Income Taxes

12 Months Ended

Aug. 03, 2019

The components of income (loss) before income taxes are as follows:



	For the Fiscal Year Ended
(in thousands)	August 3, 2019			July 28, 2018			July 29, 2017
Income (loss) before income taxes
United States	$	31,657		$	56,978		$	12,801
Foreign	(836		)	(2,265		)	—
Total	$	30,821		$	54,713		$	12,801

The components of the provision (benefit) for income tax expense are as follows:



	For the Fiscal Year Ended
(in thousands)	August 3, 2019			July 28, 2018			July 29, 2017
Current:
Federal	$	(221	)	$	2,732		$	17,027
State	2,431			493			3,096
Foreign	(67		)	—			—
Total current	2,143			3,225			20,123
Deferred:
Federal	(5,464		)	7,917			(6,009		)
State	(2,667		)	(1,329		)	(719		)
Foreign	(72		)	—			—
Total deferred	(8,203		)	6,588			(6,728		)
Provision (benefit) for income taxes	$	(6,060	)	$	9,813		$	13,395

The reconciliation of our effective tax rate to the statutory federal rate is as follows:



	For the Fiscal Year Ended
(in thousands, except percentages)	August 3, 2019					July 28, 2018					July 29, 2017
Tax at federal statutory rate	$	6,473		21.0	%	$	14,752		27.0	%	$	4,481		35.0	%
State taxes, net of federal effect	(1,068		)	(3.5	)%	(755		)	(1.4	)%	1,270			9.9	%
Remeasurement of preferred stock warrant liability	—			0.0	%	(2,881		)	(5.3	)%	6,608			51.6	%
Stock-based compensation	(7,114		)	(23.1	)%	(5,454		)	(9.9	)%	229			1.8	%
Tax Act impact	—			0.0	%	6,670			12.2	%	—			0.0	%
Research and development credits	(5,984		)	(19.4	)%	(2,146		)	(3.9	)%	—			0.0	%
Uncertain tax positions	2,030			6.6	%	2,846			5.1	%	23			0.2	%
Return to provision	(1,821		)	(5.9	)%	(3,891		)	(7.1	)%	—			0.0	%
Meals and entertainment	765			2.5	%	652			1.2	%	1,188			9.3	%
Other	659			2.1	%	20			0.0	%	(404		)	(3.2	)%
Effective tax rate	$	(6,060	)	(19.7	)%	$	9,813		17.9	%	$	13,395		104.6	%

The components of net deferred tax assets are as follows:



(in thousands)	August 3, 2019			July 28, 2018			July 29, 2017
Deferred tax assets:
Inventory reserve and uniform capitalization	$	11,696		$	7,504		$	13,378
Deferred rent	232			202			4,858
Accruals and reserves	6,623			8,274			6,215
Research and development credits	4,778			754			—
Stock-based compensation	6,195			2,210			308
Deferred revenue	713			739			616
Other	302			404			175
Gross deferred tax assets	30,539			20,087			25,550
Deferred tax liabilities:
Depreciation and amortization	(8,275		)	(5,860		)	(5,407		)
Other	(89		)	(120		)	(152		)
Gross deferred tax liabilities	(8,364		)	(5,980		)	(5,559		)
Net deferred tax assets	$	22,175		$	14,107		$	19,991

The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017, and significantly changed previous U.S. tax laws, including a reduction of the corporate tax rate from 35% to 21%. For fiscal 2018, the change in the corporate tax rate resulted in a blended U.S. federal statutory rate for the Company of approximately 27%. Certain provisions of the Tax Act, including a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries, were not effective for the Company until fiscal 2019. In accordance with U.S. GAAP, the Company has made an accounting policy election to treat taxes due under the GILTI provision as a current period expense. Implementation of the Tax Act required the Company to record an incremental tax expense due to remeasurement of net deferred tax assets in fiscal 2018, which increased our effective tax rate in fiscal 2018. The Company completed its analysis of the Tax Act in the second quarter of fiscal 2019 and no adjustments were made to the provisional amounts recorded.

Our effective tax rate and provision for income taxes decreased from the fiscal year ended July 28, 2018, to the fiscal year ended August 3, 2019, primarily due to increased excess tax benefits from stock-based compensation, additional qualified activities for U.S. and California research and development tax credits, and the prior year Tax Act remeasurement of deferred tax assets that was not in effect for the current year.

Our effective tax rate and provision for income taxes decreased from the fiscal year ended July 29, 2017, to the fiscal year ended July 28, 2018, primarily due to stock-based compensation deductions, analysis of our 2016 through 2018 qualified activities for U.S. and California research and development tax credits, and a decrease in the nondeductible remeasurement of the preferred stock warrant liability. These tax benefits were partially offset by tax charges for the remeasurement of our net deferred tax assets associated with the enactment of the Tax Act, which reduced the corporate tax rate from 35% to 21%.

The Company considers all undistributed earnings of foreign subsidiaries indefinitely reinvested outside the United States.

We had state net operating loss carryforwards of $0.2 million for the year ended July 28, 2018. These losses were fully utilized in the year ended August 3, 2019. As of August 3, 2019, we had federal research and development tax credit carryforwards of $3.5 million,

which are set to expire in 2039. As of August 3, 2019, and July 28, 2018, we had California research and development tax credit carryforwards of $5.2 million and $1.5 million, respectively, which are not subject to expiration.

Uncertain Tax Positions

A reconciliation of our unrecognized tax benefits is as follows:



(in thousands)	August 3, 2019			July 28, 2018			July 29, 2017
Balance at the beginning of the year	$	5,503		$	1,052		$	846
Lapse of statute of limitations	(422		)	—			—
Increase related to prior period tax positions	2,602			2,334			—
Decrease related to prior period tax positions	(183		)	(241		)	(36		)
Increase related to current year tax positions	3,495			2,358			242
Balance at the end of the year	$	10,995		$	5,503		$	1,052

The amount of unrecognized tax benefits relating to our tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, we anticipate that the balance of the liability for unrecognized tax benefits and related deferred tax assets will decrease by $0.9 million during the next 12 months due to lapses of applicable statutes of limitation. Our liability for uncertain tax positions as of August 3, 2019, includes $7.7 million related to amounts that would impact our current and future tax expense.

We recognize interest related to uncertain tax positions in our provision for income taxes. The Company files income tax returns in the U.S. federal and various state and local jurisdictions and in the UK. We are subject to UK, U.S. federal, state and local income tax examinations for all prior years. There are no jurisdictions currently under examination.