Attached files

file filename
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_9.htm
EX-31.1 - EX-31.1 - GrubHub Inc.grub-ex311_6.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 June 30, 2018

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 August 3, 2018, 90,461,908 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 June 30, 2018 and December 31, 2017

3

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017

4

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017

4

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

5

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2:

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

21

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4:

Controls and Procedures

32

PART II

 

OTHER INFORMATION

 

Item 1:

Legal Proceedings

32

Item 1A:

Risk Factors

32

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3:

Defaults Upon Senior Securities

33

Item 4:

Mine Safety Disclosures

33

Item 5:

Other Information

33

Item 6:

Exhibits

34

Signatures

35

 

 

 

2


Part I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

GRUBHUB INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(UNAUDITED)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

442,678

 

 

$

234,090

 

Short-term investments

 

 

38,969

 

 

 

23,605

 

Accounts receivable, less allowances for doubtful accounts

 

 

98,254

 

 

 

95,970

 

Prepaid expenses and other current assets

 

 

12,120

 

 

 

6,818

 

Total current assets

 

 

592,021

 

 

 

360,483

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation and amortization

 

 

89,208

 

 

 

71,384

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Other assets

 

 

9,177

 

 

 

6,487

 

Goodwill

 

 

589,862

 

 

 

589,862

 

Acquired intangible assets, net of amortization

 

 

494,484

 

 

 

515,553

 

Total other assets

 

 

1,093,523

 

 

 

1,111,902

 

TOTAL ASSETS

 

$

1,774,752

 

 

$

1,543,769

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Restaurant food liability

 

$

110,011

 

 

$

119,922

 

Accounts payable

 

 

8,829

 

 

 

7,607

 

Accrued payroll

 

 

11,223

 

 

 

13,186

 

Taxes payable

 

 

1,203

 

 

 

3,109

 

Short-term debt

 

 

5,469

 

 

 

3,906

 

Other accruals

 

 

35,782

 

 

 

26,818

 

Total current liabilities

 

 

172,517

 

 

 

174,548

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Deferred taxes, non-current

 

 

70,983

 

 

 

74,292

 

Other accruals

 

 

18,246

 

 

 

7,468

 

Long-term debt

 

 

116,598

 

 

 

169,645

 

Total long-term liabilities

 

 

205,827

 

 

 

251,405

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of June 30, 2018 and December 31, 2017; issued and outstanding: no shares as of June 30, 2018 and December 31, 2017.

 

 

 

 

 

 

Common stock, $0.0001 par value. Authorized: 500,000,000 shares at June 30, 2018 and December 31, 2017; issued and outstanding: 90,337,427 and 86,790,624 shares as of June 30, 2018 and December 31, 2017, respectively

 

 

9

 

 

 

9

 

Accumulated other comprehensive loss

 

 

(1,528

)

 

 

(1,228

)

Additional paid-in capital

 

 

1,066,167

 

 

 

849,043

 

Retained earnings

 

 

331,760

 

 

 

269,992

 

Total Stockholders’ Equity

 

$

1,396,408

 

 

$

1,117,816

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,774,752

 

 

$

1,543,769

 

 

 

 

 

 

 

 

(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 June 30,

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

$

239,741

 

 

$

158,794

 

 

$

472,311

 

 

$

314,928

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations and support

 

102,445

 

 

 

62,924

 

 

 

198,728

 

 

 

122,443

 

Sales and marketing

 

46,231

 

 

 

34,770

 

 

 

94,987

 

 

 

70,208

 

Technology (exclusive of amortization)

 

18,717

 

 

 

14,076

 

 

 

36,048

 

 

 

27,268

 

General and administrative

 

18,180

 

 

 

14,829

 

 

 

35,877

 

 

 

28,010

 

Depreciation and amortization

 

19,849

 

 

 

10,414

 

 

 

40,800

 

 

 

20,454

 

Total costs and expenses

 

205,422

 

 

 

137,013

 

 

 

406,440

 

 

 

268,383

 

Income from operations

 

34,319

 

 

 

21,781

 

 

 

65,871

 

 

 

46,545

 

Interest (income) expense - net

 

8

 

 

 

(314

)

 

 

1,030

 

 

 

(535

)

Income before provision for income taxes

 

34,311

 

 

 

22,095

 

 

 

64,841

 

 

 

47,080

 

Income tax expense

 

4,191

 

 

 

7,341

 

 

 

3,955

 

 

 

14,611

 

Net income attributable to common stockholders

$

30,120

 

 

$

14,754

 

 

$

60,886

 

 

$

32,469

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.34

 

 

$

0.17

 

 

$

0.69

 

 

$

0.38

 

Diluted

$

0.33

 

 

$

0.17

 

 

$

0.67

 

 

$

0.37

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

89,503

 

 

 

86,162

 

 

 

88,294

 

 

 

86,018

 

Diluted

 

92,503

 

 

 

87,700

 

 

 

91,297

 

 

 

87,410

 

 

 

 

 

 

 

 

GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(UNAUDITED)

 

 

Three Months Ended June 30,

 

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

 

2018

 

 

2017

 

Net income

$

30,120

 

 

$

14,754

 

 

 

$

60,886

 

 

$

32,469

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(656

)

 

 

343

 

 

 

 

(300

)

 

 

450

 

COMPREHENSIVE INCOME

$

29,464

 

 

$

15,097

 

 

 

$

60,586

 

 

$

32,919

 

 

 

 

 

 

 

 

 

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

 

4


GRUBHUB INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

60,886

 

 

$

32,469

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

10,526

 

 

 

5,092

 

Provision for doubtful accounts

 

 

301

 

 

 

148

 

Deferred taxes

 

 

(3,308

)

 

 

(6,780

)

Amortization of intangible assets

 

 

30,274

 

 

 

15,362

 

Stock-based compensation

 

 

22,170

 

 

 

15,438

 

Deferred rent

 

 

2,877

 

 

 

43

 

Amortization of deferred loan costs

 

 

460

 

 

 

240

 

Other

 

 

(596

)

 

 

(554

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,770

 

 

 

784

 

Prepaid expenses and other assets

 

 

(8,446

)

 

 

3,323

 

Restaurant food liability

 

 

(9,870

)

 

 

(1,690

)

Accounts payable

 

 

(107

)

 

 

(978

)

Accrued payroll

 

 

(1,961

)

 

 

396

 

Other accruals

 

 

7,041

 

 

 

4,365

 

Net cash provided by operating activities

 

 

116,017

 

 

 

67,658

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(44,271

)

 

 

(110,108

)

Proceeds from maturity of investments

 

 

29,116

 

 

 

114,303

 

Capitalized website and development costs

 

 

(13,145

)

 

 

(9,576

)

Purchases of property and equipment

 

 

(19,266

)

 

 

(7,291

)

Acquisitions of businesses, net of cash acquired

 

 

737

 

 

 

 

Acquisition of other intangible assets

 

 

 

 

 

(5,000

)

Other cash flows from investing activities

 

 

24

 

 

 

492

 

Net cash used in investing activities

 

 

(46,805

)

 

 

(17,180

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock

 

 

200,000

 

 

 

 

Repayments of borrowings under the credit facility

 

 

(51,562

)

 

 

 

Proceeds from exercise of stock options

 

 

9,958

 

 

 

8,308

 

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

 

 

(18,717

)

 

 

(5,523

)

Net cash provided by financing activities

 

 

139,679

 

 

 

2,785

 

Net change in cash, cash equivalents, and restricted cash

 

 

208,891

 

 

 

53,263

 

Effect of exchange rates on cash, cash equivalents and restricted cash

 

 

(318

)

 

 

413

 

Cash, cash equivalents, and restricted cash at beginning of year

 

 

238,239

 

 

 

242,214

 

Cash, cash equivalents, and restricted cash at end of the period

 

$

446,812

 

 

$

295,890

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

7,426

 

 

$

13,805

 

Capitalized property, equipment and website and development costs in accounts payable at period end

 

 

1,430

 

 

 

1,493

 

RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

442,678

 

 

$

293,269

 

Restricted cash included in prepaid expenses and other current assets

 

 

1,500

 

 

 

 

Restricted cash included in other assets

 

 

2,634

 

 

 

2,621

 

Total cash, cash equivalents, and restricted cash

 

$

446,812

 

 

$

295,890

 

(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 and Principles of Consolidation

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, 2017 filed with the SEC on February 28, 2018 (the “2017 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018.

On January 1, 2018, the Company adopted Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting guidance under ASC Topic 605. See Recently Issued Accounting Pronouncements and Note 3, Revenue, below for additional details.

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 six months ended June 30, 2018 related to revenue and the statement of cash flows. There have been no other material changes to the Company’s significant accounting policies described in the 2017 Form 10-K.

Recently Issued Accounting Pronouncements

In May 2017, 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 is effective for the Company beginning in the first quarter of 2018 on a prospective basis. The adoption of ASU 2017-09 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 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

6


GRUBHUB INC.

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

 

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 were effective for and adopted by the Company beginning in the first quarter of 2018. The amendments were applied using a retrospective transition method to each period presented and impacted the Company’s presentation of the consolidated statements of cash flows. The adoption of ASU 2016-15 and ASU 2016-18 had no material impact on the Company’s consolidated financial position, results of operations or cash flows as the Company’s restricted cash balances are immaterial.

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 in 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 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. In July 2018, the FASB issued Accounting Standards Update No. 2018-11 “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), which provides for the election of transition methods between the modified retrospective method and the optional transition relief method. The modified retrospective method is applied to all prior reporting periods presented with a cumulative-effect adjustment recorded in the earliest comparative period while the optional transition relief method is applied beginning in the period of adoption with a cumulative-effect adjustment recorded in the first quarter of 2019. The Company is currently evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements and the method of adoption under ASU 2018-11. Management anticipates that it will result in a significant increase in the Company’s long-term assets and liabilities but will have no material impact to its results of operations and cash flows.     

In May 2014, and in subsequent updates, the FASB issued ASC Topic 606, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASC Topic 606 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. ASC Topic 606 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASC Topic 606 was effective for and adopted by the Company in the first quarter of 2018. The Company applied the modified retrospective approach to contracts which were not completed as of January 1, 2018. The adoption of these ASUs 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 or its business processes, systems and controls.

The adoption of ASC Topic 606 resulted in an increase in revenues of $0.2 million and $0.8 million for the three and six months ended June 30, 2018, respectively, and primarily had the following impact on the Company’s financial statements:

 

Beginning in January 1, 2018, the Company defers the incremental costs of obtaining contracts as contract acquisition assets resulting in a net decrease of $2.7 million and $4.6 million in sales and marketing expense in the condensed consolidated statements of operations for the three and six months ended June 30, 2018, respectively, and corresponding increase in other assets on the condensed consolidated balance sheets. Contract acquisition assets are amortized to sales and marketing expense in the consolidated statements of operations over the period in which services are expected to be provided to the customer, which is estimated to be approximately 4 years. Prior to the adoption of ASC Topic 606, the cost of obtaining a contract was recognized as it was incurred.

 

Beginning in the first quarter of 2018, the Company recognizes revenue from estimated unredeemed gift cards that are not subject to unclaimed property laws over the expected customer redemption period, rather than when the likelihood of redemption became remote. The Company recorded a cumulative-effect adjustment to opening retained earnings as of January 1, 2018 of $0.9 million related to unredeemed gift cards, breakage income of $0.2 million and $0.6 million in revenues in the condensed consolidated statements of operations during the three and six months ended June 30, 2018, respectively, and a corresponding decrease in other accruals of $1.5 million on the condensed consolidated balance sheets.

7


GRUBHUB INC.

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

 

 

Changes in the timing of revenue recognition under ASC Topic 606 related to incentives, refunds and adjustments also resulted in a $0.2 million increase in revenues in the condensed consolidated statements of operations during the six months ended June 30, 2018. The related change in revenues during the three months ended June 30, 2018 was de minimis.

 

The adoption of ASC Topic 606 had no impact to the Company’s total net cash provided by or used in operations, investing or financing activities within the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2018.

See Note 3, Revenue, for additional details.

 

3. Revenue

Revenues are recognized when control of the promised goods or services is transferred to the customer, in the amount that reflects the consideration the Company expects to receive in exchange for those good or services.

The Company generates revenues primarily when diners place an order on the platform through its mobile applications, its websites, or through third-party websites that incorporate the Company’s API or one of the Company’s listed phone numbers. Restaurants pay a commission, typically a percentage of the transaction, on orders that are processed through the platform. Most of the restaurants on the Company’s platform can choose their level of commission rate, at or above a base rate. A restaurant can choose to pay a higher rate that affects its prominence and exposure to diners on the platform. Additionally, restaurants that use the Company’s delivery services pay an additional commission for the use of those services. The Company may also charge a delivery fee directly to the diner.

Revenues from online and phone pick-up and delivery orders are recognized when the orders are transmitted to the restaurants, including revenues for managed delivery services due to the simultaneous nature of the Company’s delivery operations. The amount of revenue recognized by the Company is based on the arrangement with the related restaurant and is adjusted for any expected refunds or adjustments based on historical experience and any cash credits related to the transaction, including incentive offers provided to restaurants and diners. The Company also recognizes as revenue any fees charged to the diner for delivery services provided by the Company. Although the Company processes and collects the entire amount of the transaction with the diner, it records revenue for transmitting orders to restaurants on a net basis because the Company is acting as an agent for takeout orders, which are prepared by the restaurants. The Company is the principal in the transaction with respect to credit card processing and managed delivery services because it controls the respective services. As a result, costs incurred for processing the credit card transactions and providing delivery services are included in operations and support expense in the consolidated statements of operations.

The Company periodically provides incentive offers to restaurants and diners to use our platform. These promotions are generally cash credits to be applied against purchases. These incentive offers are recorded as a reduction in revenues, generally on the date the corresponding order revenue is recognized. For those incentives related to current orders that create an obligation to discount future orders, the Company allocates the incentives that are expected to be redeemed proportionally to current and future orders based on their relative expected transaction prices.  

For most orders, diners use a credit card to pay for their meal when the order is placed. For these transactions, the Company collects the total amount of the diner’s order net of payment processing fees from the payment processor and remits the net proceeds to the restaurant less commission. The Company generally accumulates funds and remits the net proceeds to the restaurants on at least a monthly basis, depending on the payment terms with the restaurant. The Company also accepts payment for orders via gift cards offered on its platform. For gift cards that are not subject to unclaimed property laws, the Company recognizes revenue from estimated unredeemed gift cards, based on its historical breakage experience, over the expected customer redemption period.

Certain governmental taxes are imposed on the products and services provided through the Company’s platform and are included in the order fees charged to the diner and collected by the Company. Sales taxes are either remitted to the restaurant for payment or are paid directly to certain states. These fees are recorded on a net basis, and, as a result, are excluded from revenues.

The Company also generates a small amount of revenues directly from companies that participate in our corporate ordering program and by selling advertising to third parties on our allmenus.com and MenuPages.com websites. The Company does not anticipate that the foregoing will generate a material portion of our revenues in the foreseeable future.

Accounts Receivable

Accounts receivable primarily represent the net cash due from the Company’s payment processor for cleared transactions and amounts owed from corporate customers, which are generally invoiced on a monthly basis. The carrying amount of the Company’s receivables is reduced by an allowance for doubtful accounts that reflects management’s best estimate of amounts that will not be collected based on historical loss experience and any current or forecasted specific risks.

Deferred Revenues

8


GRUBHUB INC.

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

 

The Company’s deferred revenues consist primarily of gift card liabilities and certain incentive liabilities. These amounts are included within other accruals on the consolidated balance sheets and are not material to the Company’s consolidated financial position. The majority of gift cards and incentives issued by the Company are redeemed within a year.

Contract Acquisition Costs

The Company defers the incremental costs of obtaining contracts including certain commissions and bonuses and related payroll taxes as contract acquisition assets within other assets on the consolidated balance sheets. Contract acquisition assets are amortized using the straight-line method to sales and marketing expense in the consolidated statements of operations over the useful life of the contract, which is estimated to be approximately 4 years. During the three and six months ended June 30, 2018, the Company deferred $2.8 million and $4.9 million, respectively, of contract acquisitions costs. During the three and six months ended June 30, 2018, the Company amortized $0.2 million and $0.3 million, respectively, of related expense.

 

4. Acquisitions

There were no acquisitions during the six months ended June 30, 2018.  

2017 Acquisitions

On October 10, 2017, the Company acquired all of the issued and outstanding equity interests of Eat24, LLC (“Eat24”), a wholly owned subsidiary of Yelp Inc., for approximately $281.8 million, including $281.4 million in net cash paid and $0.3 million of other non-cash consideration. Of such amount, $28.8 million will be held in escrow for an 18-month period after closing to secure the Company’s indemnification rights under the purchase agreement. Eat24 provides online and mobile food ordering for restaurants and diners across the United States. The acquisition expanded the breadth and depth of the Company’s national network of restaurant partners and active diners.

The Company granted RSU awards to acquired Eat24 employees in replacement of their unvested equity awards as of the closing date. Approximately $0.3 million of the fair value of the replacement RSU awards granted to acquired Eat24 employees was attributable to the pre-combination services of the Eat24 awardees and was included in the $281.8 million purchase price. This amount is reflected within goodwill in the purchase price allocation. As of the acquisition date, post-combination expense of approximately $4.1 million is expected to be recognized related to the replacement awards over the remaining post-combination service period.

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 $51.2 million in cash, net of 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 expanded the breadth and depth of the Company’s restaurant network, active diners and delivery network.

The results of operations of Eat24 and Foodler have been included in the Company’s financial statements since October 10, 2017 and August 23, 2017, respectively.

The excess of the consideration transferred in the acquisitions over the net amounts assigned to the fair value of the assets were recorded as goodwill, which represents the value of increasing the breadth and depth of the Company’s network of restaurants and diners. The total goodwill related to the acquisitions of Eat24 and Foodler of $153.4 million is expected to be deductible for income tax purposes.

9


GRUBHUB INC.

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

 

The assets acquired and liabilities assumed of Eat24 and Foodler were recorded at their estimated fair values as of the respective closing dates of October 10, 2017 and August 23, 2017. The following table summarizes the final purchase price allocation acquisition-date fair values of the assets and liabilities acquired in connection with the Eat24 and Foodler acquisitions:

 

Eat24

 

 

Foodler

 

 

Total

 

 

(in thousands)

 

Cash

$

40

 

 

$

86

 

 

$

126

 

Accounts receivable

 

8,267

 

 

 

307

 

 

 

8,574

 

Prepaid expenses and other current assets

 

221

 

 

 

 

 

 

221

 

Property and equipment

 

1,113

 

 

 

 

 

 

1,113

 

Restaurant relationships

 

126,232

 

 

 

35,217

 

 

 

161,449

 

Diner acquisition

 

35,226

 

 

 

1,354

 

 

 

36,580

 

Trademarks

 

2,225

 

 

 

74

 

 

 

2,299

 

Developed technology

 

2,559

 

 

 

1,955

 

 

 

4,514

 

Goodwill

 

135,955

 

 

 

17,452

 

 

 

153,407

 

Accounts payable and accrued expenses

 

(30,082

)

 

 

(5,237

)

 

 

(35,319

)

Total purchase price plus cash acquired

 

281,756

 

 

 

51,208

 

 

 

332,964

 

Fair value of replacement RSUs attributable to pre-combination service

 

(274

)

 

 

 

 

 

(274

)

Cash acquired

 

(40

)

 

 

(86

)

 

 

(126

)

Net cash paid

$

281,442

 

 

$

51,122

 

 

$

332,564

 

 

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 June 30, 2018 and 2017 of $1.2 million and $1.5 million, respectively, and for the six months ended June 30, 2018 and 2017 of $2.5 million and $1.9 million, respectively.

Pro Forma

The following unaudited pro forma information presents a summary of the operating results of the Company for the three and six months ended June 30, 2017 as if the acquisitions of Eat24 and Foodler had occurred as of January 1 of the year prior to acquisition:

 

 

 

 

 

Three Months Ended

June 30, 2017

 

 

Six Months Ended

June 30, 2017

 

 

(in thousands, except per share data)

 

Revenues

$

180,854

 

 

$

358,504

 

Net income

 

9,740

 

 

 

21,866

 

Net income per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic

$

0.11

 

 

$

0.25

 

Diluted

$

0.11

 

 

$

0.25

 

 

The pro forma adjustments that reflect the amortization that would have been recognized for intangible assets, elimination of transaction costs incurred, stock-based compensation expense for replacement awards, interest expense for transaction financings and other adjustments, as well as the pro forma tax impact of such adjustments for the three and six months ended June 30, 2017 were as follows:

 

10


GRUBHUB INC.

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

 

 

Three Months Ended

June 30, 2017

 

 

Six Months Ended

June 30, 2017

 

 

(in thousands)

 

Depreciation and amortization

$

2,743

 

 

$

6,366

 

Transaction costs

 

(725

)

 

 

(1,134

)

Stock-based compensation

 

(756

)

 

 

(1,382

)

Interest expense

 

1,214

 

 

 

2,431

 

Other

 

1,463

 

 

 

2,830

 

Income tax benefit

 

(1,635

)

 

 

(3,781

)

 

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

 

 

5. Marketable Securities

The amortized cost, unrealized gains and losses and estimated fair value of the Company’s held-to-maturity marketable securities as of June 30, 2018 and December 31, 2017 were as follows:

 

 

 

June 30, 2018

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

23,369

 

 

$

 

 

$

(56

)

 

$

23,313

 

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

32,974

 

 

 

 

 

 

(122

)

 

 

32,852

 

Corporate bonds

 

 

5,995

 

 

 

1

 

 

 

 

 

 

5,996

 

Total

 

$

62,338

 

 

$

1

 

 

$

(178

)

 

$

62,161

 

 

 

 

December 31, 2017

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

39,979

 

 

$

 

 

$

(43

)

 

$

39,936

 

Corporate bonds

 

 

1,250

 

 

 

 

 

 

 

 

 

1,250

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

21,480

 

 

 

 

 

 

(99

)

 

 

21,381

 

Corporate bonds

 

 

2,125

 

 

 

 

 

 

(1

)

 

 

2,124

 

Total

 

$

64,834

 

 

$

 

 

$

(143

)

 

$

64,691

 

 

All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of June 30, 2018.  

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 June 30, 2018 and December 31, 2017 were as follows:

 

 

 

June 30, 2018

 

 

 

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

 

$

56,165

 

 

$

(178

)

 

$

 

 

$

 

 

$

56,165

 

 

$

(178

)

Corporate bonds

 

 

2,749

 

 

 

 

 

 

 

 

 

 

 

 

2,749

 

 

 

 

Total

 

$

58,914

 

 

$

(178

)

 

$

 

 

$

 

 

$

58,914

 

 

$

(178

)

 

 

 

December 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

 

$

61,317

 

 

$

(142

)

 

$

 

 

$

 

 

$

61,317

 

 

$

(142

)

Corporate bonds

 

 

3,374

 

 

 

(1

)

 

 

 

 

 

 

 

 

3,374

 

 

 

(1

)

Total

 

$

64,691

 

 

$

(143

)

 

$

 

 

$

 

 

$

64,691

 

 

$

(143

)

 

The Company recognized interest income during the three months ended June 30, 2018 and 2017 of $1.3 million and $0.6 million, respectively, and for the six months ended June 30, 2018 and 2017 of $1.9 million and $1.0 million, respectively, within net interest (income) expense on the condensed consolidated statements of operations. During the three and six months ended June 30, 2018 and 2017, 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 14, Fair Value Measurement, for further details).

 

 

6. Goodwill and Acquired Intangible Assets

The components of acquired intangible assets as of June 30, 2018 and December 31, 2017 were as follows:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Restaurant relationships

 

$

457,580

 

 

$

(89,813

)

 

$

367,767

 

 

$

457,580

 

 

$

(76,852

)

 

$

380,728

 

Diner acquisition

 

 

40,247

 

 

 

(5,930

)

 

 

34,317

 

 

 

40,247

 

 

 

(1,906

)

 

 

38,341

 

Developed technology

 

 

8,523

 

 

 

(8,324

)

 

 

199

 

 

 

8,523

 

 

 

(6,418

)

 

 

2,105

 

Trademarks

 

 

2,225

 

 

 

(1,487

)

 

 

738

 

 

 

2,225

 

 

 

(402

)

 

 

1,823

 

Other

 

 

6,131

 

 

 

(4,344

)

 

 

1,787

 

 

 

6,888

 

 

 

(4,008

)

 

 

2,880

 

Total amortizable intangible assets

 

 

514,706

 

 

 

(109,898

)

 

 

404,808

 

 

 

515,463

 

 

 

(89,586

)

 

 

425,877

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

604,382

 

 

$

(109,898

)

 

$

494,484

 

 

$

605,139

 

 

$

(89,586

)

 

$

515,553

 

Amortization expense for acquired intangible assets was $9.6 million and $5.1 million for the three months ended June 30, 2018 and 2017, respectively, and $21.1 million and $10.4 million for the six months ended June 30, 2018 and 2017, respectively.

 

12


GRUBHUB INC.

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

 

There were no changes during the six months ended June 30, 2018 in the carrying amount of goodwill of $589.9 million.

 

Estimated future amortization expense of acquired intangible assets as of June 30, 2018 was as follows:

 

 

 

(in thousands)

 

The remainder of 2018

 

$

18,512

 

2019

 

 

33,554

 

2020

 

 

32,254

 

2021

 

 

32,254

 

2022

 

 

30,292

 

Thereafter

 

 

257,942

 

Total

 

$

404,808

 

 

 

7. Property and Equipment

The components of the Company’s property and equipment as of June 30, 2018 and December 31, 2017 were as follows:

 

 

 

June 30, 2018

 

 

December 31, 2017