8.	Income Taxes

The domestic and foreign components of income before provision for income taxes are as follows (in thousands):

 

		Years Ended December 31,
		2011				2012				2013
Domestic		$	9,423			$	7,789			$	10,389
Foreign			372				(1,532	)			(11,857	)
Total income (loss) before provision for income taxes		$	9,795			$	6,257			$	(1,468	)

 

The provision for income taxes is as follows (in thousands):

 

		Years Ended December 31,
		2011				2012				2013
Current
Federal		$	5,477			$	8,324			$	5,480
State			235				1,181				1,346
Foreign			140				126				952
Total			5,852				9,631				7,778
Deferred
Federal			(2,022	)			(4,926	)			(1,379	)
State			188				44				(177	)
Foreign			16				(2,058	)			(8	)
Total			(1,818	)			(6,940	)			(1,564	)
Total provision for income taxes		$	4,034			$	2,691			$	6,214

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

 

		For the Years Ended December 31,
		2011				2012				2013
Statutory tax rate			35.0	%			35.0	%			35.0	%
Change in valuation allowance			—				(10.8	)			—
Impact of permanent differences			4.6				15.6				(82.3	)
Foreign tax rate differential			0.3				(11.5	)			(346.9	)
Research and development credits			(2.6	)			—				23.1
State taxes, net of federal benefit			3.4				13.8				(51.9	)
Impact of uncertain tax positions			2.0				0.8				(3.6	)
Other			(1.5	)			0.1				3.4
Effective tax rate			41.2	%			43.0	%			(423.2	)%

For the year ended December 31, 2013, the Company recorded a tax provision for income taxes of $6.2 million on a loss before income taxes of $1.5 million. The Company recorded a provision as a result of the taxable income generated in the United States, while certain foreign jurisdictions incurred losses before income taxes without related tax benefits. The Company’s effective tax rate for the year ended December 31, 2013 was impacted by these foreign losses and by permanent differences related to certain non-deductible and stock-based compensation.

 

The Company has deferred tax assets related to temporary differences and operating loss carryforwards as follows (in thousands):

 

		December 31,
		2012				2013
Deferred tax assets:
Net operating loss carryforwards		$	3,222			$	2,375
Deferred revenue			1,715				627
Amortization			897				1,211
Research and development credit carryforwards			383				404
Bad debt reserves			71				56
Stock compensation associated with non-qualified awards			8,242				10,423
Depreciation			—				326
Other			2,136				2,369
Total deferred tax assets			16,666				17,791
Deferred tax asset valuation allowance			(2,463	)			(2,836	)
Net deferred tax assets			14,203				14,955
Deferred tax liabilities:
Depreciation			(313	)			(1,212	)
Goodwill amortization			(655	)			(1,236	)
Other			—				(14	)
Total deferred tax liabilities			(968	)			(2,462	)
Total		$	13,235			$	12,493

At December 31, 2012 and 2013, deferred tax liabilities of approximately $28,000 and $15,000 respectively, are included in accrued expenses, and approximately $15,000 and $15,000 respectively, are included in long term liabilities.

Deferred tax assets, related valuation allowances, current tax liabilities, and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we estimate deferred tax assets, current tax liabilities and deferred tax liabilities, and we assess temporary differences resulting from differing treatment of items for tax and accounting purposes. As of December 31, 2011, the Company maintained a full valuation allowance against the deferred tax assets of its Hungarian and Xively subsidiaries. The increase in the valuation allowance for the year ended December 31, 2011 was $933,000.

During 2012, the Company reassessed the need for a valuation allowance against its deferred tax assets relating to its Xively subsidiary and concluded that it was more likely than not that it would be able to realize its deferred tax assets as a result of forecasted future earnings. Accordingly, the Company reversed the valuation allowance related to Xively’s deferred tax assets of approximately $677,000. As of December 31, 2013, the Company maintained a full valuation allowance against the deferred tax assets of its Hungarian subsidiary. This entity has historical losses and the Company concluded it was not more likely than not that these deferred tax assets are realizable. The increase in the valuation allowance for the year ended December 31, 2013 was $373,000.

As of December 31, 2013, the Company had federal, state, and foreign net operating loss carryforwards of approximately $0, $131,000 and $23.8 million, respectively. The Company’s foreign net operating loss carryforwards are not subject to expiration. The Company recognized a full valuation allowance against its Hungarian net operating loss carryfowards. The Company utilized approximately $0 of federal, $130,000 of state and added approximately $120,000 of foreign net operating loss carryforwards during the year ended December 31, 2013.

As of December 31, 2013, the Company had federal, state and foreign research and development credit carryforwards of approximately $0, $7,000 and $400,000, respectively, which are available to offset future state taxes. The Company’s foreign research and development credits expire beginning in 2014. The Company has recognized a full valuation allowance against its foreign research and development credit carryforwards. The domestic research and development credits are available to offset future tax payments, however they are no longer recognized for book purposes as they have been utilized under the with-and-without method.

The Company generally considers all earnings generated outside of the U.S. to be indefinitely reinvested offshore. Therefore, the Company does not accrue U.S. tax for the repatriation of the foreign earnings it considers to be indefinitely reinvested outside the U.S. As of December 31, 2013, the Company has not provided for federal income tax on approximately $4.7 million of accumulated undistributed earnings of its foreign subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on the undistributed foreign earnings.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s income tax returns since inception are open to examination by federal, state, and foreign tax authorities. As of December 31, 2012 and 2013, the Company has provided a liability of $251,000 and $304,000 respectively for uncertain tax positions. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

The Company has provided liabilities for uncertain tax provisions as follows (in thousands):

 

		Years Ended December 31,
		2012				2013
Beginning balance		$	198			$	251
Gross decreases — tax positions in prior period			—				—
Gross increases — tax positions in current period			53				53
Ending balance		$	251			$	304

The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax expense. The Company recognized approximately $2,000 and $4,000 of interest expense during the years ended December 31, 2012 and 2013, respectively.