5. Income Taxes

In order to determine the quarterly provision for income taxes, the Company considers the estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, and also the current income taxes based on actual quarterly income. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The Company is subject to income tax in the United States, as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax and may also be subject to current U.S. income tax.

Income tax expense was $49 for the three months ended September 30, 2011 and the benefit from income taxes was $40 for the three months ended September 30, 2012, resulting in an effective tax rate of 3% and 0%, respectively. Income tax expense was $55 and $660 for the nine months ended September 30, 2011 and 2012, respectively, resulting in an effective tax rate of 2% and 18%, respectively.

Due to the uncertainty at September 30, 2011 to generate sufficient taxable income in the future and utilize the net operating loss carryforwards before they expire, the Company had recorded a valuation allowance to reduce its net deferred tax asset to zero. Consequently, the Company did not incur any material income tax expense in the three and nine months ended September 30, 2011.

In the fourth quarter of 2011, the Company determined, after weighing the positive and negative evidence, that it will more likely than not be able to generate sufficient taxable income in the future and will be able to fully utilize its net operating loss carryforwards.

During 2012, the Company performed an analysis of its research and development activities for periods prior to 2012. As a result, the Company recognized a tax benefit of $259 and $975 for the three and nine months ended September 30, 2012, respectively. The increase in the tax benefit recorded related to an increase in the estimated amount of research and development credit expected to be claimed for historical periods. The effective tax rate for the three and nine months ended September 30, 2012 is not necessarily indicative of the effective tax rate that may be expected for the fiscal year ending December 31, 2012. Factors that impact the income tax provision include, but are not limited to, stock-based compensation expense and the recognition of research and development tax benefits.