Income Taxes

The income tax provision consisted of the following for the years ended December 31, 2018, 2017 and 2016 (in thousands):



	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	(252	)	$	—		$	19
State and Foreign	663			669			402
	411			669			421
Deferred:
Federal	(211		)	(488		)	51
State	—			(32		)	(2		)
Income tax provision	$	200		$	149		$	470

The differences between the effective tax rates reflected in the total provision for income taxes and the U.S. federal statutory rate of 34% for the years ended December 31, 2018, 2017 and 2016, respectively, were as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016
Provision at the U.S. federal statutory rate	$	(13,464	)	$	(26,443	)	$	(25,338	)
Increase (decrease) resulting from:
State income taxes, net of federal taxes	46			18			3
Nondeductible expenses	414			373			457
Acquisition-related expense	—			245			(4		)
Statutory to GAAP income adjustment	(221		)	(77		)	(274		)
Foreign Tax Expense	—			—			2
Noncash share-based compensation	(394		)	(3,405		)	604
Other	(153		)	—			49
Incremental benefits for tax credits	(1,656		)	(1,711		)	(1,663		)
Change in tax rate/income subject to lower tax rates	(1,824		)	2,625			—
Change related to prior tax years	(4,800		)	(2,331		)	(856		)
Change related to US tax reform	1,835			31,359			—
Change in valuation allowance	20,417			(504		)	27,490
Income tax provision	$	200		$	149		$	470

The Company’s effective tax rate was 0%, 0% and (1)% for the years ended December 31, 2018, 2017 and 2016, respectively. During the year ended December 31, 2018, the Company's effective tax rate was impacted primarily by changes in valuation allowance, foreign income taxes and other nondeductible expenses.

On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law in the U.S. and included a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. The Tax Cuts and Jobs Act reduced the U.S. corporate income tax rate to 21% effective January 1, 2018.

The TCJA imposes a repatriation tax on any accumulated offshore earnings and profit. As of December 31, 2018, the Company has reviewed the offshore earnings and profits and has no additional earnings to repatriate and has provided for no tax. . Based on the current accumulated loss in the foreign jurisdictions, the Company has no global intangible low-taxed income (“GILTI”) to report for December 31, 2018. The Company is under the revenue requirements to be subject to the base erosion and avoidance tax (“BEAT”), however, it has reviewed the transactions with foreign affiliates and does not believe there are payments that qualify under BEAT. The TCJA created the foreign derived intangible income (“FDII”) which allows for a deduction for certain types of foreign income. However, since the Company is in a current net operating loss position, no deduction is allowable for the current year.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, the Company previously provided a provisional estimate of the effect of the TCJA in the Consolidated Financial Statements. Upon filing of the 2017 income tax returns in the fourth quarter of 2018, the Company completed its analysis to determine the final effect of the TCJA on year end 2017. The Company recorded a final SAB 118 adjustment on the remeasurement of deferred taxes of approximately $1.8 million. This amount was fully offset by a change in valuation allowance.

The tax effects of temporary differences and other tax attributes that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):



	Year Ended December 31,
	2018			2017
Noncurrent deferred taxes:
Property and equipment	$	(528	)	$	(847	)
Noncash share-based compensation	6,922			6,373
Disallowed interest expense	4,574			—
Capitalized software	(1,533		)	(1,397		)
Amortization	(4,110		)	(5,096		)
R&E tax credit carryforwards	10,603			9,340
Deferred revenue	2,680			2,996
Federal Net Operating Losses ("NOLs")	58,601			46,907
State NOLs	2,319			1,050
State Credits	2,005			1,613
Foreign NOLs	8,945			9,057
Foreign tax credit carryforward	2,462			2,521
Other	1,291			1,425
Total noncurrent deferred tax assets	94,231			73,942
Less: Valuation allowance	(94,231		)	(74,153		)
Total noncurrent deferred tax liability	—			(211		)
Total net deferred tax liability	$	—		$	(211	)

The net deferred tax liability is classified as other liabilities, noncurrent in the accompanying Consolidated Balance Sheets.

The Company has federal and state net operating loss carryforwards related to current and prior year operations and acquisitions. Internal Revenue Code Section 382 ("Section 382") places certain limitations on the annual amount of U.S. net operating loss carryforwards that can be utilized when a change of ownership occurs. The Company believes the past acquisitions were changes in ownership pursuant to Section 382, subjecting federal acquired net operating losses to limitations. According to French tax law the net operating loss carryforwards are not subject to ownership change limitations.

The U.S. federal and foreign net operating loss and R&E tax credit carryforward amount available to be used in future periods, taking into account the Section 382 annual limitation and current year losses, is approximately $310.0 million and $12.6 million, respectively. The Company’s net operating losses will begin to expire in 2024, R&E credits will begin to expire in 2031, and foreign tax credits will begin to expire in 2022. The U.S. net operating losses generated in 2018 have no expiration. Also included in net operating losses are $35.8 million of French carryforwards which have no expiration.

As of December 31, 2014, the Company determined it was more likely than not that it would be unable to fully utilize the majority of its U.S. and state deferred tax assets. As a result, the Company had recorded a valuation allowance against those assets to the extent that they cannot be realized through net operating loss carrybacks to prior years. This valuation allowance is evaluated periodically and will be reversed partially or in whole if business results and the economic environment have sufficiently improved to support realization of some or all of the Company's deferred tax assets. In performing the analysis throughout 2018, the Company determined that there was no sufficient positive evidence to outweigh the current and historic negative evidence to determine that it was more likely than not that the deferred assets would not be realized. Therefore, the Company continues to have a valuation allowance against net deferred tax assets as of December 31, 2018 and 2017. During the year ended December 31, 2018, the Company finalized the deferred tax liabilities assumed upon the acquisition of Vayant. An additional release of valuation allowance was recorded in that period.

Undistributed earnings of the Company’s foreign subsidiaries are considered permanently reinvested and, accordingly, no provision for U.S. federal or state income taxes or non-U.S. withholding taxes has been provided thereon. The cumulative amount of positive undistributed earnings of the Company’s non-U.S. subsidiaries, if any, was minimal for the years ended December 31, 2018 and 2017. The determination of the related deferred tax liability, which requires complex analysis of international tax situations related to repatriation, is not practical at this time. The Company is presently investing in international operations located in Europe, North America, and Australia. The Company is funding the working capital needs of its foreign operations through its U.S. operations. In the future, the Company plans to utilize its foreign undistributed earnings, as well as continued funding from its U.S. operations, to support its continued foreign investment.

For each of the years ended December 31, 2018, 2017 and 2016, the Company had approximately $0.2 million of net unrecognized tax benefits which, if recognized, would impact the Company's effective tax rate. The Company recorded immaterial amounts for interest and penalties to tax expense as of December 31, 2018, 2017 and 2016, respectively. The Company believes that it is reasonably possible that there will be no change in the unrecognized tax benefits within the next twelve months.

The Company is not subject to or aware of any forth-coming income tax examinations at this time. The Company has received a notice of a transfer pricing review by the Bulgarian tax authorities. At this time, there is no adjustment expected. The Company files tax returns in the U.S. and various foreign jurisdictions. The Company is subject to U.S. federal income tax examination for the calendar tax years 2016, 2015, 2014 and, 2013 and state and foreign income tax examination for various years depending on the statutes of limitation of those jurisdictions.

The following table sets forth the changes to the Company's unrecognized tax benefit for the year ended December 31, 2018, 2017 and 2016 (in thousands):



	Year Ended December 31,
	2018		2017			2016
Beginning balance	$	183	$	192		$	192
Changes based on tax positions related to prior year	—		—			—
Changes due to settlement	—		(9		)	—
Ending balance	$	183	$	183		$	192

The table above has been updated to reflect gross tax liability, exclusive of interest and penalties and other offsetting amounts.