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EX-32.2 - EX-32.2 - GrubHub Inc.grub-ex322_8.htm
EX-32.1 - EX-32.1 - GrubHub Inc.grub-ex321_7.htm
EX-31.2 - EX-31.2 - GrubHub Inc.grub-ex312_6.htm
EX-31.1 - EX-31.1 - GrubHub Inc.grub-ex311_9.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 March 31, 2017

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 an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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 May 5, 2017, 86,203,554 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 March 31, 2017 and December 31, 2016

3

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016

4

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016

4

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016

5

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2:

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

18

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4:

Controls and Procedures

26

PART II

 

OTHER INFORMATION

 

Item 1:

Legal Proceedings

27

Item 1A:

Risk Factors

27

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3:

Defaults Upon Senior Securities

27

Item 4:

Mine Safety Disclosures

27

Item 5:

Other Information

27

Item 6:

Exhibits

28

Signatures

29

 

 

 

2


Part I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

GRUBHUB INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(UNAUDITED)

 

 

 

March 31, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

275,037

 

 

$

239,528

 

Short term investments

 

 

86,235

 

 

 

84,091

 

Accounts receivable, less allowances for doubtful accounts

 

 

62,400

 

 

 

60,550

 

Prepaid expenses

 

 

9,245

 

 

 

12,168

 

Total current assets

 

 

432,917

 

 

 

396,337

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation and amortization

 

 

51,579

 

 

 

46,555

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Other assets

 

 

4,316

 

 

 

4,530

 

Goodwill

 

 

436,455

 

 

 

436,455

 

Acquired intangible assets, net of amortization

 

 

313,357

 

 

 

313,630

 

Total other assets

 

 

754,128

 

 

 

754,615

 

TOTAL ASSETS

 

$

1,238,624

 

 

$

1,197,507

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Restaurant food liability

 

$

94,660

 

 

$

83,349

 

Accounts payable

 

 

10,030

 

 

 

7,590

 

Accrued payroll

 

 

5,805

 

 

 

7,338

 

Taxes payable

 

 

3,062

 

 

 

865

 

Other accruals

 

 

18,950

 

 

 

11,348

 

Total current liabilities

 

 

132,507

 

 

 

110,490

 

LONG TERM LIABILITIES:

 

 

 

 

 

 

 

 

Deferred taxes, non-current

 

 

100,631

 

 

 

108,022

 

Other accruals

 

 

6,898

 

 

 

6,876

 

Total long term liabilities

 

 

107,529

 

 

 

114,898

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of March 31, 2017 and December 31, 2016; issued and outstanding: no shares as of March 31, 2017 and December 31, 2016.

 

 

 

 

 

 

Common stock, $0.0001 par value. Authorized: 500,000,000 shares at March 31, 2017 and December 31, 2016; issued and outstanding: 85,941,215 and 85,692,333 shares as of March 31, 2017 and December 31, 2016, respectively

 

 

9

 

 

 

9

 

Accumulated other comprehensive loss

 

 

(1,971

)

 

 

(2,078

)

Additional paid-in capital

 

 

811,727

 

 

 

805,731

 

Retained earnings

 

 

188,823

 

 

 

168,457

 

Total Stockholders’ Equity

 

$

998,588

 

 

$

972,119

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,238,624

 

 

$

1,197,507

 

 

 

 

 

 

 

 

(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 March 31,

 

 

2017

 

 

2016

 

Revenues

$

156,134

 

 

$

112,240

 

Costs and expenses:

 

 

 

 

 

 

 

Sales and marketing

 

35,438

 

 

 

28,833

 

Operations and support

 

59,519

 

 

 

34,987

 

Technology (exclusive of amortization)

 

13,192

 

 

 

10,192

 

General and administrative

 

12,960

 

 

 

13,589

 

Depreciation and amortization

 

10,040

 

 

 

7,308

 

Total costs and expenses

 

131,149

 

 

 

94,909

 

Income before provision for income taxes

 

24,985

 

 

 

17,331

 

Provision for income taxes

 

7,270

 

 

 

7,398

 

Net income attributable to common stockholders

$

17,715

 

 

$

9,933

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

Basic

$

0.21

 

 

$

0.12

 

Diluted

$

0.20

 

 

$

0.12

 

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

 

 

 

 

 

 

 

Basic

 

85,874

 

 

 

84,710

 

Diluted

 

87,120

 

 

 

85,699

 

 

 

 

 

 

 

 

GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(UNAUDITED)

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Net income

$

17,715

 

 

$

9,933

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

107

 

 

 

(222

)

COMPREHENSIVE INCOME

$

17,822

 

 

$

9,711

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

17,715

 

 

$

9,933

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

2,412

 

 

 

1,344

 

Provision for doubtful accounts

 

 

95

 

 

 

443

 

Deferred taxes

 

 

(4,741

)

 

 

(3,321

)

Amortization of intangible assets

 

 

7,628

 

 

 

5,964

 

Stock-based compensation

 

 

7,243

 

 

 

6,901

 

Deferred rent

 

 

58

 

 

 

135

 

Other

 

 

(110

)

 

 

(109

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,721

)

 

 

(9,956

)

Prepaid expenses and other assets

 

 

2,957

 

 

 

(136

)

Restaurant food liability

 

 

11,297

 

 

 

10,081

 

Accounts payable

 

 

483

 

 

 

(5,434

)

Accrued payroll

 

 

(1,534

)

 

 

(1,034

)

Other accruals

 

 

9,808

 

 

 

3,855

 

Net cash provided by operating activities

 

 

51,590

 

 

 

18,666

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(57,783

)

 

 

(56,227

)

Proceeds from maturity of investments

 

 

55,833

 

 

 

76,615

 

Capitalized website and development costs

 

 

(4,150

)

 

 

(2,331

)

Purchases of property and equipment

 

 

(3,056

)

 

 

(3,259

)

Acquisition of other intangible assets

 

 

(5,000

)

 

 

(250

)

Other cash flows from investing activities

 

 

91

 

 

 

(173

)

Net cash provided by (used in) investing activities

 

 

(14,065

)

 

 

14,375

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

 

 

 

(9,771

)

Proceeds from exercise of stock options

 

 

1,584

 

 

 

1,012

 

Excess tax benefits related to stock-based compensation

 

 

 

 

 

10,610

 

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

 

 

(3,688

)

 

 

(682

)

Net cash provided by (used in) financing activities

 

 

(2,104

)

 

 

1,169

 

Net change in cash and cash equivalents

 

 

35,421

 

 

 

34,210

 

Effect of exchange rates on cash

 

 

88

 

 

 

(191

)

Cash and cash equivalents at beginning of year

 

 

239,528

 

 

 

169,293

 

Cash and cash equivalents at end of the period

 

$

275,037

 

 

$

203,312

 

SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

746

 

 

$

 

Capitalized property, equipment and website and development costs in

   accounts payable at period end

 

 

1,956

 

 

 

1,423

 

 

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

 

 

5


 

 

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, 2016 filed with the SEC on February 28, 2017 (the “2016 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.

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.  

Changes in Accounting Principle

See “Recently Issued Accounting Pronouncements” below for a description of accounting principle changes adopted during the three months ended March 31, 2017 related to goodwill, business combinations and stock-based compensation. There have been no other material changes to the Company’s significant accounting policies described in the 2016 Form 10-K.

Recently Issued Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with its carrying amount. Under the amendment, an entity should recognize an impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The Company has elected to early adopt ASU 2017-04 beginning in the first quarter of 2017 and will apply the standard prospectively. The Company performs its annual goodwill impairment test as of September 30th, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying value. The adoption of ASU 2017-04 may reduce the cost and complexity of evaluating goodwill for impairment, but it did not have, and is not expected to have, a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides that when substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The Company has elected

6


GRUBHUB INC.

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

 

to adopt ASU 2017-01 early; therefore, ASU 2017-01 is effective for transactions beginning in the first quarter of 2017 on a prospective basis. There were no transactions during the quarter ended March 31, 2017 that met the definition of a business combination. The adoption of ASU 2017-01 did not have, and is not expected to have, a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In August 2016, 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. In addition, in November 2016, the FASB issued Accounting Standards Update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flow. ASU 2016-15 and ASU 2016-18 are effective for the Company beginning in first quarter of 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 and ASU 2016-18 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.

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. ASU 2016-09 is effective for and was adopted by the Company beginning in the first quarter of 2017 and the impact of the adoption resulted in the following

 

During the three months ended March 31, 2017, the Company recognized excess tax benefits from stock-based compensation of $1.9 million within provision for income taxes on the condensed consolidated statements of operations and within net income on the condensed consolidated statements of cash flows. Prior to adoption, the tax effect of stock-based awards would have been recognized in additional paid-in capital on the condensed consolidated balance sheets and separately stated in financing activities in the condensed consolidated statements of cash flows (adopted prospectively).

 

The Company has elected to continue to estimate forfeitures of stock-based awards over the service period.

 

The Company recorded a cumulative-effect adjustment for previously unrecognized excess tax benefits of $2.7 million to opening retained earnings on the condensed consolidated balance sheets.

 

The excess tax benefits from the assumed proceeds available to repurchase shares were excluded in the computation of diluted earnings per share for the three months ended March 31, 2017 (adopted prospectively).

 

In February 2016, the FASB issued Accounting Standards Update No. 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 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

7


GRUBHUB INC.

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

 

the impact of adoption of ASU 2016-02 on its consolidated financial statements and anticipates that it will result in a significant increase in its long-term assets and liabilities but will have no material impact to its results of operations and cash flows.     

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 No. 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 Accounting Standards Update No. 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. In December 2016, the FASB issued Account Standards Update No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which contains additional technical corrections and improvements to the revenue standard but doesn’t change any of the principles in the new revenue guidance. ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 will be effective for the Company in the first quarter of 2018.The Company currently anticipates applying the modified retrospective approach when adopting these ASUs. Based on the Company’s initial assessment, the adoption of these ASUs is expected to have an immaterial impact on the timing of recognition of certain revenues and result in the deferral of certain incremental costs of obtaining a contract. Management does not expect the impact the adoption of these ASUs to have a material impact on the Company’s consolidated financial position, results of operations or cash flows or its business processes, systems and controls.

 

 

3. Acquisitions

2016 Acquisition

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.

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 $40.2 million of goodwill related to the acquisition, $5.0 million is expected to be deductible for income tax purposes.

8


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 final 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

 

 

 

40,235

 

Trademarks

 

 

 

440

 

Accounts payable and accrued expenses

 

 

 

(6,303

)

Net deferred tax liability

 

 

 

(19,412

)

Total purchase price plus cash acquired

 

 

 

68,415

 

Cash acquired

 

 

 

(2,566

)

Net cash paid

 

 

$

65,849

 

 

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 March 31, 2017 and 2016 of $0.4 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 months ended March 31, 2016 as if the acquisition had occurred as of January 1 of the year prior to acquisition:

 

 

 

 

 

Three Months Ended

March 31, 2016

 

 

(in thousands,

except per share data)

 

Revenues

$

119,038

 

Net income

 

11,339

 

Net income per share attributable to common shareholders:

 

 

 

Basic

$

0.13

 

Diluted

$

0.13

 

 

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 months ended March 31, 2016 as follows:

 

 

 

 

 

Three Months Ended

March 31, 2016

 

 

(in thousands)

 

Depreciation and amortization

$

1,023

 

Transaction costs

 

(831

)

Income tax benefit

 

(82

)

 

9


GRUBHUB INC.

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

 

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 acquisition 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 March 31, 2017 and December 31, 2016 were as follows:

 

 

 

March 31, 2017

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

69,104

 

 

$

 

 

$

(59

)

 

$

69,045

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

76,734

 

 

 

 

 

 

(196

)

 

 

76,538

 

Corporate bonds

 

 

9,501

 

 

 

6

 

 

 

(6

)

 

 

9,501

 

Total

 

$

155,339

 

 

$

6

 

 

$

(261

)

 

$

155,084

 

 

 

 

December 31, 2016

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

59,175

 

 

$

2

 

 

$

(28

)

 

$

59,149

 

Corporate bonds

 

 

5,000

 

 

 

1

 

 

 

 

 

 

5,001

 

U.S. government agency bonds

 

 

5,500

 

 

 

 

 

 

 

 

 

5,500

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

73,002

 

 

 

 

 

 

(214

)

 

 

72,788

 

Corporate bonds

 

 

11,089

 

 

 

4

 

 

 

(5

)

 

 

11,088

 

Total

 

$

153,766

 

 

$

7

 

 

$

(247

)

 

$

153,526

 

 

All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of March 31, 2017.

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 March 31, 2017 and December 31, 2016 were as follows:

 

 

 

March 31, 2017

 

 

 

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

 

$

145,583

 

 

$

(255

)

 

$

 

 

$

 

 

$

145,583

 

 

$

(255

)

Corporate bonds

 

 

5,969

 

 

 

(6

)

 

 

 

 

 

 

 

 

5,969

 

 

 

(6

)

Total

 

$

151,552

 

 

$

(261

)

 

$

 

 

$

 

 

$

151,552

 

 

$

(261

)

10


GRUBHUB INC.

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

 

 

 

 

December 31, 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

 

$

130,938

 

 

$

(242

)

 

$

 

 

$

 

 

$

130,938

 

 

$

(242

)

Corporate bonds

 

 

6,556

 

 

 

(5

)

 

 

 

 

 

 

 

 

6,556

 

 

 

(5

)

Total

 

$

137,494

 

 

$

(247

)

 

$

 

 

$

 

 

$

137,494

 

 

$

(247

)

 

During the three months ended March 31, 2017 and 2016, the Company recognized interest income of $0.4 million and $0.2 million, respectively, in general and administrative expenses within the condensed consolidated statements of operations. During the three months ended March 31, 2017 and 2016, 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 March 31, 2017 and December 31, 2016 were as follows:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Developed technology

 

$

7,467

 

 

$

(6,768

)

 

$

699

 

 

$

10,640

 

 

$

(9,575

)

 

$

1,065

 

Customer and vendor relationships, databases

 

 

282,751

 

 

 

(64,633

)

 

 

218,118

 

 

 

282,751

 

 

 

(60,437

)

 

 

222,314

 

Trademarks

 

 

106

 

 

 

(106

)

 

 

 

 

 

969

 

 

 

(582

)

 

 

387

 

Other

 

 

5,250

 

 

 

(386

)

 

 

4,864

 

 

 

250

 

 

 

(62

)

 

 

188

 

Total amortizable intangible assets

 

 

295,574

 

 

 

(71,893

)

 

 

223,681

 

 

 

294,610

 

 

 

(70,656

)

 

 

223,954

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

385,250

 

 

$

(71,893

)

 

$

313,357

 

 

$

384,286

 

 

$

(70,656

)

 

$

313,630

 

 

The gross carrying amount and accumulated amortization of the Company’s developed technology and trademark intangible assets were adjusted by $3.2 million and $0.9 million, respectively, as of March 31, 2017 for certain fully amortized assets that were no longer in use.

Amortization expense for acquired intangible assets was $5.3 million and $5.0 million for the three months ended March 31, 2017 and 2016, respectively.

There were no changes in the carrying amount of goodwill during the three months ended March 31, 2017.

 

In January 2017, the Company entered into an agreement with Zoomer Inc. (“Zoomer”) whereby Zoomer waived non-solicitation provisions allowing the Company to engage the services of certain former Zoomer employees and consultants. The Company made total payments of $5.0 million to Zoomer during the three months ended March 31, 2017 in accordance with the terms of the agreement. The Company recognized these payments in other acquired intangible assets and will amortize the balance over an estimated useful life of 2.75 years.

 

11


GRUBHUB INC.

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

 

Estimated future amortization expense of acquired intangible assets as of March 31, 2017 was as follows:

 

 

 

(in thousands)

 

The remainder of 2017

 

$

14,311

 

2018

 

 

19,081

 

2019

 

 

16,904

 

2020

 

 

14,987

 

2021

 

 

14,987

 

Thereafter

 

 

143,411

 

Total

 

$

223,681

 

 

 

6. Property and Equipment

The components of the Company’s property and equipment as of March 31, 2017 and December 31, 2016 were as follows:

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

(in thousands)

 

Computer equipment

 

$

20,317

 

 

$

17,548

 

Furniture and fixtures

 

 

5,239

 

 

 

4,842

 

Developed software

 

 

32,120

 

 

 

26,460

 

Purchased software and digital assets

 

 

1,751

 

 

 

1,360

 

Leasehold improvements

 

 

19,388

 

 

 

19,038

 

Property and equipment

 

 

78,815

 

 

 

69,248

 

Accumulated amortization and depreciation

 

 

(27,236

)

 

 

(22,693

)

Property and equipment, net

 

$

51,579

 

 

$

46,555

 

The Company recorded depreciation and amortization expense for property and equipment other than developed software of $2.3 million and $1.4 million for the three months ended March 31, 2017 and 2016, respectively.

The Company capitalized developed software costs of $5.7 million and $3.0 million for the three months ended March 31, 2017 and 2016, respectively. Amortization expense for developed software costs, recognized in depreciation and amortization in the condensed consolidated statements of operations, for the three months ended March 31, 2017 and 2016 was $2.4 million and $0.9 million, respectively.

 

 

7. Commitments and Contingencies

Legal

In August 2011, Ameranth, Inc. (“Ameranth”) filed a patent infringement action against a number of defendants, including Grubhub Holdings Inc., in the U.S. District Court for the Southern District of California (the “Court”), Case No. 3:11-cv-1810 (“’1810 action”).

In March 2012, Ameranth initiated eight additional actions for infringement of a related patent, U.S. Patent No. 8,146,077 (“’077 patent”), in the same forum, including separate actions against Grubhub Holdings Inc., Case No. 3:12-cv-739 (“’739 action”), and Seamless North America, LLC, Case No. 3:12-cv-737 (“’737 action”). In August 2012, the Court severed the claims against Grubhub Holdings Inc. and Seamless North America, LLC in the ’1810 action and consolidated them with the ’739 action and the ’737 action, respectively. Later, the Court consolidated these separate cases against Grubhub Holdings Inc. and Seamless North America, LLC, along with the approximately 40 other cases Ameranth filed in the same district, with the original ’1810 action. In their answers, Grubhub Holdings Inc. and Seamless North America, LLC denied infringement and interposed various defenses, including non-infringement, invalidity, unenforceability and inequitable conduct.

No trial date has been set for this case. The consolidated district court case was stayed until January 2017, when Ameranth’s motion to lift the stay and proceed on only the ‘077 patent was granted. The Company believes this case lacks merit and that it has strong defenses to all of the infringement claims. The Company intends to defend the suit vigorously. However, the Company is unable to predict the likelihood of success of Ameranth’s infringement claims and is unable to predict the likelihood of success of its counterclaims. The Company has not recorded an accrual related to this lawsuit as of March 31, 2017, as it does not believe a material

12


GRUBHUB INC.

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

 

loss is probable. It is a reasonable possibility that a loss may be incurred; however, the possible range of loss is not estimable given the status of the case and the uncertainty as to whether the claims at issue are with or without merit, will be settled out of court, or will be determined in the Company’s favor, whether the Company may be required to expend significant management time and financial resources on the defense of such claims, and whether the Company will be able to recover any losses under its insurance policies.

In addition to the matter described above, from time to time, the Company is involved in various other legal proceedings arising from the normal course of business activities. For example, in the ordinary course of business, the Company receives labor and employment claims, including those related to misclassification of independent contractors. The Company does not believe these claims will have a material impact on its consolidated financial statements. However, there is no assurance that these claims will not be combined into a collective or class action.

Indemnification

In connection with the merger of Seamless North America, LLC, Seamless Holdings Corporation and Grubhub Holdings Inc. in August 2013, the Company agreed to indemnify Aramark Holdings Corporation for negative income tax consequences associated with the October 2012 spin-off of Seamless Holdings Corporation that were the result of certain actions taken by the Company through October 29, 2014, in certain instances subject to a $15.0 million limitation. Management is not aware of any actions that would impact the indemnification obligation.

 

8. Debt

On April 29, 2016, the Company entered into a secured revolving credit facility (the “Credit Agreement”), which provides for aggregate revolving loans up to $185.0 million, subject to an increase of up to an additional $30 million under certain conditions. The credit facility will be available to the Company until April 28, 2021. There were no borrowings outstanding under the Credit Agreement as of March 31, 2017. There have been no changes in the terms of the Credit Agreement during the three months ended March 31, 2017.

During the three months ended March 31, 2017, the Company recognized interest expense of $0.2 million in general and administrative expenses within the condensed consolidated statements of operations.

 

 

9. Stock-Based Compensation

The Company has granted stock options, restricted stock units and restricted stock awards under its incentive plans. The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, including stock options, restricted stock awards and restricted stock units.

Stock-based Compensation Expense

The total stock-based compensation expense related to all stock-based awards was $7.2 million and $6.9 million during the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, $100.8 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.3 years. The total unrecognized stock-based compensation expense to be recognized in future periods as of March 31, 2017 does not consider the effect of stock-based awards that may be granted in subsequent periods.

Excess tax benefits reflect the total of the individual stock option exercise transactions and vesting of restricted stock awards and restricted stock units in which the reduction to the Company’s income tax liability is greater than the deferred tax assets that were previously recorded. During the three months ended March 31, 2017, the Company recognized excess tax benefits from stock-based compensation of $1.9 million within provision for income taxes on the condensed consolidated statements of operations and within cash flows from operating activities on the condensed consolidated statements of cash flows. During the three months ended March 31, 2016, the Company reported excess tax benefits as a decrease in cash flows from operations and an increase in cash flows from financing activities of $10.6 million. The change in presentation of excess tax benefits during the three months ended March 31, 2017 is a result of the adoption of ASU 2016-09. See Note 2, Significant Accounting Policies, for additional information related to the impact of the adoption of ASU 2016-09.

The Company capitalized $0.9 million and $0.4 million during the three months ended March 31, 2017 and 2016, respectively, of stock-based compensation expense as website and software development costs.

13


GRUBHUB INC.

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

 

Stock Options

The Company granted 592,859 and 82,912 stock options during the three months ended March 31, 2017 and 2016, respectively. The fair value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model. Expected volatilities are based on a combination of the historical and implied volatilities of comparable publicly-traded companies and the historical volatility of the Company’s own common stock due to its limited trading history as there was no active external or internal market for the Company’s common stock prior to the Company’s initial public offering in April 2014. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The Company transitioned from using a simplified method for calculating the expected term of its options as it has obtained sufficient historical information to derive a reasonable estimate, therefore, beginning in the first quarter of 2017 the expected term calculation for option awards considers a combination of the Company’s historical and estimated future exercise behavior. The risk-free rate for the period within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions used to determine the fair value of the stock options granted during the three months ended March 31, 2017 and 2016 were as follows: 

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Weighted-average fair value options granted

 

$

15.10

 

 

$

10.28

 

Average risk-free interest rate

 

 

1.65

%

 

 

1.55

%

Expected stock price volatilities

 

 

48.8

%

 

 

50.8

%

Dividend yield

 

None

 

 

None

 

Expected stock option life (years) (a)

 

 

4.00

 

 

 

6.08

 

 

(a)

During the three months ended March 31, 2017, the expected term calculation for option awards was based on the Company’s historical exercise experience and estimated future exercise behavior. During the three months ended March 31, 2016, the expected term of option awards was estimated using a simplified method due to the limited period of time stock-based awards had been exercisable.

 

_____________________________________________________________________________________________________________

Stock option awards as of December 31, 2016 and March 31, 2017, and changes during the three months ended March 31, 2017, were as follows:

 

 

 

Options

 

 

Weighted-Average

Exercise Price

 

 

Aggregate Intrinsic

Value

(thousands)

 

 

Weighted-Average

Exercise Term

(years)

 

Outstanding at December 31, 2016

 

 

2,992,724

 

 

$

22.43

 

 

$

46,608

 

 

 

7.68

 

Granted

 

 

592,859

 

 

 

38.20

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(57,296

)

 

 

30.29

 

 

 

 

 

 

 

 

 

Exercised

 

 

(99,588

)

 

 

15.91

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2017

 

 

3,428,699

 

 

 

25.21

 

 

 

32,900

 

 

 

7.88

 

Vested and expected to vest at March 31, 2017

 

 

3,131,565

 

 

 

25.15

 

 

 

30,425

 

 

 

7.88

 

Exercisable at March 31, 2017

 

 

1,421,352

 

 

$

18.76

 

 

$

21,497

 

 

 

6.86

 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the fair value of the common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on each date. This amount will change in future periods based on the fair value of the Company’s stock and the number of options outstanding. The aggregate intrinsic value of awards exercised during the three months ended March 31, 2017 and 2016 was $2.2 million and $2.8 million, respectively.

The Company recorded compensation expense for stock options of $2.9 million and $3.7 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $24.1 million and is expected to be recognized over a weighted-average period of 2.8 years.

14


GRUBHUB INC.

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

 

Restricted Stock Units and Restricted Stock Awards

Non-vested restricted stock units as of December 31, 2016 and March 31, 2017, and changes during the three months ended March 31, 2017 were as follows:

 

 

 

Restricted Stock Units

 

 

 

Shares

 

 

Weighted-Average

Grant Date Fair

Value

 

Outstanding at December 31, 2016

 

 

1,516,354

 

 

$

28.46

 

Granted

 

 

1,288,932

 

 

 

36.76

 

Forfeited

 

 

(61,892

)

 

 

31.87

 

Vested

 

 

(243,278

)

 

 

25.44

 

Outstanding at March 31, 2017

 

 

2,500,116

 

 

$

32.95

 

 

During the three months ended March 31, 2017 and 2016, compensation expense related to restricted stock units was $4.3 million and $1.5 million, respectively. The aggregate fair value as of the vest date of restricted stock units that vested during the three months ended March 31, 2017 and 2016 was $9.5 million and $0.1 million, respectively. As of March 31, 2017, $76.7 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 2,500,116 non-vested restricted stock units with weighted-average grant date fair values of $32.95 is expected to be recognized over a weighted-average period of 3.5 years. The fair value of these awards was determined based on the Company’s stock price at the grant date and assumes no expected dividend payments through the vesting period.

Compensation expense recognized related to restricted stock awards was $1.7 million during the three months ended March 31, 2016. The aggregate fair value as of the vest date of restricted stock awards that vested during the three months ended March 31, 2016 was $1.7 million. As of March 31, 2017, there were no remaining non-vested restricted stock awards or related unrecognized compensation cost.

 

 

10. Income Taxes

As of March 31, 2017, the New York City Department of Finance is performing a routine examination of Seamless Holdings Corporation for General Corporation Tax for the short tax period from October 17, 2012 through August 8, 2013. The Company does not believe, but cannot predict with certainty whether, there will be any additional tax liabilities, penalties and/or interest as a result of the audit. 

 

 

11. Stockholders’ Equity

As of March 31, 2017 and December 31, 2016, the Company was authorized to issue two classes of stock: common stock and Series A Preferred Stock.

Common Stock

Each holder of common stock has one vote per share of common stock held on all matters that are submitted for stockholder vote. At March 31, 2017 and December 31, 2016, there were 500,000,000 shares of common stock authorized. At March 31, 2017 and December 31, 2016, there were 85,941,215 and 85,692,333 shares issued and outstanding, respectively. The Company did not hold any shares as treasury shares as of March 31, 2017 or December 31, 2016.

 

On January 22, 2016, the Company’s Board of Directors approved a program that authorizes the repurchase of up to $100 million of the Company’s common stock exclusive of any fees, commissions or other expenses relating to such repurchases through open market purchases or privately negotiated transactions at the prevailing market price at the time of purchase. The repurchase program was announced on January 25, 2016. The repurchased stock may be retired or held as authorized but unissued treasury shares. The repurchase authorizations do not obligate the Company to acquire any particular amount of common stock or adopt any particular method of repurchase and may be modified, suspended or terminated at any time at management’s discretion. Repurchased and retired shares will result in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share at the time of the transaction. During the three months ended March 31, 2017, the Company did not repurchase any shares of its common stock.

15


GRUBHUB INC.

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

 

Series A Preferred Stock

The Company was authorized to issue 25,000,000 shares of preferred stock. There were no issued or outstanding shares of preferred stock as of March 31, 2017 or December 31, 2016.

The Company’s equity as of December 31, 2016 and March 31, 2017, and changes during the three months ended March 31, 2017, were as follows:

 

 

 

(in thousands)

 

Balance at December 31, 2016

 

$

972,119

 

Net income

 

 

17,715

 

Cumulative effect of change in accounting principle(a)

 

 

2,650

 

Currency translation

 

 

107

 

Stock-based compensation

 

 

8,101

 

Shares repurchased and retired to satisfy tax withholding upon vesting

 

 

(3,688

)

Stock option exercises, net of withholdings and other

 

 

1,584

 

Balance at March 31, 2017

 

$

998,588

 

 

(a)

See Note 2, Significant Accounting Policies, for additional details related to the impact of the adoption of ASU 2016-09 during the three months ended March 31, 2017.

_________________________________________________________________________

 

 

 

 

12. Earnings Per Share Attributable to Common Stockholders

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing net income by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents, including stock options, restricted stock units and restricted stock awards, except in cases where the effect of the common stock equivalent would be antidilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options and vesting of restricted stock units and restricted stock awards using the treasury stock method. The calculation of weighted-average dilutive shares outstanding for the three months ended March 31, 2017 was impacted by the adoption of ASU 2016-09. See Note 2, Significant Accounting Policies, for additional details.

The following tables present the calculation of basic and diluted net income per share attributable to common stockholders for the three months ended March 31, 2017 and 2016:

 

Three Months Ended March 31, 2017

 

 

 

Three Months Ended March 31, 2016

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per  Share

Amount

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per  Share

Amount

 

 

(in thousands, except per share data)

 

Basic EPS