Income Taxes

The components of loss before income tax (benefit) provision are as follows:



	Years Ended December 31,
(In thousands)	2017			2016			2015
Domestic	$	(258,735	)	$	(139,005	)	$	(67,169	)
Foreign	(25,375		)	17,825			(10,569		)
Total	$	(284,110	)	$	(121,180	)	$	(77,738	)

Income tax (benefit) provision is as follows:



	Years Ended December 31,
(In thousands)	2017			2016			2015
Current:
Federal	$	(850	)	$	(780	)	$	(1,227	)
State	(155		)	(28		)	(112		)
Foreign	1,491			798			1,944
Total	486			(10		)	605
Deferred:
Federal	(5,216		)	313			130
State	1,120			(3,443		)	168
Foreign	893			(867		)	(419		)
Total	(3,203		)	(3,997		)	(121		)
Income tax (benefit) provision	$	(2,717	)	$	(4,007	)	$	484

A reconciliation of the statutory U.S. income tax rate to the effective income tax rate is as follows:



	Years Ended December 31,
	2017		2016		2015
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	(0.3	)%	1.9	%	—	%
Nondeductible items	(0.7	)%	(2.1	)%	(0.2	)%
Foreign rate differences	(3.7	)%	5.6	%	(6.8	)%
Change in statutory tax rates	1.4	%	—	%	—	%
Change in valuation allowance	(30.8	)%	(32.1	)%	(7.3	)%
Transaction costs	—	%	(1.8	)%	(2.2	)%
Executive compensation	—	%	(2.1	)%	(0.3	)%
Asset disposition	—	%	(2.2	)%	—	%
WPP capital transactions	—	%	—	%	(21.7	)%
Other revenue adjustments	—	%	—	%	(2.5	)%
Other adjustments	(0.1	)%	0.3	%	0.3	%
Outside basis differences	—	%	—	%	7.1	%
Uncertain tax positions	0.2	%	0.8	%	(2.0	)%
Effective tax rate	1.0	%	3.3	%	(0.6	)%

Income Tax (Benefit) Provision

The Company recognized an income tax benefit of $2.7 million during the year ended December 31, 2017, which is comprised of current tax expense of $0.5 million primarily related to foreign taxes and a deferred tax benefit of $3.2 million related to temporary differences between the tax treatment and financial reporting treatment for certain items. Included within the total tax benefit is an income tax benefit of $8.3 million related to the impact of the TCJA provisions on the Company's U.S. deferred taxes, including the reduction in the corporate tax rate from 35% to 21% and a change in the Company's valuation allowance assessment. Also included is income tax expense of $126.1 million related to the increase in valuation allowance recorded against the Company’s deferred tax assets to offset the tax benefit of the Company’s operating losses in the U.S. and certain foreign jurisdictions. Income tax expense of $2.5 million has also been included for permanent differences in the book and tax treatment of certain stock-based compensation, meals and entertainment and other nondeductible expenses. These tax adjustments, along with having book losses in foreign jurisdictions where the income tax rate is substantially lower than the U.S. federal statutory rate, are the primary drivers of the annual effective income tax rate.

The Company recognized an income tax benefit of $4.0 million during the year ended December 31, 2016 which is comprised of a current tax benefit of $0.8 million related to federal and state taxes, current tax expense of $0.8 million related to foreign taxes, and a deferred tax benefit of $4.0 million related to temporary differences between the tax treatment and financial reporting treatment for certain items. Included within the total tax benefit is income tax expense of $54.9 million related to the increase in valuation allowance recorded against the Company’s deferred tax assets, to offset the tax benefit of the Company’s operating losses in the U.S. and certain foreign jurisdictions. Also included is an income tax benefit of $6.9 million related to the release of the portion of the Company's valuation allowance as a result of the Merger with Rentrak and income tax expense of $12.7 million for permanent differences in the book and tax treatment of the DAx disposition, certain transaction costs, excess officers' compensation, and other nondeductible expenses. These tax adjustments, along with having book income in foreign jurisdictions where the income tax rate is substantially lower than the U.S. federal statutory rate, are the primary drivers of the annual effective income tax rate.

The Company recognized an income tax provision of $0.5 million during the year ended 2015 which is comprised of a current tax benefit of $1.3 million related to federal and state taxes, current tax expense of $1.9 million related to foreign taxes and deferred tax benefit of $0.1 million related to temporary differences between the tax treatment and financial reporting treatment for certain items. Included within the total tax expense is income tax expense of $7.2 million related to the increase in valuation allowance recorded against the Company’s deferred tax assets and an income tax benefit of $6.7 million related to a worthless stock deduction resulting from the disposition of the CSWS mobile operator analytics business. Also included is income tax expense of $20.6 million related to the permanent difference in the book and tax treatment of the WPP capital transactions and income tax expense of $4.6 million for other permanent differences such as certain revenue related adjustments, certain transaction costs, excess officers' compensation, and other nondeductible expenses. These tax adjustments, along with having book losses in foreign jurisdictions where the income tax rate is substantially lower than the U.S. federal statutory rate, are the primary drivers of the annual effective income tax rate.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. The components of net deferred income taxes are as follows:



	December 31,
(In thousands)	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	141,607		$	127,951
Capital loss carryforwards	269			280
Tax credits	6,204			6,648
Allowance for doubtful accounts	391			626
Accrued salaries and benefits	8,138			2,363
Deferred revenues	2,908			2,916
Capital leases	2,343			8,399
Deferred compensation	27,175			32,193
Deferred rent	3,722			4,219
Tax contingencies	1,439			1,916
Litigation settlement	26,557			—
Other	1,551			2,719
Gross deferred tax assets	222,304			190,230
Valuation allowance	(181,334		)	(119,904		)
Net deferred tax assets	$	40,970		$	70,326
Deferred tax liabilities:
Goodwill	$	(6,850	)	$	(5,457	)
Intangible assets	(30,645		)	(55,506		)
Property and equipment	(409		)	(8,207		)
Subpart F income recapture	(1,397		)	(2,165		)
Outside basis difference	(290		)	(426		)
Other	(488		)	(1,136		)
Total deferred tax liabilities	(40,079		)	(72,897		)
Net deferred tax asset (liability)	$	891		$	(2,571	)

The Company’s deferred tax assets and liabilities have been revalued as of December 31, 2017 to reflect the TCJA reduction in the U.S. corporate income tax rate from 35% to 21%. The impact of the rate change on the Company’s net U.S. deferred tax assets (before valuation allowance) was a decrease of $66.7 million. However, due to the Company’s valuation allowance position in the U.S., the income statement impact of the rate change was an income tax benefit of $3.6 million.

Tax Valuation Allowance

As a result of the material changes to the Company's Consolidated Financial Statements, the Company re-evaluated the valuation allowance determinations made in prior years. The Company's analysis was updated to consider the changes to its historical operating results following the investigation and subsequent review by management. In that process, the Company evaluated the weight of all evidence, including the decline in earnings and the Company concluded that as of December 31, 2013, its U.S. federal and state net deferred tax assets were no longer more-likely-than-not to be realized and that a valuation allowance was required.

As of December 31, 2017 and 2016, the Company had a valuation allowance of $181.3 million and $119.9 million, respectively, against certain deferred tax assets. The valuation allowance relates to the deferred tax assets of the Company’s U.S. entities, including federal and state tax attributes and timing differences, as well as the deferred tax assets of certain foreign subsidiaries. The increase in the valuation allowance during 2017 is primarily related to the domestic operating losses incurred during the year offset by a reduction to the valuation allowance as result of the TCJA. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized, the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance.

A summary of the deferred tax asset valuation allowance is as follows:



	December 31,
(In thousands)	2017			2016
Beginning Balance	$	119,904		$	38,925
Additions	137,495			88,615
Reductions	(76,065		)	(7,636		)
Ending Balance	$	181,334		$	119,904

Net Operating Loss Carryforwards

As of December 31, 2017, the Company had federal and state net operating loss carryforwards for tax purposes of $387.0 million and $1,013.7 million, respectively. These net operating loss carryforwards begin to expire in 2022 for federal income tax purposes and 2018 for state income tax purposes. As of December 31, 2017, the Company had an aggregate net operating loss carryforward for tax purposes related to its foreign subsidiaries of $14.8 million which begins to expire in 2019. As of December 31, 2017, the Company had research & development credit carryforwards of $3.2 million which begin to expire in 2025.

Under the provisions of Internal Revenue Code Section 382, certain substantial changes in the Company’s ownership may result in a limitation on the amount of U.S. net operating loss carryforwards that can be utilized annually to offset future taxable income and taxes payable. A significant portion of the Company’s net operating loss carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code. Additionally, despite the net operating loss carryforwards, the Company may have a future tax liability due to alternative minimum tax, foreign tax or state tax requirements.

Foreign Undistributed Earnings

The Company has not provided for U.S. income and foreign withholding taxes on approximately $12.2 million of certain foreign subsidiaries' undistributed earnings as of December 31, 2017, because such earnings have been retained and are intended to be indefinitely reinvested outside of the U.S. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings because such tax, if any, is dependent on circumstances existing if and when remittance occurs.

Uncertain Tax Positions

For uncertain tax positions, the Company uses a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company has unrecognized tax benefits, which are tax benefits related to uncertain tax positions which have been or will be reflected in income tax filings that have not been recognized in the financial statements due to potential adjustments by taxing authorities in the applicable jurisdictions. The Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $1.3 million and $1.2 million as of December 31, 2017 and 2016, respectively. The remainder of unrecognized tax benefits have reduced deferred tax balances. The amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate are $2.4 million, $3.3 million and $3.2 million as of December 31, 2017, 2016 and 2015, respectively and include the federal tax benefit of state deductions. The Company anticipates that $0.2 million of unrecognized tax benefits will reverse during the next year due to the filing of related tax returns and the expiration of statutes of limitation.

Changes in the Company's unrecognized income tax benefits are as follows:



	December 31,
(In thousands)	2017			2016			2015
Beginning balance	$	3,608		$	3,418		$	1,460
Increase related to tax positions of prior years	81			68			29
Increase related to tax positions of the current year	88			449			2,013
Increase related to acquired tax positions	—			974			—
Decrease related to tax positions of prior years	(1,064		)	(1,084		)	(38		)
Decrease due to settlements	—			(117		)	—
Decrease due to lapse in statutes of limitations	(205		)	(100		)	(46		)
Ending balance	$	2,508		$	3,608		$	3,418

The Company recognizes interest and penalties related to income tax matters in income tax expense. As of December 31, 2017 and 2016, accrued interest and penalties on unrecognized tax benefits were $0.3 million and $0.2 million, respectively. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. For income tax returns filed by the Company, the Company is no longer subject to U.S. federal examinations by tax authorities for years prior to 2014 or state and local tax examinations by tax authorities for years prior to 2013, although tax attribute carryforwards generated prior to these years may still be adjusted upon examination by tax authorities.