Document and Entity Information

6 Months Ended

Jul. 1, 2017

Aug. 4, 2017

Document and Entity Information [Abstract]

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Jul. 01, 2017

Document Fiscal Year Focus

2017

Document Fiscal Period Focus

Q2

Trading Symbol

CRCM

Entity Registrant Name

Care.com Inc

Entity Central Index Key

0001412270

Current Fiscal Year End Date

--12-30

Entity Filer Category

Accelerated Filer

Entity Common Stock, Shares Outstanding

29,796,091

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)

In Thousands, unless otherwise specified

Jul. 1, 2017

Dec. 31, 2016

Current assets:

Cash and cash equivalents

$ 71,839

$ 61,094

Short-term investments

15,000

Accounts receivable (net of allowance of $178 and $163, respectively)

4,264 ¹

2,789 ¹

Unbilled accounts receivable

5,734 ²

5,541 ²

Prepaid expenses and other current assets

5,224

3,787

Total current assets

102,061

88,211

Property and equipment, net

4,621

4,947

Intangible assets, net

1,267

1,708

Goodwill

59,380

57,910

Other non-current assets

2,466

2,448

Total assets

169,795

155,224

Current liabilities:

Accounts payable

3,379 ³

2,483 ³

Accrued expenses and other current liabilities

13,859 ⁴

12,798 ⁴

Deferred revenue

19,522 ⁵

15,971 ⁵

Total current liabilities

36,760

31,252

Deferred tax liability

4,472

4,276

Other non-current liabilities

5,338

5,087

Total liabilities

46,570

40,615

Contingencies

0

Stockholders' equity

Preferred Stock: $0.001 par value - authorized 5,000 shares at July 1, 2017 and December 31, 2016, respectively

0

Common stock, $0.001 par value; 300,000 shares authorized; 29,737 and 28,984 shares issued and outstanding at July 1, 2017 and December 31, 2016 respectively

30

29

Additional paid-in capital

259,366

255,031

Accumulated deficit

(185,311)

(187,808)

Accumulated other comprehensive income (loss)

218

(303)

Total stockholders' equity

74,303

66,949

Total liabilities, redeemable convertible preferred stock and stockholders' equity

169,795

155,224

Series A Redeemable Convertible Preferred Stock

Stockholders' equity

Series A Redeemable Convertible Preferred Stock - 46 shares designated; 46 shares issued and outstanding at July 1, 2017 and December 31, 2016; at aggregate liquidation and redemption value at July 1, 2017 and December 31, 2016, respectively

$ 48,922

$ 47,660

[1] (1) Includes accounts receivable due from related party of $196 and $150 at July 1, 2017 and December 31, 2016, respectively (Note 13)

[2] (2) Includes unbilled accounts receivable due from related party of $180 and $286 at July 1, 2017 and December 31, 2016, respectively (Note 13)

[3] (3) Includes accounts payable due to related party of $44 and $107 at July 1, 2017 and December 31, 2016, respectively (Note 13)

[4] (4) Includes accrued expenses and other current liabilities due to related party of $1,438 and $1,055 at July 1, 2017 and December 31, 2016, respectively (Note 13)

[5] (5) Includes deferred revenue associated with related party of $80 and $151 at July 1, 2017 and December 31, 2016, respectively (Note 13)

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)

In Thousands, except Share data, unless otherwise specified

Jul. 1, 2017

Dec. 31, 2016

Common stock, par value, in dollars per share

$ 0.001

Common stock, shares authorized

300,000,000

Common stock, shares issued

29,737,000

28,984,000

Common stock, shares outstanding

29,737,000

28,984,000

Preferred stock, par value, in dollars per share

$ 0.001

Preferred stock, shares authorized

5,000,000

Allowance for doubtful accounts receivable

$ 175

$ 163

Accounts receivable

196

150

Unbilled accounts receivable

5,734 ¹

5,541 ¹

Accounts payable

44

107

Accrued expenses and other current liabilities

13,859 ²

12,798 ²

Deferred revenue

19,522 ³

15,971 ³

Series A Redeemable Convertible Preferred Stock

Redeemable convertible preferred stock, shares authorized

46,350

46,000

Redeemable convertible preferred stock, shares issued

46,000

46,350

Redeemable convertible preferred stock, shares outstanding

46,350

46,000

Affiliated Entity

Accounts receivable

200

100

Unbilled accounts receivable

180

300

Accrued expenses and other current liabilities

1,438

1,055

Deferred revenue

$ 80

$ 151

[1] (2) Includes unbilled accounts receivable due from related party of $180 and $286 at July 1, 2017 and December 31, 2016, respectively (Note 13)

[2] (4) Includes accrued expenses and other current liabilities due to related party of $1,438 and $1,055 at July 1, 2017 and December 31, 2016, respectively (Note 13)

[3] (5) Includes deferred revenue associated with related party of $80 and $151 at July 1, 2017 and December 31, 2016, respectively (Note 13)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

6 Months Ended

Jul. 1, 2017

Jun. 25, 2016

Jul. 1, 2017

Jun. 25, 2016

Income Statement [Abstract]

Revenue

$ 41,972 ¹

$ 38,184 ¹

$ 85,338 ¹

$ 77,450 ¹

Cost of revenue

9,000

7,619

17,766

14,861

Operating expenses:

Selling and marketing

17,853 ²

18,561 ²

37,050 ²

38,028 ²

Research and development

6,666

5,036

12,655

9,911

General and administrative

8,433

7,933

16,688

15,752

Depreciation and amortization

423

947

847

1,919

Restructuring charges

0

714

0

714

Total operating expenses

33,375

33,191

67,240

66,324

Operating (loss) income

(403)

(2,626)

332

(3,735)

Other income (expense), net

1,008

(129)

1,309

(143)

Income (loss) from continuing operations before income taxes

605

(2,755)

1,641

(3,878)

(Benefit) provision for income taxes

(1,100)

620

(900)

600

Income (loss) from continuing operations

1,673

(3,375)

2,497

(4,498)

Loss (income) from discontinued operations, net of tax (see note 3)

0

(44)

0

7,834

Net income (loss)

1,673

(3,419)

2,497

3,336

Accretion of Series A Redeemable Convertible Preferred Stock dividends

(660)

0

(1,262)

0

Net income attributable to Series A Redeemable Convertible Preferred Stock

(139)

0

(169)

0

Net income (loss) attributable to common stockholders

$ 874

$ (3,419)

$ 1,066

$ 3,336

Net income (loss) per share attributable to common stockholders (Basic):

Income (loss) from continuing operations, basic (in dollars per share)

$ 0.03

$ (0.11)

$ 0.04

$ (0.14)

Income (loss) from discontinued operations, basic (in dollars per share)

$ 0.00

$ 0.24

Net income (loss) per share, basic (in dollars per share)

$ 0.03

$ (0.11)

$ 0.04

$ 0.10

Net income (loss) per share attributable to common stockholders (Diluted):

Income (loss) from continuing operations attributable to common stockholders (in dollars per share)

$ 0.03

$ (0.11)

$ 0.03

$ (0.13)

Income from discontinued operations attributable to common stockholders (in dollars per share)

$ 0.00

$ 0.23

Net income per share attributable to common stockholders (in dollars per share)

$ 0.03

$ (0.11)

$ 0.03

$ 0.10

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

Weighted average number of shares outstanding, basic

29,556

32,136

29,352

32,183

Weighted average number of shares outstanding, diluted

32,220

32,136

31,746

34,082

[1] (1) Includes related party revenue of $432 and $825 for the three and six months ended July 1, 2017 (Note 13)

[2] (2) Includes related party expenses of $4,120 and $7,820 for the three and six months ended July 1, 2017 (Note 13)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) (USD $)

In Thousands, unless otherwise specified

3 Months Ended

6 Months Ended

Jul. 1, 2017

Income Statement [Abstract]

Related party revenue

$ 432

$ 835

Related party expenses

$ 4,120

$ 7,820

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $)

In Thousands, unless otherwise specified

3 Months Ended

6 Months Ended

Jul. 1, 2017

Jun. 25, 2016

Jul. 1, 2017

Jun. 25, 2016

Statement of Comprehensive Income [Abstract]

Net income (loss)

$ 1,673

$ (3,419)

$ 2,497

$ 3,336

Other comprehensive income (loss):

Foreign currency translation adjustments

493

55

521

373

Comprehensive income (loss)

$ 2,166

$ (3,364)

$ 3,018

$ 3,709

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)

In Thousands, unless otherwise specified

6 Months Ended

Jul. 1, 2017

Jun. 25, 2016

Cash flows from operating activities

Net income (loss)

$ 2,497

$ 3,336

Income from discontinued operations, net of tax

0

7,834

Income (loss) from continuing operations

2,497

(4,498)

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:

Stock-based compensation

3,551

3,014

Depreciation and amortization

1,199

2,314

Deferred taxes

196

538

Foreign currency remeasurement gain

1,157

200

Other non-cash operating income

0

(78)

Changes in operating assets and liabilities, net of effects from acquisitions:

Accounts receivable

(1,448)

(68)

Unbilled accounts receivable

(191)

(449)

Prepaid expenses and other current assets

(1,358)

(508)

Other non-current assets

0

(14)

Accounts payable

879

514

Accrued expenses and other current liabilities

1,258

3,014

Deferred revenue

3,469

1,452

Other non-current liabilities

(69)

610

Net cash provided by operating activities by continuing operations

11,140

6,041

Net cash provided by operating activities by discontinued operations

0

2,481

Net cash provided by operating activities

11,140

8,522

Cash flows from investing activities

Purchases of property and equipment

(387)

(84)

Payments for acquisitions, net of cash acquired

0

(420)

Purchase of short-term investment

(15,000)

0

Sale of short-term investment

15,000

0

Net cash used in investing activities

(387)

(504)

Cash flows from financing activities

Proceeds from exercise of common stock options

2,037

925

Net cash provided by financing activities by continuing operations

2,037

925

Net cash used in financing activities by discontinued operations

0

(14,510)

Net cash provided by (used in) financing activities

2,037

(13,585)

Effect of exchange rate changes on cash and cash equivalents

(2,045)

(56)

Net increase (decrease) in cash and cash equivalents

10,745

(5,623)

Cash and cash equivalents, beginning of the period

61,094

61,240

Cash and cash equivalents, end of the period

71,839

55,617

Supplemental disclosure of cash flow activities

Cash paid for taxes

0

177

Supplemental disclosure of non-cash operating, investing and financing activities

Unpaid purchases of property and equipment

15

17

Series A Redeemable Convertible Preferred Stock dividend accretion

1,262

0

Fair value of common shares received from legal settlement (Note 3)

$ 0

$ 2,593

Description of Business and Summary of Significant Accounting Policies

Care.com, Inc. (the “Company”, “we”, “us”, and “our”), a Delaware corporation, was incorporated on October 27, 2006. We are the world’s largest online marketplace for finding and managing family care. Our consumer matching solutions enable families to connect to caregivers and caregiving services in a reliable and easy way, and our payment solutions enable families to pay caregivers electronically online or via their mobile device and to manage their household payroll and tax matters with Care.com HomePay. In addition, we serve employers by providing access to our platform to employer-sponsored families and we serve care-related businesses—such as day care centers, nanny agencies and home care agencies—that wish to market their services to our care-seeking families and recruit our caregiver members.

Certain Significant Risks and Uncertainties

We operate in a dynamic industry and, accordingly, our business is affected by a variety of factors. For example, we believe that negative changes in any of the following areas could have a significant negative effect on our future financial position, results of operations or cash flows: rates of revenue growth; member engagement and usage of our existing and new products; protection of our brand; retention of qualified employees and key personnel; management of our growth; scaling and adaptation of existing technology and network infrastructure; competition in our market; performance of acquisitions and investments; protection of our intellectual property; protection of customers’ information and privacy concerns; security measures related to our website; and access to capital at acceptable terms, among other things.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on March 9, 2017.

There have been no material changes in our significant accounting policies for the three and six months ended July 1, 2017 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, with the exception of the adoption of the Financial Accounting Standards Board’s Accounting Standard Update 2016-09 in the first quarter of fiscal 2017. Refer below to “Recently Issued and Adopted Accounting Pronouncements” for further information.

The condensed consolidated balance sheet as of December 31, 2016, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, and are not necessarily indicative of the results of operations to be anticipated for fiscal 2017 or any future period.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, after elimination of all intercompany balances and transactions. We have prepared the accompanying financial statements in conformity with GAAP.

Fiscal Year-End

We operate and report using a 52 or 53 week fiscal year ending on the Saturday in December closest and prior to December 31. Accordingly, our fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter.

Subsequent Events Consideration

We consider events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.

In the third quarter of 2017, we concluded that we would exit 25,812 square feet of the Company’s headquarters facility located in Waltham, Massachusetts. We expect to record lease obligation charges ranging from approximately $4.0 million to $6.0 million in the third quarter of 2017, as we plan to meet the cease-use date requirements for that portion of the facility. We will finalize the lease obligation charge in the third quarter of 2017 following the cease-use date. In order to estimate the lease obligation charges, we have made certain assumptions, including the time period it will take to obtain a subtenant and certain sub-lease rates. These estimates may vary from the sub-lease agreements ultimately executed, if at all, resulting in an adjustment to the charges.

Recently Issued and Adopted Accounting Pronouncements

As an ‘‘emerging growth company’’ under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we are electing to not take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, “Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting.” The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09, which will become effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods, is not expected to have a significant impact on our financial statement presentation or disclosures.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance is effective for us in our annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. ASU 2017-04 must be applied prospectively. We expect that the future adoption of this update will simplify our measurement of goodwill impairment, if any of our reporting units have a zero or negative carrying value, or would fail Step 1 of the impairment test following the date of adoption.

In November, 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-18 must be applied retrospectively to all periods presented. We do not anticipate that the adoption of this update will have a material impact on our consolidated statement of cash flows.

In August 2016, FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” ASU 2016-15 amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updated guidance requires a retrospective transition method to each period presented. We do not anticipate that the adoption of this update will have a material impact on our consolidated statement of cash flows.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation- Stock Compensation (Topic 718).” The guidance changes how companies account for certain aspects of share-based payments to employees. Entities will be required to recognize income tax effects of awards in the income statement when the awards vest or are settled. The guidance also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes providing for withholding at the employee's maximum rate as opposed to the minimum rate without triggering liability accounting and to make a policy election to account for forfeitures as they occur. We adopted this standard in the first quarter of fiscal 2017 using a modified retrospective approach. We elected to account for forfeitures when they occur, rather than to estimate forfeitures when determining the amount of stock-based compensation costs to be recognized in each period. Refer to Note 9 for our accounting policy elections related to income taxes. The adoption of this standard did not have a material impact on our financial position, results of operations, or statement of cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The guidance requires an entity to recognize a right-of-use asset and a lease liability for virtually all of its leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The guidance is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial position and results of operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption is permitted but not before the original effective date of December 15, 2016. Since ASU 2014-09 was issued, several additional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance.

As of the date of these condensed consolidated financial statements, we have substantially completed the diagnostic assessment phase of our ASU 2014-09 adoption, including preliminary assessment and project planning, revenue stream scoping, and analysis of the impact the new revenue standard has on our various revenue streams. As part of the Company’s ongoing evaluation of ASU 2014-09, the following revenue streams were identified: U.S. matching solutions, Care@Work solution, payments solutions, and marketing solutions. Each of these revenue streams will continue to be further evaluated in detail based on the criteria established under ASU 2014-09 and will serve as the basis for the accounting analysis and documentation as it relates to the impact of the standard.

We currently anticipate adopting ASU 2014-09 effective January 1, 2018 utilizing the modified retrospective method of adoption. Accordingly, upon adoption, we currently anticipate recognizing the cumulative effect, if any, of adopting this guidance as an adjustment to the opening balance of the accumulated deficit within the consolidated balance sheet for the period of adoption, and prior periods will not be retrospectively adjusted. While we have completed a preliminary assessment of the key provisions of ASU 2014-09, the evaluation of the full impact of the standard on the consolidated financial statements and related disclosures is ongoing, and we are therefore not yet able to reasonably estimate the financial statement impact of ASU 2014-09 upon adoption. We are continuing to assess all potential impacts of the standard, including the impact to the capitalization of costs for commissions. Additionally, we continue to actively monitor outstanding issues currently being addressed by the FASB’s Transition Resource Group as conclusions reached by this group may impact the Company’s application of ASU 2014-09.

Fair Value Measurements

The following table presents information about our assets measured at fair value on a recurring basis as of July 1, 2017 and December 31, 2016 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):



	July 1, 2017								December 31, 2016
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Assets:
Money market mutual funds	$	20,084	$	—	$	—	$	20,084	$	20,014	$	—	$	—	$	20,014
Certificates of deposit	$	15,000	$	—	$	—	$	15,000	$	15,000	$	—	$	—	$	15,000
Total assets	$	35,084	$	—	$	—	$	35,084	$	35,014	$	—	$	—	$	35,014

Non-Recurring Fair Value Measurements

We re-measure the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets are comprised of long-lived assets, including property and equipment, intangible assets and goodwill. In the three and six months ended July 1, 2017 and June 25, 2016, no significant remeasurements were necessary. Other financial instruments not measured or recorded at fair value in the accompanying condensed consolidated balance sheets principally consist of accounts receivable, accounts payable, and accrued liabilities. The estimated fair values of these instruments approximate their carrying values due to their short-term nature.

Discontinued Operations

During the third quarter of fiscal 2015 we made the decision to exit the Citrus Lane business through either a sale or wind-down, as it was no longer a strategic priority. In the fourth quarter of fiscal 2015, we made the decision to shut down the business and completed our plans for exiting the business in the fourth quarter of 2016. As such, financial results of Citrus Lane have been presented within income (loss) from discontinued operations, net of tax, on the consolidated statements of operations for the three and six months ended July 1, 2017 and June 25, 2016. As of July 1, 2017 and December 31, 2016 there were no recorded assets or liabilities of the Citrus Lane business.

In February 2016, we entered into a settlement agreement with the previous shareholders of Citrus Lane. The settlement agreement related to our acquisition of Citrus Lane and the merger agreement pursuant to which the acquisition was consummated. Under the terms of the settlement agreement, we paid the previous shareholders of Citrus Lane $15.6 million in contingent consideration payments that were valued at $16.0 million as of December 26, 2015 ($16.4 million was the undiscounted value at the time of the acquisition) that was otherwise payable to them in the event Citrus Lane achieved certain milestones in 2015 and 2016. In exchange, the former shareholders forfeited the $5.0 million in original cash consideration that was being held in an escrow account, as well as the 0.4 million shares of common stock issued at closing (valued at $2.0 million as of the February 2016 settlement date and $3.9 million as of the original closing date) and 0.1 million shares of common stock which was subject to the achievement of certain milestones in 2015 and 2016 (valued at $0.6 million as of the February 2016 settlement date and $1.1 million as of the original closing date) offered as part of the deal consideration. We retired these shares of common stock as of the third quarter of fiscal 2016. As a result of this settlement, and based on our assessment that there was not a clear and direct link to the original consideration transferred at the acquisition date, we have recognized a gain within income from discontinued operations on the consolidated statements of operations for the six months ended March 26, 2016 of $8.0 million.

The following table presents financial results of the Citrus Lane business included in income from discontinued operations, net of tax, for the three and six months ended June 25, 2016 (in thousands). There were no financial results of the Citrus Lane business included in income from discontinued operations, net of tax, for the three and six months ended July 1, 2017.



	Three Months Ended			Six Months Ended
	June 25, 2016			June 25, 2016

Revenue	$	19		$	101
Cost of revenue	3			97
Operating expenses:
Selling and marketing	13			54
Research and development	—			11
General and administrative	47			(7,903		)
Depreciation and amortization	—			8
Operating (loss) income	(44		)	7,834
Other expense, net	—			—
(Loss) income from discontinued operations before income taxes	(44		)	7,834
Provision for income tax	—			—
Net (loss) income from discontinued operations	$	(44	)	$	7,834

Goodwill and Intangible Assets

The following table presents the change in goodwill for the periods presented (in thousands):



Balance as of December 31, 2016	$	57,910
Effect of currency translation	1,470
Balance as of July 1, 2017	$	59,380

The following table presents the detail of intangible assets for the periods presented (dollars in thousands):



	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted-Average Remaining Life (Years)

July 1, 2017
Indefinite lived intangibles	$	242	$	—		$	242	N/A
Trademarks and trade names	4,441		(4,272		)	169		2.0
Proprietary software	5,242		(4,974		)	268		1.2
Non-compete agreements	133		(132		)	1		0.1
Leasehold interests	170		(124		)	46		1.9
Customer relationships	8,810		(8,269		)	541		5.7
Total	$	19,038	$	(17,771	)	$	1,267

December 31, 2016
Indefinite lived intangibles	$	242	$	—		$	242	N/A
Trademarks and trade names	4,394		(4,200		)	194		2.5
Proprietary software	5,102		(4,485		)	617		1.3
Non-compete agreements	127		(120		)	7		0.6
Leasehold interests	170		(111		)	59		2.3
Customer relationships	8,754		(8,165		)	589		6.1
Total	$	18,789	$	(17,081	)	$	1,708

Amortization expense was $0.5 million and $1.5 million for the six months ended July 1, 2017 and June 25, 2016, respectively. Of these amounts, $0.1 million and $1.1 million was classified as a component of depreciation and amortization, and $0.4 million and $0.4 million was classified as a component of cost of revenue in the condensed consolidated statements of operations for the six months ended July 1, 2017 and June 25, 2016, respectively.

As of July 1, 2017, the estimated future amortization expense related to intangible assets for future fiscal years was as follows (in thousands):



2017 remaining	233
2018	345
2019	146
2020	96
2021	96
Thereafter	109
Total	$	1,025

Contingencies

Legal matters

From time to time we are involved in legal proceedings and other regulatory matters arising in the ordinary course of our business. Each reporting period, we evaluate whether or not a loss contingency related to such matters is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. If a loss is probable and the potential estimate of the loss is a range, we evaluate if there is a point within the range that appears at the time to be a better estimate than any other point in the range, and if so, that amount is accrued. If we conclude that no amount in the range appears to be a better estimate than any other, we accrue the minimum amount in the range. We monitor developments in legal matters that could affect estimates we have previously accrued and update our estimates as appropriate based on subsequent developments.

In the first quarter of fiscal 2017, we received a demand for payments totaling approximately $1.5 million relating to a government inquiry which commenced in 2016. The Company determined that it is probable that it will incur a loss in connection with this matter and accrued an amount as of December 31, 2016 based on its reasonable estimate of this loss. The Company has accrued an additional amount as of the first half of fiscal 2017, based on its updated estimate of this loss. The total amount accrued was not material to our financial statements for the periods ended July 1, 2017 and December 31, 2016.

Stockholders’ Equity

Stock-Based Compensation

The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands):



	Three Months Ended				Six Months Ended
	July 1, 2017		June 25, 2016		July 1, 2017		June 25, 2016

Cost of revenue	$	105	$	79	$	197	$	154
Selling and marketing	295		229		541		414
Research and development	370		279		651		509
General and administrative	1,178		1,059		2,162		1,937
Loss (income) from discontinued operations	—		3		—		8
Total stock-based compensation	$	1,948	$	1,649	$	3,551	$	3,022

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the six months ended July 1, 2017, we granted 0.4 million time-based restricted stock units (RSUs) to certain employees, advisors and directors, 0.4 million performance-based RSUs (“PSUs”) to certain members of management, and 0.2 million market-based RSUs (“MSUs”) to senior management.

In the first quarter of fiscal 2017, we issued 0.4 million PSUs. The number of PSUs that become eligible to vest for each recipient will be determined in the first quarter of 2018 based upon the Company’s level of achievement of certain financial targets for fiscal 2017. To the extent any PSUs become eligible to vest, they generally will vest over a three-year period retroactive to March 2017 as continued services are performed. Management is recognizing expense straight-line over the required service period based on its estimate of the number of PSUs that will vest. If there is a change in the estimate of the number of PSUs that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made.

In the second quarter of fiscal 2017, we issued 0.2 million MSUs to senior management. The MSUs awarded will vest at any point during a five-year performance period, from 2017 through 2022, based on achievement of specified 120-day volume-weighted average closing share price targets, which is a market condition, or a change-in-control event, and if vested, will be issued in the form of common stock. The MSUs were valued at $9.31 - $5.78 per share using the Monte Carlo simulation model for the specified price targets.

RSUs are not included in issued and outstanding common stock until the shares are vested and released. With the exception of MSUs, the fair value of an RSU and PSU is measured based on the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share. The weighted-average grant-date fair value per vested RSU share and the total fair value of vested shares from RSU grants was $7.46 and $2.1 million, respectively, for the six months ended July 1, 2017.

During the six months ended July 1, 2017, we granted 0.9 million stock options to certain employees and directors with a weighted average exercise price per share of $12.62. During the six months ended June 25, 2016, we granted 1.4 million stock options to certain employees and directors with a weighted average exercise price per share of $6.68.

The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:



	Six Months Ended
	July 1, 2017	June 25, 2016
Risk-free interest rate	1.86% - 2.18%	1.3 - 1.6 %
Expected term (years)	6.25	6.25
Volatility	32.89% - 33.37%	38.23%
Expected dividend yield	—	—

A summary of stock option and RSU activity for the six months ended July 1, 2017 was as follows (in thousands for shares and intrinsic value):



								Restricted Stock Units
	Shares		Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value

Outstanding as of December 31, 2016	4,312		6.45	$	6.64	$	13,042	1,780		$	7.08
Granted⁽¹⁾	873			$	12.62			925		$	12.86
Settled (RSUs)	—			—				(288	)	$	7.46
Exercised	(458	)		$	4.48			—		—
Canceled and forfeited	(142	)		$	11.85			(510	)	$	6.89
Outstanding as of July 1, 2017	4,585		6.84	$	7.83	$	35,047	1,907		$	9.88
Vested and exercisable as of July 1, 2017	2,766		5.35	$	6.41	$	25,417	N/A		N/A

____________________________

(1) For RSUs, includes both time-based, performance-based, and market-based restricted stock units

Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on the New York Stock Exchange as of June 30, 2017, the final trading day of the six months ended July 1, 2017, was $15.10. The total intrinsic value of options exercised and RSUs vested was approximately $7.2 million for the six months ended July 1, 2017. The aggregate fair value of the options that vested during the six months ended July 1, 2017 was $1.2 million.

As of July 1, 2017, total unrecognized compensation cost related to non-vested stock options and RSUs was approximately $6.8 million and $14.5 million, respectively, which is expected to be recognized over a weighted-average period of 3.0 years and 2.5 years, respectively, to the extent they are probable of vesting. As of July 1, 2017, we had 2.6 million shares available for grant under the 2014 Plan.

Common Stock

As of July 1, 2017, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):



	July 1, 2017
Options issued and outstanding	4,585
Restricted stock units issued and outstanding	1,907
Common stock available for stock-based award grants under incentive award plans	2,647
Common stock available for conversion of Series A Redeemable Convertible Preferred Stock	4,659
Total	13,798

Net Income (Loss) per Share Attributable to Common Stockholders

et Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. For the three and six months ended July 1, 2017, we applied the two-class method to calculate basic and diluted net income per share of common stock, as our Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock) is a participating security. The two-class method is an earnings allocated formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. We compute diluted net income (loss) per common share using income from continuing operations as the “control number” in determining whether potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options, unvested restricted stock outstanding during the period and potential issuance of stock upon the conversion of the our Series A Preferred Stock, including accrued dividends, outstanding during the period, except where the effect of such securities would be antidilutive.

The calculations of basic and diluted net income (loss) per share and basic and dilutive weighted-average shares outstanding for the three and six months ended July 1, 2017 and June 25, 2016 were as follows (in thousands, except per share data):



	Three Months Ended					Six Months Ended
	July 1, 2017		June 25, 2016			July 1, 2017		June 25, 2016
Numerator:
Net income (loss) attributable to common stockholders - basic	$	874	$	(3,419	)	$	1,066	$	3,336
Net income attributable to common stockholders - diluted	$	885	$	—		$	1,077	$	—

Denominator:
Weighted-average shares outstanding - basic	29,556		32,136			29,352		32,183

Dilutive impact from:
Options outstanding	1,962		—			1,786		1,052
Restricted stock units	702		—			608		847
Weighted-average shares outstanding - dilutive	32,220		32,136			31,746		34,082

Net income (loss) per share attributable to common stockholders (Basic):
Income (loss) from continuing operations attributable to common stockholders	$	0.03	$	(0.11	)	$	0.04	$	(0.14	)
Income from discontinued operations attributable to common stockholders	—		—			—		0.24
Net income (loss) per share attributable to common stockholders	$	0.03	$	(0.11	)	$	0.04	$	0.10

Net income (loss) per share attributable to common stockholders (Diluted):
Income (loss) from continuing operations attributable to common stockholders	$	0.03	$	(0.11	)	$	0.03	$	(0.13	)
Income from discontinued operations attributable to common stockholders	—		—			—		0.23
Net income (loss) per share attributable to common stockholders	$	0.03	$	(0.11	)	$	0.03	$	0.10

The following equity shares were excluded from the calculation of diluted net income per share from continuing operations and discontinued operations because their effect would have been antidilutive for the periods presented (in thousands):



	Three Months Ended		Six Months Ended
	July 1, 2017	June 25, 2016	July 1, 2017	June 25, 2016
Stock options	1,398	4,452	1,292	617
Restricted stock units	24	2,064	14	1,217
Series A Redeemable Convertible Preferred Stock (as converted to common stock)	4,659	—	4,659	—

The Series A Preferred Stock is considered antidilutive due to the fact that the two-class method was more dilutive when calculating dilutive net income per share attributable to common stockholders.

Preferred Stock

Preferred Stock consists of the following at July 1, 2017 and December 31, 2016 (in thousands, except shares):



	Preferred Stock Authorized	Issuance Date	Issued and Outstanding	Liquidation Preference (as of June 29, 2023)		Carrying Value		Common Stock Issuable Upon Conversion (as of June 29, 2023)
July 1, 2017
Series A	46,350	June 29, 2016	46,350	$	67,424	$	48,922	6,421,369
December 31, 2016
Series A	46,350	June 29, 2016	46,350	$	67,424	$	47,660	6,421,369

Please refer to Form 10-K filed on March 9, 2017 for further detail on the Series A Redeemable Convertible Preferred Stock.

Income Taxes

We recorded income tax (benefit) expense of $(1.1) million and $0.6 million for the three months ended July 1, 2017 and June 25, 2016, respectively, and $(0.9) million and $0.6 million for the six months ended July 1, 2017 and June 25, 2016. The tax benefit recorded for the three and six months ended July 1, 2017 primarily related to the excess tax benefits from the taxable compensation on share-based awards, partially offset by tax expense pertaining to amortization of goodwill associated with the acquisition of Care.com HomePay for tax purposes, for which there is no corresponding book deduction, and certain state taxes based on operating income that are payable without regard to tax loss carryforwards.

Prior to January 1, 2017, we recognized the excess tax benefits of stock-based compensation expense as additional paid-in capital (“APIC”), and tax deficiencies of stock-based compensation expense in the income tax provision or as APIC to the extent that there were sufficient recognized excess tax benefits previously recognized. As a result of the prior guidance that excess tax benefits reduce taxes payable prior to being recognized as an increase in paid in capital, we had not recognized certain deferred tax assets (all tax attributes such as loss or credit carryforwards) that could be attributed to tax deductions related to equity compensation in excess of compensation recognized for financial reporting. As of January 1, 2017, we had generated federal and state net operating loss carryforwards due to excess tax benefits of $2.2 million and $1.9 million, respectively.

Effective as of January 1, 2017, we adopted a change in accounting policy in accordance with ASU 2016-09 to account for excess tax benefits and tax deficiencies as income tax expense or benefit, treated as discrete items in the reporting period in which they occur, and to recognize previously unrecognized deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. No cumulative transition adjustments were recorded to accumulated deficit as a result of this change in the accounting policy, as we had previously maintained a valuation allowance against our deferred tax assets that could be attributed to equity compensation in excess of compensation recognized for financial reporting.

Segment and Geographical Information

We consider operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the CEO. The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. For the periods presented we have concluded that we have a single operating and reportable segment.

No country outside of the United States provided greater than 10% of our total revenue. Revenue is classified by the major geographic areas in which our customers are located. The following table summarizes total revenue generated by our geographic locations (dollars in thousands):



	Three Months Ended				Six Months Ended
	July 1, 2017		June 25, 2016		July 1, 2017		June 25, 2016
United States	$	38,336	$	34,789	$	78,178	$	70,700
International	3,636		3,395		7,160		6,750
Total revenue	$	41,972	$	38,184	$	85,338	$	77,450



	Three Months Ended				Six Months Ended
	July 1, 2017		June 25, 2016		July 1, 2017		June 25, 2016
	(As a percentage of revenue)
United States	91	%	91	%	92	%	91	%
International	9	%	9	%	8	%	9	%
Total revenue	100	%	100	%	100	%	100	%

Our long-lived assets are primarily located in the United States and are not allocated to any specific region. Therefore, geographic information is presented only for total revenue.

Restructuring Charges

On April 14, 2016, we entered into a sublease agreement to lease approximately 10,362 square feet of our 108,743 square foot headquarters facility located in Waltham, Massachusetts.

During the quarter ended June 25, 2016, we recorded a $0.5 million sublease loss liability and related expenses of $0.2 million for the expected loss on the sublease, in accordance with ASC 840-20, Leases, because the monthly payments we expect to receive under the sublease are less than the amounts that we will owe the lessor for the sublease space. The sublease term is less than the remaining term under the original lease, and thus we do not believe we have met a cease use date as we may re-enter the space following the sublease. The fair value of the liability was determined using the estimated future net cash flows, consisting of the minimum lease payments to the lessor for the sublease space and payments we will receive under the sublease. The sublease loss was recorded as part of restructuring expense in the consolidated statement of operations. The following table presents the change in restructuring liability from December 31, 2016 to July 1, 2017 (in thousands):



	July 1, 2017
	Restructuring Liability
Balance as of December 31, 2016	$	356
Accretion of sublease liability	(50		)
Balance as of July 1, 2017	$	306

Other Income (Expense)

Other income (expense) consisted of the following (in thousands):



	Three Months Ended						Six Months Ended
	July 1, 2017			June 25, 2016			July 1, 2017			June 25, 2016
Interest income	$	93		$	55		$	159		$	71
Interest expense	(1		)	(1		)	(2		)	(2		)
Gain (loss) on foreign exchange	916			(183		)	1,152			(212		)
Total income (expense)	$	1,008		$	(129	)	$	1,309		$	(143	)

Related Party Transactions

We had the following transactions with related parties during the three months ended July 1, 2017:

CapitalG LP

On June 29, 2016, we issued Series A Preferred Stock to CapitalG LP, as described in Note 8. As a result of this transaction, Alphabet Inc., the ultimate parent of CapitalG LP (“CapitalG”), and all related affiliates of Alphabet Inc. are considered to be related parties. During the three and six months ended July 1, 2017, we had recorded $0.4 million and $0.8 million of revenue from Care@Work arrangements with Alphabet Inc. and its affiliates, respectively. During the three and six months ended July 1, 2017, we incurred $3.5 million and $6.6 million of selling and marketing expenses for internet based marketing services with Alphabet Inc. and its affiliates, respectively. As of July 1, 2017, we had $0.2 million and $0.2 million of accounts receivable and unbilled accounts receivable, respectively, recorded with Alphabet Inc. and its affiliates. As of December 31, 2016, we had $0.1 million and $0.3 million of accounts receivable and unbilled accounts receivable, respectively, recorded with Alphabet Inc. and its affiliates. As of July 1, 2017, we had $0.1 million and $1.2 million of deferred revenue and accrued expenses and other current liabilities, respectively, recorded with Alphabet Inc. and its affiliates. As of December 31, 2016, we had $0.2 million, $0.1 million, and $1.1 million of deferred revenue, accounts payable, and accrued expenses and other current liabilities, respectively, recorded with Alphabet Inc. and its affiliates.

West of Everything, the successor of West Studios, LLC

In fiscal 2016, we entered into a professional services agreement with West of Everything, the successor of West Studios, LLC (“West”). We consider West to be a related party because one of our board members is acting as a Managing Director of the entity. Under the terms of the agreement, we incurred an aggregate of $1.4 million in service fees between the fourth quarter of fiscal 2016 and the second quarter of fiscal 2017, prior to terminating the agreement in the second quarter of fiscal 2017. During three and six months ended July 1, 2017, we incurred $0.6 million and $1.2 million of selling and marketing expenses related to our West relationship. As of July 1, 2017, we had $0.3 million of accrued expense and other current liabilities recorded with West.

Description of Business and Summary of Significant Accounting Policies (Policies)