INCOME TAXES

12 Months Ended

Dec. 31, 2019

16. INCOME TAXES

The components of (loss) income before (benefit from) income taxes are:



(in thousands)	2019			2018			2017
Domestic	$	(51,396	)	$	(27,494	)	$	57,493
Foreign	(83,450		)	15,951			28,742
(Loss) income before (benefit from) income taxes	$	(134,846	)	$	(11,543	)	$	86,235

The components of the (benefit from) income taxes are:



(in thousands)	2019			2018			2017
Current:
Federal	$	1,050		$	(1,862	)	$	(18,109	)
State	405			287			97
Foreign	3,449			10,313			8,479
Total current provision for (benefit from)	4,904			8,738			(9,533		)
Deferred:
Federal	(25,356		)	(18,939		)	(2,049		)
State	(5,143		)	(3,702		)	(214		)
Foreign	(18,818		)	(8,257		)	(517		)
Total deferred (benefit)	(49,317		)	(30,898		)	(2,780		)
(Benefit from) income taxes	$	(44,413	)	$	(22,160	)	$	(12,313	)

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate to (loss) income before (benefit from) income taxes is as follows:



(in thousands)	2019			2018			2017
U.S. federal income taxes at statutory rates	$	(28,318	)	$	(2,424	)	$	30,182
Valuation allowance	727			510			459
State income taxes, net of federal benefit and tax credits	(4,450		)	(3,329		)	(395		)
Permanent differences	2,606			1,302			778
GILTI, FDII, and BEAT	—			399			—
Federal research and experimentation credits	(4,295		)	(6,991		)	(3,374		)
Tax effects of foreign activities	3,056			(399		)	(781		)
Tax-exempt income	(91		)	(137		)	(94		)
Provision to return adjustments	(5,460		)	253			(1,832		)
Non-deductible compensation	1,716			1,025			1,840
Expiration of statutes and changes in estimates	2,420			(516		)	257
Excess tax benefits related to share-based compensation	(14,291		)	(13,541		)	(24,488		)
Impact of change in tax law	1,908			1,636			(15,450		)
Other	59			52			585
(Benefit from) income taxes	$	(44,413	)	$	(22,160	)	$	(12,313	)

Tax Reform Act

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act makes significant changes in the U.S. tax code including the following:


•	reduction of the corporate federal income tax rate from 35% to 21%;


•	repeal of the domestic manufacturing deduction;


•	repeal of the corporate alternative minimum tax;


•	a one-time transition tax on accumulated foreign earnings (if any);


•	a move to a territorial tax system; and


•	acceleration of business asset expensing.

The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through December 31, 2017. The Company has concluded that it is not subject to the one-time transition tax due to our foreign subsidiaries being in a net accumulated deficit position.

Companies must make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as the global intangible low taxed income (“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. The Company has elected to account for GILTI in the year the tax is incurred as a period cost.

In 2018, the Company recognized an immaterial U.S. tax benefit resulting from the foreign derived intangible income (“FDII”) deduction. Beginning in 2019, there is no impact on the Company’s effective tax rate deriving from either the FDII,GILTI, or the base erosion and anti-abuse tax (“BEAT”) provisions.

Deferred income taxes

Significant components of net deferred tax assets and liabilities are:



	December 31,
(in thousands)	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	70,960		$	40,736
Accruals and reserves	24,902			17,576
Depreciation	2,493			2,874
Tax credit carryforwards	15,307			14,896
Other	199			176
Total deferred tax assets	113,861			76,258
Valuation allowances	(28,007		)	(27,954		)
Total net deferred tax assets	85,854			48,304
Deferred tax liabilities:
Software revenue	(23,859		)	(36,510		)
Intangibles	(6,103		)	(5,748		)
Total deferred tax liabilities	(29,962		)	(42,258		)
Deferred income taxes	$	55,892		$	6,046

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. This determination requires significant judgment, including assumptions about future taxable income that are based on historical and projected information. There were no material changes in the valuation allowance in 2019 or 2018.

At December 31, 2019, the Company’s net operating losses and credit carryforwards are:



(in thousands)	Federal		State
Net operating losses ⁽¹⁾	$	120,722	$	3,337
Net operating losses due to acquisitions ⁽¹⁾	$	76,827	$	778
Credit carryforwards ⁽²⁾	$	8,202	$	1,958
Credit carryforwards due to acquisitions	$	640	$	227

⁽¹⁾ Excludes federal and state net operating losses of $60.2 million and $0.8 million, respectively, from prior acquisitions that the Company expects will expire unutilized.

⁽²⁾ Excludes federal and state tax credits of $0.1 million and $8.3 million, respectively, that the Company expects will expire unutilized.

Carryforward losses and credits expire between 2020 and 2038, except for the 2019 federal net operating loss of $43.9 million and $1 million of state credits, which both have unlimited carryforward periods.

The Company’s India subsidiary is primarily located in Special Economic Zones (“SEZs”) and is entitled to a tax holiday in India. The tax holiday reduces or eliminates income tax in India. The tax holiday in the Hyderabad SEZ is scheduled to expire in 2024. The tax holiday in the Bangalore SEZ is scheduled to expire in 2022. For 2019, 2018 and 2017, the income tax holiday reduced the Company’s provision for income taxes by $1.9 million, $1.3 million, and $1 million, respectively.

Uncertain tax benefits

A rollforward of the Company’s gross unrecognized tax benefits is:



(in thousands)	2019			2018			2017
Balance as of January 1,	$	18,157		$	19,150		$	22,671
Additions based on tax positions related to the current year	510			978			452
Additions for tax positions of prior years	4,917			174			238
Additions for acquired uncertain tax benefits	—			—			—
Reductions for change in U.S. federal tax rate	—			—			(2,424		)
Reductions for tax positions of prior years	(313		)	(2,145		)	(1,500		)
Reductions for a lapse of the applicable statute of limitations	—			—			(287		)
Balance as of December 31,	$	23,271		$	18,157		$	19,150

As of December 31, 2019, the Company had approximately $23.3 million of total unrecognized tax benefits, which would decrease the

Company’s effective tax rate if recognized. The Company expects that the changes in the unrecognized benefits within the next twelve months will be approximately $0.1 million due to an anticipated settlement with tax authorities.

Income Tax Receivable

As of December 31, 2019 and December 31, 2018, the Company’s income tax receivable was $25.9 million and $27.8 million, respectively.

Tax examinations

The Company files federal and state income tax returns in the U.S. as well as in various foreign jurisdictions. In the ordinary course of business, the Company and its subsidiaries are examined by various tax authorities, including the Internal Revenue Service in the U.S. As of December 31, 2019, the Company’s U.S. federal tax returns for the years 2014 through 2016 were under examination by the Internal Revenue Service. In addition, certain foreign jurisdictions are auditing the Company’s income tax returns for periods ranging from 2010 through 2017. The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows. With few exceptions, the statute of limitations remains open in all jurisdictions for the tax years 2014 to the present.