INCOME TAXES

The geographical breakdown of the Company’s loss before income taxes for the years ended December 31, 2016, 2015 and 2014 is as follows:



	Year Ended December 31,
	2016			2015			2014
	(in thousands)
				(As Adjusted)*			(As Adjusted)*
Domestic	$	(27,520	)	$	(37,658	)	$	(22,145	)
Foreign	(9,122		)	(6,208		)	(6,451		)
Loss before income Taxes	$	(36,642	)	$	(43,866	)	$	(28,596	)




* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).

The components of the income tax provision are as follows:



	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Current:
State	$	23		$	(39	)	$	93
Federal	—			—			—
Foreign	237			638			337
Total current	$	260		$	599		$	430
Deferred:
State	$	—		$	—		$	(1	)
Federal	12			12			12
Foreign	(3		)	(259		)	—
Total deferred	$	9		$	(247	)	$	11
Total income tax provision	$	269		$	352		$	441

The Company has intercompany services agreements with its subsidiaries located in the United Kingdom, Netherlands, New Zealand, Australia, Canada and China, which require payment for services rendered by these subsidiaries at an arm’s-length transaction price. The foreign tax expense represents foreign income tax payable by these subsidiaries on profit generated on intercompany services agreements.

Undistributed earnings of the Company's foreign subsidiaries were approximately $10.0 million, $7.9 million and $4.1 million as of December 31, 2016, 2015 and 2014, respectively, and are considered to be permanently reinvested outside of the United States, and no U.S. income taxes have been provided for on these earnings.

The reconciliation of federal statutory income tax provision to the Company’s effective income tax provision is as follows:



	Year Ended December 31,
	2016			2015			2014
	(in thousands)
				(As Adjusted)*			(As Adjusted)*
U.S. federal taxes at statutory tax rate	$	(12,458	)	$	(14,915	)	$	(9,723	)
State taxes, net of federal benefit	15			(26		)	61
Change in valuation allowance	8,618			11,637			6,146
Foreign tax rate differential	3,334			2,752			2,509
Warrant revaluation	—			—			(31		)
Stock-based compensation	1,805			1,775			2,025
Tax credits	(947		)	(785		)	(627		)
Other	(98		)	(86		)	81
Provision for income taxes	$	269		$	352		$	441




* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).

Foreign tax rate differential is primarily due to losses incurred in foreign jurisdictions that are subject to tax rates that are lower than the United States tax rate.

The tax effects of temporary differences that give rise to significant components of the Company's deferred tax assets for federal and state income taxes are as follows:



	As of December 31,
	2016			2015
	(in thousands)
Deferred tax assets:				(As Adjusted)*
Net operating loss carryforwards	43,482			40,357
Research and development credits	6,901			5,192
Accruals and reserves	3,682			3,044
Deferred revenue	12,006			10,068
Stock-based compensation	3,641			2,290
Other	113			440
Gross deferred tax assets	69,825			61,391
Valuation allowance	(65,791		)	(56,352		)
Total deferred tax assets	$	4,034		$	5,039
Deferred tax liabilities:
Internally developed software	$	(1,590	)	$	(2,303	)
Deferred Commission	$	(2,192	)	$	(2,486	)
Goodwill	$	(74	)	$	(63	)
Gross deferred tax liabilities	$	(3,856	)	$	(4,852	)
Net deferred tax asset (liabilities)	$	178		$	187




* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).

Realization of deferred tax assets is dependent on future taxable income, the existence and timing of which is uncertain. Based on the Company’s history of losses, management has determined it cannot conclude that it is more likely than not that the deferred tax assets will be realized, and accordingly has placed a valuation allowance on the net deferred tax assets. The Company recorded a valuation allowance of $65.8 million and $56.4 million against its deferred tax assets as of December 31, 2016 and 2015.

The undistributed earnings from the Company’s foreign subsidiaries are not subject to a U.S. tax provision because it is management’s intention to permanently reinvest such undistributed earnings outside of the United States. The Company evaluates its circumstances and reassesses this determination on a periodic basis. As of December 31, 2016, the determination of the unrecorded deferred tax liability related to these earnings was immaterial. If circumstances change and it becomes apparent that some or all of the undistributed earnings of the Company’s foreign subsidiaries will be remitted in the foreseeable future, the Company will be required to recognize a deferred tax liability on those amounts.

The net operating loss and tax credit carryforwards as of December 31, 2016, are as follows:



	Amount	Year Begin to Expire
	(in thousands)
Net operating losses, federal	115,331	2026
Net operating losses, state	79,084	2017
Research and development credits, federal	5,816	2026
Research and development credits, state	6,712	No expiration

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (“Code”), and similar state provisions. The annual limitation may result in the expiration of net operation losses and credits before utilization. The Company completed an analysis under Sections 382 and 383 of the Code through the year ended December 31, 2016 and determined that an ownership change, as defined under Sections 382 and 383 of the Code, has not occurred. Future ownership changes may limit the Company's ability to utilize its net operating loss and credit carryforwards.

Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amount of the Company’s total gross unrecognized tax benefit liabilities:



	Year Ended December 31,
	2016			2015		2014
	(in thousands)
Gross unrecognized tax benefit - beginning balance	$	3,316		$	2,539	$	1,797
Decreases related to tax positions from prior years	(21		)	—		—
Increases related to tax positions taken during current year	1,146			777		742
Gross unrecognized tax benefit - ending balance	$	4,441		$	3,316	$	2,539

The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. During the years ended December 31, 2016, 2015 and 2014, the Company accrued an insignificant amount of interest and penalties related to unrecognized tax benefits.

The Company’s total unrecognized tax benefit, if recognized, would affect its effective tax rate by $0.07 million. The remainder of the unrecognized tax benefits would be offset by a change in the valuation allowance. While it is often difficult to predict the final outcome of any particular uncertain tax position, the Company does not believe that the amount of unrecognized tax benefits will change significantly in the next 12 months.

The Company files income tax returns in the U.S. federal, various U.S. state and foreign tax jurisdictions. The Company is subject to U.S. federal and various state income tax examinations for the 2006 through 2016 calendar tax years.

Fiscal years outside the normal statutes of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized. The Company is not currently being audited in any jurisdiction.

Tax attributes related to stock option windfall deductions are not recorded until they result in a reduction of cash tax payable. The Company's federal and state net operating losses from windfall deductions were excluded from its deferred tax asset balance as of December 31, 2016. As of December 31, 2016, the benefit of the federal and state net operating loss deferred tax assets of $1.0 million and $0.04 million, respectively, will be recorded to additional paid-in capital when they reduce cash tax payable.