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EX-32.2 - EX-32.2 - GrubHub Inc.grub-ex322_9.htm
EX-32.1 - EX-32.1 - GrubHub Inc.grub-ex321_7.htm
EX-31.2 - EX-31.2 - GrubHub Inc.grub-ex312_8.htm
EX-31.1 - EX-31.1 - GrubHub Inc.grub-ex311_10.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-36389

 

GRUBHUB INC.

(Exact name of registrant as specified in its charter)

 

 

 Delaware

   

46-2908664

(State or other jurisdiction of

incorporation or organization)

   

(I.R.S. Employer

Identification No.)

   

   

   

111 W. Washington Street, Suite 2100

Chicago, Illinois

   

60602

(Address of principal executive offices)

   

(Zip code)

(877) 585-7878

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes        No    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes        No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-Accelerated filer

(Do not check if a smaller reporting company)

 

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

As of November 4, 2016, 85,592,803 shares of common stock were outstanding.

 

 

 

 

 

 

 


GRUBHUB INC.

TABLE OF CONTENTS

 

PART I

 

Page

FINANCIAL INFORMATION

 

 

 

 

Item 1:

Condensed Consolidated Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

3

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015

4

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015

6

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4:

Controls and Procedures

31

PART II

 

OTHER INFORMATION

 

Item 1:

Legal Proceedings

32

Item 1A:

Risk Factors

32

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3:

Defaults Upon Senior Securities

33

Item 4:

Mine Safety Disclosures

33

Item 5:

Other Information

33

Item 6:

Exhibits

34

Signatures

35

 

 

 

2


Part I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

GRUBHUB INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(UNAUDITED)

 

 

 

September 30, 2016

 

 

December 31, 2015

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

177,838

 

 

$

169,293

 

Short term investments

 

 

118,743

 

 

 

141,448

 

Accounts receivable, less allowances for doubtful accounts

 

 

65,729

 

 

 

42,051

 

Prepaid expenses

 

 

6,264

 

 

 

3,482

 

Total current assets

 

 

368,574

 

 

 

356,274

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation and amortization

 

 

43,398

 

 

 

19,082

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Other assets

 

 

4,873

 

 

 

3,105

 

Goodwill

 

 

437,009

 

 

 

396,220

 

Acquired intangible assets, net of amortization

 

 

318,431

 

 

 

285,567

 

Total other assets

 

 

760,313

 

 

 

684,892

 

TOTAL ASSETS

 

$

1,172,285

 

 

$

1,060,248

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Restaurant food liability

 

$

78,321

 

 

$

64,326

 

Accounts payable

 

 

9,532

 

 

 

8,189

 

Accrued payroll

 

 

6,103

 

 

 

4,841

 

Taxes payable

 

 

785

 

 

 

426

 

Other accruals

 

 

16,054

 

 

 

11,830

 

Total current liabilities

 

 

110,795

 

 

 

89,612

 

LONG TERM LIABILITIES:

 

 

 

 

 

 

 

 

Deferred taxes, non-current

 

 

105,642

 

 

 

87,584

 

Other accruals

 

 

6,245

 

 

 

5,456

 

Total long term liabilities

 

 

111,887

 

 

 

93,040

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of September 30, 2016 and December 31, 2015; issued and outstanding: no shares as of September 30, 2016 and December 31, 2015.

 

 

 

 

 

 

Common stock, $0.0001 par value. Authorized: 500,000,000 shares at September 30, 2016 and December 31, 2015; issued and outstanding: 85,490,296 and 84,979,869 shares as of September 30, 2016 and December 31, 2015, respectively

 

 

9

 

 

 

8

 

Accumulated other comprehensive loss

 

 

(1,641

)

 

 

(604

)

Additional paid-in capital

 

 

796,414

 

 

 

759,292

 

Retained earnings

 

 

154,821

 

 

 

118,900

 

Total Stockholders’ Equity

 

$

949,603

 

 

$

877,596

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,172,285

 

 

$

1,060,248

 

 

 

 

 

 

 

 

(See Notes to Condensed Consolidated Financial Statements (unaudited))

 

 

 

3


GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(UNAUDITED)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

Revenues

$

123,461

 

 

$

85,662

 

 

$

355,874

 

 

$

261,866

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

26,499

 

 

 

21,443

 

 

 

80,687

 

 

 

66,229

 

 

Operations and support

 

44,346

 

 

 

27,637

 

 

 

120,029

 

 

 

74,941

 

 

Technology (exclusive of amortization)

 

11,006

 

 

 

8,412

 

 

 

31,765

 

 

 

23,980

 

 

General and administrative

 

11,754

 

 

 

10,203

 

 

 

37,501

 

 

 

29,049

 

 

Depreciation and amortization

 

9,089

 

 

 

6,299

 

 

 

25,282

 

 

 

21,377

 

 

Total costs and expenses

 

102,694

 

 

 

73,994

 

 

 

295,264

 

 

 

215,576

 

 

Income before provision for income taxes

 

20,767

 

 

 

11,668

 

 

 

60,610

 

 

 

46,290

 

 

Provision for income taxes

 

7,585

 

 

 

4,801

 

 

 

24,690

 

 

 

19,501

 

 

Net income attributable to common stockholders

$

13,182

 

 

$

6,867

 

 

$

35,920

 

 

$

26,789

 

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.15

 

 

$

0.08

 

 

$

0.42

 

 

$

0.32

 

 

Diluted

$

0.15

 

 

$

0.08

 

 

$

0.42

 

 

$

0.31

 

 

Weighted-average shares used to compute net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

85,217

 

 

 

84,583

 

 

 

84,889

 

 

 

83,827

 

 

Diluted

 

86,424

 

 

 

85,867

 

 

 

85,957

 

 

 

85,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(See Notes to Condensed Consolidated Financial Statements (unaudited))

 

 

 

4


GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(UNAUDITED)

 

 

Three Months Ended September 30,

 

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

 

2016

 

 

2015

 

Net income

$

13,182

 

 

$

6,867

 

 

 

$

35,920

 

 

$

26,789

 

OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(245

)

 

 

(266

)

 

 

 

(1,037

)

 

 

(163

)

COMPREHENSIVE INCOME

$

12,937

 

 

$

6,601

 

 

 

$

34,883

 

 

$

26,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(See Notes to Condensed Consolidated Financial Statements (unaudited))

 

 

 

 

5


GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

35,920

 

 

$

26,789

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

5,567

 

 

 

3,846

 

Provision for doubtful accounts

 

 

719

 

 

 

565

 

Deferred taxes

 

 

(1,908

)

 

 

(2,793

)

Amortization of intangible assets

 

 

19,715

 

 

 

17,531

 

Stock-based compensation

 

 

17,755

 

 

 

9,378

 

Deferred rent

 

 

980

 

 

 

(73

)

Other

 

 

(292

)

 

 

553

 

Change in assets and liabilities, net of the effects of business acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(22,299

)

 

 

(6,912

)

Prepaid expenses and other assets

 

 

(2,874

)

 

 

(1,456

)

Restaurant food liability

 

 

11,361

 

 

 

(31,444

)

Accounts payable

 

 

(4,592

)

 

 

(633

)

Accrued payroll

 

 

582

 

 

 

(2,150

)

Other accruals

 

 

1,799

 

 

 

389

 

Net cash provided by operating activities

 

 

62,433

 

 

 

13,590

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(187,456

)

 

 

(154,268

)

Proceeds from maturity of investments

 

 

210,567

 

 

 

122,856

 

Capitalized website and development costs

 

 

(8,859

)

 

 

(4,961

)

Purchases of property and equipment

 

 

(17,083

)

 

 

(2,866

)

Acquisitions of businesses, net of cash acquired

 

 

(65,849

)

 

 

(55,687

)

Acquisition of other intangible assets

 

 

(250

)

 

 

 

Other cash flows from investing activities

 

 

(540

)

 

 

 

Net cash used in investing activities

 

 

(69,470

)

 

 

(94,926

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(14,774

)

 

 

 

Proceeds from exercise of stock options

 

 

11,814

 

 

 

10,689

 

Excess tax benefits related to stock-based compensation

 

 

22,114

 

 

 

21,987

 

Taxes paid related to net settlement of stock-based compensation awards

 

 

(1,205

)

 

 

 

Payments for debt issuance costs

 

 

(1,477

)

 

 

 

Net cash provided by financing activities

 

 

16,472

 

 

 

32,676

 

Net change in cash and cash equivalents

 

 

9,435

 

 

 

(48,660

)

Effect of exchange rates on cash

 

 

(890

)

 

 

(108

)

Cash and cash equivalents at beginning of year

 

 

169,293

 

 

 

201,796

 

Cash and cash equivalents at end of the period

 

$

177,838

 

 

$

153,028

 

SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS

 

 

 

 

 

 

 

 

Fair value of common stock issued for acquisitions

 

$

 

 

$

15,980

 

Cash paid for income taxes

 

 

5,757

 

 

 

 

Capitalized property, equipment and website and development costs in

   accounts payable at period end

 

 

5,911

 

 

 

414

 

 

(See Notes to Condensed Consolidated Financial Statements (unaudited))

 

 

6


 

 

GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

 

1. Organization

Grubhub Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively referred to as the “Company”) provide an online and mobile platform for restaurant pick-up and delivery orders. Diners enter their delivery address or use geo-location within the mobile applications and the Company displays the menus and other relevant information for restaurants in its network. Orders may be placed directly online, via mobile applications or over the phone at no cost to the diner. The Company charges the restaurant a per order commission that is largely fee based. In certain markets, the Company also provides delivery services to restaurants on its platform that do not have their own delivery operations.

 

 

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Grubhub Inc. and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements include all wholly-owned subsidiaries and reflect all normal and recurring adjustments, as well as any other than normal adjustments, that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 26, 2016 (the “2015 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Estimates include revenue recognition, the allowance for doubtful accounts, website and internal-use software development costs, goodwill, depreciable lives of property and equipment, recoverability of intangible assets with definite lives and other long-lived assets, stock-based compensation and income taxes. Actual results could differ from these estimates.

There have been no material changes to the Company’s significant accounting policies described in the 2015 Form 10-K.

Recently Issued Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows with the intent of reducing diversity in practice related to eight types of cash flows including, among others, debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for the Company beginning in fiscal year 2018 and early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented. The adoption of ASU 2016-15 may impact the Company’s disclosures but is otherwise not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables and held-to-maturity debt securities, which will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands disclosure requirements. ASU 2016-13 is effective for the Company beginning the first quarter of 2020 and early adoption is permitted. The guidance will be applied using the modified-retrospective approach. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

7


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions. Under ASU 2016-09, excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. ASU 2016-09 also provides entities with the option to elect an accounting policy to continue to estimate forfeitures of stock-based awards over the service period (current GAAP) or account for forfeitures when they occur. Under ASU 2016-09, previously unrecognized excess tax benefits should be recognized using a modified retrospective transition. In addition, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement, as well as changes in the computation of weighted-average diluted shares outstanding, should be applied prospectively. The Company believes the most significant impact of the adoption of ASU 2016-09 to the Company’s consolidated financial statements will be to recognize certain tax benefits or tax shortfalls upon a restricted-stock award or unit vesting or stock option exercise relative to the deferred tax asset position established in the provision for income taxes line of the consolidated statement of operations instead of to consolidated stockholders’ equity. During the nine months ended September 30, 2016, and the years ended 2015 and 2014, the Company recorded $22.1 million, $27.8 million and $13.0 million to consolidated stockholders’ equity as tax benefits related to stock-based compensation, respectively. ASU 2016-09 is effective beginning in the first quarter of 2017 with early adoption permitted. The Company plans to adopt ASU 2016-09 during the first quarter of 2017.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease under ASU 2016-02 will not significantly change from current GAAP. ASU 2016-02 is effective beginning in the first quarter of 2019 with early adoption permitted. The Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements, but anticipates that it will result in a significant increase in its long-term assets and liabilities and minimal impact to its results of operations and cash flows.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”), which eliminates the requirement to account for adjustments identified during the measurement-period in a business combination retrospectively. Instead, the acquirer must recognize measurement-period adjustments during the period in which they are identified, including the effect on earnings of any amounts that would have been recorded in previous periods had the purchase accounting been completed at the acquisition date. ASU 2015-16 was effective for and adopted by the Company in the first quarter of 2016. The adoption of ASU 2015-16 eliminates costs related to retrospective application of any measurement-period adjustments that may be identified, but has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.     

In April 2015, the FASB issued Accounting Standards Update 2015-05, “Intangibles -Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), which provides guidance on accounting for fees paid in a cloud computing arrangement. Under ASU 2015-05, if a cloud computing arrangement includes a software license, the software license element should be accounted for consistent with the purchase of other software licenses. If the cloud computing arrangement does not include a software license, it should be accounted for as a service contract. ASU 2015-05 was effective for and adopted by the Company in the first quarter of 2016. The Company elected to apply ASU 2015-05 prospectively; however, its adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Under the previous practice, debt issuance costs were recognized as a deferred charge (that is, an asset). The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 “Interest - Imputed Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”), which clarifies that the guidance in ASU 2015-03 does not apply to line-of-credit arrangements. According to ASU 2015-15, debt issuance costs related to line-of-credit arrangements will continue to be deferred and presented as an asset and subsequently amortized ratably over the term of the arrangement. The amendments in ASU 2015-03 and clarifications of ASU 2015-15 are effective for the Company in the first quarter of 2016. The Company entered into a credit agreement on April 29, 2016 (see Note 8, Debt, for additional details). The adoption of ASU 2015-03 and ASU 2015-15 have not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.

8


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued Accounting Standards Update 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which clarifies the implementation guidance on identifying performance obligations and licensing. ASU 2016-10 reduces the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability, non-cash consideration, presentation of sales tax, and transition. ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 will be effective for the Company in the first quarter of 2018. Management is currently evaluating the impact the adoption of these ASUs will have on the Company’s consolidated financial position, results of operations or cash flows. The Company currently anticipates applying the modified retrospective approach when adopting these ASUs.

 

 

3. Acquisitions

2016 Acquisitions

On May 5, 2016, the Company acquired all of the issued and outstanding stock of KMLEE Investments Inc. and LABite.com, Inc. (collectively, “LABite”). The purchase price for LABite was $65.8 million in cash, net of cash acquired of $2.6 million. LABite provides online and mobile food ordering and delivery services for restaurants in numerous western and southwestern cities of the United States.  The acquisition has expanded the Company’s restaurant, diner and delivery networks.

The results of operations of LABite have been included in the Company’s financial statements since May 5, 2016 and have not had a material impact on the Company’s consolidated results of operations as of September 30, 2016.

The excess of the consideration transferred in the acquisition over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill, which represents the opportunity to expand restaurant delivery services and enhance the breadth and depth of the Company’s restaurant networks. Of the $40.8 million of goodwill related to the acquisition, $4.4 million is expected to be deductible for income tax purposes.

9


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

The assets acquired and liabilities assumed of LABite were recorded at their estimated fair values as of the closing date of May 5, 2016. The following table summarizes the preliminary purchase price allocation acquisition-date fair values of the assets and liabilities acquired in connection with the LABite acquisition: 

 

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

$

2,566

 

Accounts receivable

 

 

 

2,320

 

Prepaid expenses and other assets

 

 

 

68

 

Customer and vendor relationships

 

 

 

46,513

 

Property and equipment

 

 

 

257

 

Developed technology

 

 

 

1,731

 

Goodwill

 

 

 

40,789

 

Trademarks

 

 

 

440

 

Accounts payable and accrued expenses

 

 

 

(6,303

)

Net deferred tax liability

 

 

 

(19,966

)

Total purchase price plus cash acquired

 

 

 

68,415

 

Cash acquired

 

 

 

(2,566

)

Net cash paid

 

 

$

65,849

 

 

2015 Acquisitions

On February 4, 2015, the Company acquired assets of DiningIn.com, Inc. and certain of its affiliates (collectively, “DiningIn”), and, on February 27, 2015, the Company acquired the membership units of Restaurants on the Run, LLC (“Restaurants on the Run”) and on December 4, 2015, the Company acquired the membership units of Mealport USA LLC (“Delivered Dish”). Aggregate consideration for the three acquisitions was approximately $73.9 million in cash and 407,812 restricted shares of the Company’s common stock, or an estimated total transaction value of approximately $89.9 million based on the Company’s closing share price on the respective closing dates, net of cash acquired of $0.7 million. DiningIn, Restaurants on the Run and Delivered Dish provide delivery options for individual diners, group orders and corporate catering. The acquisitions have expanded and enhanced the Company’s service offerings for its customers, particularly in the delivery space.

The results of operations of DiningIn, Restaurants on the Run and Delivered Dish have been included in the Company’s financial statements since February 4, 2015, February 27, 2015 and December 4, 2015, respectively.

The excess of the consideration transferred in the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill, which represents the opportunity to expand restaurant delivery services and enhance the breadth and depth of the Company’s restaurant networks. The goodwill related to these acquisitions of $43.4 million is expected to be deductible for income tax purposes.

10


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

The assets acquired and liabilities assumed of DiningIn, Restaurants on the Run and Delivered Dish were recorded at their estimated fair values as of the closing dates of February 4, 2015, February 27, 2015 and December 4, 2015, respectively. The following table summarizes the final purchase price allocation acquisition-date fair values of the assets and liabilities acquired in connection with the DiningIn, Restaurants on the Run and Delivered Dish acquisitions: 

 

 

(in thousands)

 

Cash and cash equivalents

$

698

 

Accounts receivable

 

2,331

 

Prepaid expenses and other assets

 

325

 

Customer and vendor relationships

 

44,259

 

Property and equipment

 

161

 

Developed technology

 

4,676

 

Goodwill

 

43,432

 

Trademarks

 

529

 

Accounts payable and accrued expenses

 

(5,826

)

Total purchase price plus cash acquired

 

90,585

 

Cash acquired

 

(698

)

Fair value of common stock issued

 

(15,980

)

Net cash paid

$

73,907

 

 

Additional Information

The estimated fair values of the intangible assets acquired were determined based on a combination of the income, cost, and market approaches to measure the fair value of the customer (restaurant) relationships, developed technology and trademarks. The fair value of the trademarks was measured based on the relief from royalty method. The cost approach, specifically the cost to recreate method, was used to value the developed technology. The income approach, specifically the multi-period excess earnings method, was used to value the customer (restaurant) relationships. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy.

The Company incurred certain expenses directly and indirectly related to acquisitions which were recognized in general and administrative expenses within the condensed consolidated statements of operations for the three months ended September 30, 2016 and 2015 of $0.2 million and $0.1 million, respectively, and for the nine months ended September 30, 2016 and 2015 of $1.7 million and $0.8 million, respectively.

Pro Forma

The following unaudited pro forma information presents a summary of the operating results of the Company for the three and nine months ended September 30, 2016 and 2015 as if the acquisitions had occurred as of January 1 of the year prior to acquisition:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

(in thousands, except per share data)

 

Revenues

$

123,461

 

 

$

92,826

 

 

$

364,834

 

 

$

286,395

 

Net income

 

13,334

 

 

 

6,680

 

 

 

34,897

 

 

 

28,170

 

Net income per share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.08

 

 

$

0.41

 

 

$

0.34

 

Diluted

$

0.15

 

 

$

0.08

 

 

$

0.41

 

 

$

0.33

 

 

11


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

The pro forma adjustments reflect the amortization that would have been recognized for intangible assets, elimination of transaction costs incurred and pro forma tax adjustments for three and nine months ended September 30, 2016 and 2015 as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

(in thousands)

 

Depreciation and amortization

$

 

 

$

914

 

 

$

1,364

 

 

$

3,296

 

Transaction costs

 

(256

)

 

 

(107

)

 

 

(1,729

)

 

 

(807

)

Income tax expense (benefit)

 

105

 

 

 

(344

)

 

 

151

 

 

 

(1,061

)

 

The unaudited pro forma revenues and net income are not intended to represent or be indicative of the Company’s condensed consolidated results of operations or financial condition that would have been reported had the acquisitions been completed as of the beginning of the periods presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.

 

 

4. Marketable Securities

The amortized cost, unrealized gains and losses and estimated fair value of the Company’s held-to-maturity marketable securities as of September 30, 2016 and December 31, 2015 were as follows:

 

 

 

September 30, 2016

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

35,871

 

 

$

 

 

$

(21

)

 

$

35,850

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

100,652

 

 

 

 

 

 

(219

)

 

 

100,433

 

Corporate bonds

 

 

18,091

 

 

 

4

 

 

 

(1

)

 

 

18,094

 

Total

 

$

154,614

 

 

$

4

 

 

$

(241

)

 

$

154,377

 

 

 

 

December 31, 2015

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

22,744

 

 

$

 

 

$

(5

)

 

$

22,739

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

90,949

 

 

 

 

 

 

(102

)

 

 

90,847

 

Corporate bonds

 

 

41,503

 

 

 

9

 

 

 

(39

)

 

 

41,473

 

U.S. government agency bonds

 

 

8,996

 

 

 

8

 

 

 

 

 

 

9,004

 

Total

 

$

164,192

 

 

$

17

 

 

$

(146

)

 

$

164,063

 

 

All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of September 30, 2016.

12


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

The gross unrealized losses, estimated fair value and length of time the individual marketable securities were in a continuous loss position for those marketable securities in an unrealized loss position as of September 30, 2016 and December 31, 2015 were as follows:

 

 

 

September 30, 2016

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Estimated

Fair Value

 

 

Unrealized Loss

 

 

Estimated

Fair Value

 

 

Unrealized Loss

 

 

Estimated

Fair Value

 

 

Unrealized Loss

 

 

 

(in thousands)

 

Commercial paper

 

$

136,283

 

 

$

(240

)

 

$

 

 

$

 

 

$

136,283

 

 

$

(240

)

Corporate bonds

 

 

4,882

 

 

 

(1

)

 

 

 

 

 

 

 

 

4,882

 

 

 

(1

)

Total

 

$

141,165

 

 

$

(241

)

 

$

 

 

$

 

 

$

141,165

 

 

$

(241

)

 

 

 

December 31, 2015

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Estimated

Fair Value

 

 

Unrealized Loss

 

 

Estimated

Fair Value

 

 

Unrealized Loss

 

 

Estimated

Fair Value

 

 

Unrealized Loss

 

 

 

(in thousands)

 

Commercial paper

 

$

113,586

 

 

$

(107

)

 

$

 

 

$

 

 

$

113,586

 

 

$

(107

)

Corporate bonds

 

 

31,952

 

 

 

(39

)

 

 

 

 

 

 

 

 

31,952

 

 

 

(39

)

Total

 

$

145,538

 

 

$

(146

)

 

$

 

 

$

 

 

$

145,538

 

 

$

(146

)

 

During the three and nine months ended September 30, 2016 and 2015, the Company did not recognize any other-than-temporary impairment losses related to its marketable securities.

The Company’s marketable securities are classified within Level 2 of the fair value hierarchy (see Note 13, Fair Value Measurement, for further details).

 

 

5. Goodwill and Acquired Intangible Assets

The components of acquired intangible assets as of September 30, 2016 and December 31, 2015 were as follows:

 

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Developed technology

 

$

10,640

 

 

$

(9,097

)

 

$

1,543

 

 

$

9,819

 

 

$

(6,288

)

 

$

3,531

 

Customer and vendor relationships, databases

 

 

282,751

 

 

 

(56,242

)

 

 

226,509

 

 

 

236,238

 

 

 

(44,192

)

 

 

192,046

 

Trademarks

 

 

969

 

 

 

(474

)

 

 

495

 

 

 

529

 

 

 

(215

)

 

 

314

 

Other

 

 

250

 

 

 

(42

)

 

 

208

 

 

 

 

 

 

 

 

 

 

Total amortizable intangible assets

 

 

294,610

 

 

 

(65,855

)

 

 

228,755

 

 

 

246,586

 

 

 

(50,695

)

 

 

195,891

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

384,286

 

 

$

(65,855

)

 

$

318,431

 

 

$

336,262

 

 

$

(50,695

)

 

$

285,567

 

 

The gross carrying amount and accumulated amortization of the Company’s developed technology intangible assets were adjusted by $0.9 million as of June 30, 2016 for certain fully amortized assets that are no longer in use.

Amortization expense for acquired intangible assets was $5.4 million and $4.7 million for the three months ended September 30, 2016 and 2015, respectively, and $16.1 million and $13.5 million for the nine months ended September 30, 2016 and 2015, respectively.

13


GRUBHUB INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

 

Changes in the carrying amount of goodwill during the nine months ended September 30, 2016 were as follows: 

 

 

 

Goodwill

 

 

Accumulated Impairment Losses

 

 

Net Book Value

 

 

 

(in thousands)

 

Balance as of December 31, 2015

 

 

396,220

 

 

 

 

 

 

396,220

 

Acquisitions

 

 

40,789

 

 

 

 

 

 

40,789

 

Balance as of September 30, 2016

 

$

437,009

 

 

$

 

 

$

437,009

 

 

During the nine months ended September 30, 2016, the Company recorded additions to acquired intangible assets of $48.7 million as a result of the acquisition of LABite. The components of the acquired intangibles assets added during the nine months ended September 30, 2016 were as follows:

 

 

 

Nine Months Ended

September 30, 2016

 

 

Weighted-Average

Amortization

Period

 

 

 

(in thousands)

 

 

(years)

 

Customer and vendor relationships

 

$

46,513

 

 

 

20.0

 

Developed technology

 

 

1,731

 

 

 

1.0

 

Trademarks

 

 

440

 

 

 

2.0

 

   Total

 

$

48,684

 

 

 

 

 

 

Estimated future amortization expense of acquired intangible assets as of September 30, 2016 was as follows:

 

 

 

(in thousands)

 

The remainder of 2016

 

$

5,023

 

2017

 

 

18,021

 

2018

 

 

16,937

 

2019

 

 

15,389

 

2020

 

 

14,987

 

Thereafter

 

 

158,398

 

Total