss carryforwards and future income tax deductions in any year may be limited. Section 382 of the IRC (“Section 382”) imposes limitations on a corporation’s ability to utilize net operating losses if it experiences an “ownership change.” Section 382 imposes similar limitations on other tax attributes such as research and development credits. Currently, a portion of our loss carryforwards is limited under Section 382 and therefore, is not included in the total net operating losses disclosed above.

The U.S. Internal Revenue Service concluded its examination of our U.S. federal tax returns for all years through 2011. Because of net operating losses, our U.S. federal tax returns for those years will remain subject to examination until the statute of limitations passes for the tax returns which utilized those losses. Additionally, state tax return statutes generally remain open due to operating losses.

As of each reporting date, our management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred income tax assets.

The significant components of our deferred taxes are as follows:



	December 31,
(in thousands)	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	33,692		$	33,803
Allowance for doubtful accounts	8,107			6,526
Non-deductible accruals	2,427			4,980
Operating lease obligations	4,842			—
Stock based compensation expense	4,191			3,337
Transaction costs	2,030			2,186
Research and development and AMT credit carryforwards	275			1,092
Deferred revenue and deferred rent	111			1,019
Capital loss carryforwards	2,718			2,114
Other, net	785			917
Total deferred tax assets	59,178			55,974
Less valuation allowance	(3,877		)	(3,021		)
Net deferred tax assets	55,301			52,953
Deferred tax liabilities:
Intangible assets	(31,463		)	(29,663		)
Property and equipment	(6,907		)	(3,173		)
Right-of-use assets	(4,132		)	—
Prepaid insurance	(173		)	(142		)
Total deferred tax liabilities	(42,675		)	(32,978		)
Net deferred tax assets	$	12,626		$	19,975

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax, a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.

In 2018, we completed our analysis of the provisional items of the TCJA under SAB 118, resulting in immaterial adjustments, primarily related to cumulative temporary differences.

The following summarizes the changes in our unrecognized tax benefits:



	Year Ended December 31,
(in thousands)	2019		2018
Unrecognized tax benefits at the beginning of the year	$	52,832	$	39,710
Additions to unrecognized tax benefits related to current year	—		—
Additions to unrecognized tax benefits related to prior years	2,446		13,122
Unrecognized tax benefits at the end of the year	$	55,278	$	52,832

As of December 31, 2019 and 2018, we have recorded a net reserve of $34.8 million and $31.3 million, respectively, for unrecognized tax benefits as a component of other long-term liabilities within our consolidated balance sheets. In addition, a portion of the unrecognized tax benefits is presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. As of December 31, 2019, a total of $34.8 million of unrecognized tax benefits, if recognized, would affect the effective tax rate.

We recognize interest and penalties related to unrecognized tax benefits on the (provision for)/benefit from income taxes line in the accompanying consolidated statements of operations. As of December 31, 2019, our accrued interest associated with our liability for unrecognized tax benefits was $2.7 million. In addition, we have not recorded any penalties on our uncertain tax positions for each of the years ended December 31, 2019 and 2018.

It is reasonably possible that a portion of these unrecognized tax benefits could be resolved within the next twelve months that may result in a decrease in our effective tax rate.