Attached files

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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_10.htm
EX-31.2 - EX-31.2 - GrubHub Inc.grub-ex312_9.htm
EX-31.1 - EX-31.1 - GrubHub Inc.grub-ex311_6.htm
EX-10.12 - EX-10.12 - GrubHub Inc.grub-ex1012_422.htm
EX-10.11 - EX-10.11 - GrubHub Inc.grub-ex1011_421.htm
EX-10.10 - EX-10.10 - GrubHub Inc.grub-ex1010_420.htm
EX-10.9 - EX-10.9 - GrubHub Inc.grub-ex109_419.htm
EX-10.8 - EX-10.8 - GrubHub Inc.grub-ex108_418.htm
EX-10.7 - EX-10.7 - GrubHub Inc.grub-ex107_417.htm
EX-10.2 - EX-10.2 - GrubHub Inc.grub-ex102_288.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, 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 November 3, 2017, 86,694,544 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, 2017 and December 31, 2016

3

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016

4

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

4

 

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

22

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4:

Controls and Procedures

33

PART II

 

OTHER INFORMATION

 

Item 1:

Legal Proceedings

34

Item 1A:

Risk Factors

34

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3:

Defaults Upon Senior Securities

34

Item 4:

Mine Safety Disclosures

34

Item 5:

Other Information

34

Item 6:

Exhibits

36

Signatures

38

 

 

 

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, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

265,958

 

 

$

239,528

 

Short term investments

 

 

65,650

 

 

 

84,091

 

Accounts receivable, less allowances for doubtful accounts

 

 

73,745

 

 

 

60,550

 

Prepaid expenses and other current assets

 

 

9,430

 

 

 

12,168

 

Total current assets

 

 

414,783

 

 

 

396,337

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation and amortization

 

 

62,225

 

 

 

46,555

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Other assets

 

 

4,130

 

 

 

4,530

 

Goodwill

 

 

454,557

 

 

 

436,455

 

Acquired intangible assets, net of amortization

 

 

360,549

 

 

 

313,630

 

Total other assets

 

 

819,236

 

 

 

754,615

 

TOTAL ASSETS

 

$

1,296,244

 

 

$

1,197,507

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Restaurant food liability

 

$

89,021

 

 

$

83,349

 

Accounts payable

 

 

11,869

 

 

 

7,590

 

Accrued payroll

 

 

9,223

 

 

 

7,338

 

Taxes payable

 

 

244

 

 

 

865

 

Other accruals

 

 

23,211

 

 

 

11,348

 

Total current liabilities

 

 

133,568

 

 

 

110,490

 

LONG TERM LIABILITIES:

 

 

 

 

 

 

 

 

Deferred taxes, non-current

 

 

103,210

 

 

 

108,022

 

Other accruals

 

 

6,511

 

 

 

6,876

 

Total long term liabilities

 

 

109,721

 

 

 

114,898

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of September 30, 2017 and December 31, 2016; issued and outstanding: no shares as of September 30, 2017 and December 31, 2016.

 

 

 

 

 

 

Common stock, $0.0001 par value. Authorized: 500,000,000 shares at September 30, 2017 and December 31, 2016; issued and outstanding: 86,558,223 and 85,692,333 shares as of September 30, 2017 and December 31, 2016, respectively

 

 

9

 

 

 

9

 

Accumulated other comprehensive loss

 

 

(1,329

)

 

 

(2,078

)

Additional paid-in capital

 

 

837,711

 

 

 

805,731

 

Retained earnings

 

 

216,564

 

 

 

168,457

 

Total Stockholders’ Equity

 

$

1,052,955

 

 

$

972,119

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,296,244

 

 

$

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

September 30,

 

 

Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

$

163,059

 

 

$

123,461

 

 

$

477,987

 

 

$

355,874

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations and support

 

65,352

 

 

 

44,346

 

 

 

187,795

 

 

 

120,029

 

Sales and marketing

 

35,138

 

 

 

26,499

 

 

 

105,346

 

 

 

80,687

 

Technology (exclusive of amortization)

 

14,292

 

 

 

11,006

 

 

 

41,560

 

 

 

31,765

 

General and administrative

 

18,244

 

 

 

11,754

 

 

 

45,719

 

 

 

37,501

 

Depreciation and amortization

 

12,613

 

 

 

9,089

 

 

 

33,067

 

 

 

25,282

 

Total costs and expenses

 

145,639

 

 

 

102,694

 

 

 

413,487

 

 

 

295,264

 

Income before provision for income taxes

 

17,420

 

 

 

20,767

 

 

 

64,500

 

 

 

60,610

 

Provision for income taxes

 

4,432

 

 

 

7,585

 

 

 

19,043

 

 

 

24,690

 

Net income attributable to common stockholders

$

12,988

 

 

$

13,182

 

 

$

45,457

 

 

$

35,920

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.15

 

 

$

0.15

 

 

$

0.53

 

 

$

0.42

 

Diluted

$

0.15

 

 

$

0.15

 

 

$

0.52

 

 

$

0.42

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

86,449

 

 

 

85,217

 

 

 

86,162

 

 

 

84,889

 

Diluted

 

88,543

 

 

 

86,424

 

 

 

87,788

 

 

 

85,957

 

 

 

 

 

 

 

 

GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(UNAUDITED)

 

 

Three Months Ended

September 30,

 

 

 

Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

 

2017

 

 

2016

 

Net income

$

12,988

 

 

$

13,182

 

 

 

$

45,457

 

 

$

35,920

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

299

 

 

 

(245

)

 

 

 

749

 

 

 

(1,037

)

COMPREHENSIVE INCOME

$

13,287

 

 

$

12,937

 

 

 

$

46,206

 

 

$

34,883

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

45,457

 

 

$

35,920

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

7,949

 

 

 

5,567

 

Provision for doubtful accounts

 

 

338

 

 

 

719

 

Deferred taxes

 

 

(2,162

)

 

 

(1,908

)

Amortization of intangible assets

 

 

25,118

 

 

 

19,715

 

Stock-based compensation

 

 

23,913

 

 

 

17,755

 

Deferred rent

 

 

130

 

 

 

980

 

Investment premium amortization

 

 

(624

)

 

 

(406

)

Other

 

 

150

 

 

 

114

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(12,108

)

 

 

(22,299

)

Prepaid expenses and other assets

 

 

2,790

 

 

 

(2,874

)

Restaurant food liability

 

 

4,591

 

 

 

11,361

 

Accounts payable

 

 

2,965

 

 

 

(4,592

)

Accrued payroll

 

 

1,575

 

 

 

582

 

Other accruals

 

 

6,351

 

 

 

1,799

 

Net cash provided by operating activities

 

 

106,433

 

 

 

62,433

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(145,667

)

 

 

(187,456

)

Proceeds from maturity of investments

 

 

164,733

 

 

 

210,567

 

Capitalized website and development costs

 

 

(15,281

)

 

 

(8,859

)

Purchases of property and equipment

 

 

(12,549

)

 

 

(17,083

)

Acquisitions of businesses, net of cash acquired

 

 

(51,859

)

 

 

(65,849

)

Acquisition of other intangible assets

 

 

(25,147

)

 

 

(250

)

Other cash flows from investing activities

 

 

589

 

 

 

(540

)

Net cash used in investing activities

 

 

(85,181

)

 

 

(69,470

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

 

 

 

(14,774

)

Proceeds from exercise of stock options

 

 

12,505

 

 

 

11,814

 

Excess tax benefits related to stock-based compensation

 

 

 

 

 

22,114

 

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

 

 

(7,696

)

 

 

(1,205

)

Payments for debt issuance costs

 

 

(285

)

 

 

(1,477

)

Net cash provided by financing activities

 

 

4,524

 

 

 

16,472

 

Net change in cash and cash equivalents

 

 

25,776

 

 

 

9,435

 

Effect of exchange rates on cash

 

 

654

 

 

 

(890

)

Cash and cash equivalents at beginning of year

 

 

239,528

 

 

 

169,293

 

Cash and cash equivalents at end of the period

 

$

265,958

 

 

$

177,838

 

SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

16,340

 

 

$

5,757

 

Capitalized property, equipment and website and development costs in

   accounts payable at period end

 

 

1,048

 

 

 

5,911

 

Net working capital adjustment receivable

 

 

887

 

 

 

 

 

(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 and nine months ended September 30, 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 nine months ended September 30, 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 May 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. ASU 2017-09 will be effective for the Company beginning in the first quarter of 2018 on a prospective basis and early adoption is permitted. The adoption of ASU 2017-09 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. 2017-04, “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

6


GRUBHUB INC.

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

 

amount exceeds its fair value, not to exceed the carrying amount of goodwill. The Company elected to early adopt ASU 2017-04 beginning in the first quarter of 2017 and will apply the standard prospectively. The Company performed its annual goodwill impairment test as of September 30th and found no indicators of impairment, therefore no goodwill impairment charge was recognized. The adoption of ASU 2017-04 may reduce the cost and complexity of evaluating goodwill for impairment, but has not had, 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 elected 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. The Company evaluated current year transactions under the guidance set forth by ASU 2017-01. See Note 3, Acquisitions, and Note 5, Goodwill and Acquired Intangible Assets, for details of the Company’s business combinations and other acquired assets during the nine months ended September 30, 2017. 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 and nine months ended September 30, 2017, the Company recognized excess tax benefits from stock-based compensation of $2.2 million and $5.7 million, respectively, 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 as of January 1, 2017.

7


GRUBHUB INC.

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

 

 

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 and nine months ended September 30, 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 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.

 

 

8


GRUBHUB INC.

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

 

3. Acquisitions

2017 Acquisition

On August 23, 2017, the Company acquired substantially all of the assets and certain expressly specified liabilities of A&D Network Solutions, Inc. and Dashed, Inc. (collectively, “Foodler”). The purchase price for Foodler was $51.0 million in cash, net of a net working capital adjustment receivable of $0.9 million and cash acquired of $0.1 million. Foodler is an independent online food-ordering company with an established diner base in the Northeast United States. The acquisition has expanded the breadth and depth of the Company’s network of restaurant partners, active diners and delivery networks.

The results of operations of Foodler have been included in the Company’s financial statements since August 23, 2017, but did not have a material impact on the Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2017.

The excess of the consideration transferred in the acquisition over the net amounts assigned to the fair value of the assets was recorded as goodwill, which represents the value of increasing the breadth and depth of the Company’s network of restaurants and diners as well as expanded restaurant delivery services. The goodwill related to this acquisition of $18.1 million is expected to be deductible for income tax purposes.

The assets acquired and liabilities assumed of Foodler were recorded at their estimated fair values as of the closing date of August 23, 2017. The following table summarizes the preliminary purchase price allocation acquisition-date fair values of the assets and liabilities acquired in connection with the Foodler acquisition:

 

 

(in thousands)

 

Cash and cash equivalents

$

86

 

Accounts receivable

 

307

 

Restaurant relationships

 

35,217

 

Diner acquisition

 

1,354

 

Developed technology

 

1,955

 

Goodwill

 

18,102

 

Trademarks

 

74

 

Accounts payable and accrued expenses

 

(6,037

)

Total purchase price plus cash acquired

 

51,058

 

Net working capital adjustment receivable

 

887

 

Cash acquired

 

(86

)

Net cash paid

$

51,859

 

 

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.

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 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

 

Restaurant 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 restaurant relationships, diner acquisition, 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 and diner acquisition. The income approach, specifically the multi-period excess earnings method, was used to value the 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, 2017 and 2016 of $1.7 million and $0.2 million, respectively, and for the nine months ended September 30, 2017 and 2016 of $3.6 million and $1.7 million, respectively.

Pro Forma

The pro forma effects of the Foodler acquisition would not have been material to the Company’s results of operations and are therefore not presented. 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 as if the LABite acquisition had occurred as of January 1 of the year prior to acquisition:

 

 

 

 

 

 

 

 

Three Months Ended

September 30, 2016

 

 

Nine Months Ended

September 30, 2016

 

 

(in thousands, except per share data)

 

Revenues

$

123,461

 

 

$

364,834

 

Net income

 

13,334

 

 

 

34,897

 

Net income per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.41

 

Diluted

$

0.15

 

 

$

0.41

 

 

10


GRUBHUB INC.

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

 

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

 

 

 

 

 

 

 

 

Three Months Ended

September 30, 2016

 

 

Nine Months Ended

September 30, 2016

 

 

(in thousands)

 

Depreciation and amortization

$

 

 

$

1,364

 

Transaction costs

 

(255

)

 

 

(1,729

)

Income tax expense

 

104

 

 

 

151

 

 

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 September 30, 2017 and December 31, 2016 were as follows:

 

 

 

September 30, 2017

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

7,999

 

 

$

 

 

$

(22

)

 

$

7,977

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

54,275

 

 

 

 

 

 

(187

)

 

 

54,088

 

Corporate bonds

 

 

11,375

 

 

 

1

 

 

 

 

 

 

11,376

 

Total

 

$

73,649

 

 

$

1

 

 

$

(209

)

 

$

73,441

 

 

 

 

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 September 30, 2017. Approximately $80 million of the Company’s marketable securities matured during the nine months ended September 30, 2017, which was invested in money market funds as of September 30, 2017. See Note 13, Fair Value Measurement, for additional details.

11


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, 2017 and December 31, 2016 were as follows:

 

 

 

September 30, 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

 

$

62,065

 

 

$

(209

)

 

$

 

 

$

 

 

$

62,065

 

 

$

(209

)

Total

 

$

62,065

 

 

$

(209

)

 

$

 

 

$

 

 

$

62,065

 

 

$

(209

)

 

 

 

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

)

 

The Company recognized interest income in general and administrative expenses within the condensed consolidated statements of operations during the three months ended September 30, 2017 and 2016 of $0.5 million and $0.4 million, respectively, and for the nine months ended September 30, 2017 and 2016 of $1.5 million and $0.9 million, respectively. During the three and nine months ended September 30, 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 September 30, 2017 and December 31, 2016 were as follows:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Restaurant relationships

 

$

331,348

 

 

$

(70,530

)

 

$

260,818

 

 

$

279,651

 

 

$

(57,765

)

 

$

221,886

 

Developed technology

 

 

7,919

 

 

 

(6,726

)

 

 

1,193

 

 

 

10,640

 

 

 

(9,575

)

 

 

1,065

 

Diner acquisition

 

 

5,021

 

 

 

(64

)

 

 

4,957

 

 

 

 

 

 

 

 

 

 

Trademarks

 

 

74

 

 

 

(48

)

 

 

26

 

 

 

969

 

 

 

(582

)

 

 

387

 

Other

 

 

7,770

 

 

 

(3,891

)

 

 

3,879

 

 

 

3,350

 

 

 

(2,734

)

 

 

616

 

Total amortizable intangible assets

 

 

352,132

 

 

 

(81,259

)

 

 

270,873

 

 

 

294,610

 

 

 

(70,656

)

 

 

223,954

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

441,808

 

 

$

(81,259

)

 

$

360,549

 

 

$

384,286

 

 

$

(70,656

)

 

$

313,630

 

 

The gross carrying amount and accumulated amortization of the Company’s developed technology, trademark and other intangible assets as of September 30, 2017 were adjusted by $6.2 million for certain fully amortized assets that were no longer in use.

Amortization expense for acquired intangible assets was $6.4 million and $5.4 million for the three months ended September 30, 2017 and 2016, respectively, and $16.8 million and $16.1 million for the nine months ended September 30, 2017 and 2016, respectively.

12


GRUBHUB INC.

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

 

Changes in the carrying amount of goodwill during the nine months ended September 30, 2017 were as follows:

 

 

Goodwill

 

 

Accumulated Impairment Losses

 

 

Net Book Value

 

 

 

(in thousands)

 

Balance as of December 31, 2016

 

 

436,455

 

 

 

 

 

 

436,455

 

Acquisitions

 

 

18,102

 

 

 

 

 

 

18,102

 

Balance as of September 30, 2017

 

$

454,557

 

 

$

 

 

$

454,557

 

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.

 In July of 2017, the Company announced that it had entered into a definitive agreement to acquire certain assets of OrderUp, Inc. (“OrderUp”), a wholly-owned subsidiary of Groupon, Inc. OrderUp provides online and mobile food ordering for restaurants across the United States.

During the nine months ended September 30, 2017, the Company recorded additions to acquired intangible assets of $63.7 million as a result of the acquisition of Foodler, the acquisition of certain assets of OrderUp and payments made to Zoomer. The components of the acquired intangible assets added during the nine months ended September 30, 2017 were as follows:

 

 

Nine Months Ended September 30, 2017

 

 

 

Amount

 

 

Weighted-Average

Amortization

Period

 

 

 

(in thousands)

 

 

(years)

 

Restaurant relationships

 

$

51,697

 

 

 

19.4

 

Diner acquisition

 

 

5,021

 

 

 

5.0

 

Developed technology

 

 

1,955

 

 

 

0.2

 

Trademarks

 

 

74

 

 

 

0.2

 

Other

 

 

5,000

 

 

 

2.8

 

Total

 

$

63,747

 

 

 

 

 

 

Estimated future amortization expense of acquired intangible assets as of September 30, 2017 was as follows:

 

 

 

(in thousands)

 

The remainder of 2017

 

$

6,355

 

2018

 

 

22,539

 

2019

 

 

20,421

 

2020

 

 

18,652

 

2021

 

 

18,652

 

Thereafter

 

 

184,254

 

Total

 

$

270,873

 

 

 

6. Property and Equipment

The components of the Company’s property and equipment as of September 30, 2017 and December 31, 2016 were as follows:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

(in thousands)

 

Computer equipment

 

$

25,446

 

 

$

17,548

 

Furniture and fixtures

 

 

5,950

 

 

 

4,842

 

Developed software

 

 

44,934

 

 

 

26,460

 

Purchased software and digital assets

 

 

2,436

 

 

 

1,360

 

Leasehold improvements

 

 

21,414

 

 

 

19,038

 

Property and equipment

 

 

100,180