GRUBHUB INC., 10-Q filed on 8/6/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 02, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol GRUB  
Entity Registrant Name GRUBHUB INC.  
Entity Central Index Key 0001594109  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   91,353,172
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 1-36389  
Entity Tax Identification Number 462908664  
Entity Address, Address Line One 111 W. Washington Street  
Entity Address, Address Line Two Suite 2100  
Entity Address, City or Town Chicago  
Entity Address, State or Province Illinois  
Entity Address, Postal Zip Code 60602  
City Area Code 877  
Local Phone Number 585-7878  
v3.19.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 358,847 $ 211,245
Short-term investments 18,190 14,084
Accounts receivable, less allowances for doubtful accounts 123,801 110,855
Income tax receivable 9,520 9,949
Prepaid expenses and other current assets 23,752 17,642
Total current assets 534,110 363,775
PROPERTY AND EQUIPMENT:    
Property and equipment, net of depreciation and amortization 148,995 119,495
OTHER ASSETS:    
Other assets 23,166 14,186
Operating lease right-of-use asset 104,078  
Goodwill 1,005,477 1,019,239
Acquired intangible assets, net of amortization 527,423 549,013
Total other assets 1,660,144 1,582,438
TOTAL ASSETS 2,343,249 2,065,708
CURRENT LIABILITIES:    
Restaurant food liability 124,261 127,344
Accounts payable 21,527 26,656
Accrued payroll 21,296 18,173
Current portion of long-term debt   6,250
Current operating lease liability 6,875  
Other accruals 46,697 44,745
Total current liabilities 220,656 223,168
LONG-TERM LIABILITIES:    
Deferred taxes, non-current 32,695 46,383
Noncurrent operating lease liability 114,724  
Long-term debt 492,723 335,548
Other accruals 751 18,270
Total long-term liabilities 640,893 400,201
Commitments and contingencies
STOCKHOLDERS’ EQUITY:    
Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of June 30, 2019 and December 31, 2018; issued and outstanding: no shares as of June 30, 2019 and December 31, 2018.
Common stock, $0.0001 par value. Authorized: 500,000,000 shares at June 30, 2019 and December 31, 2018; issued and outstanding: 91,230,916 and 90,756,548 shares as of June 30, 2019 and December 31, 2018, respectively 9 9
Accumulated other comprehensive loss (1,980) (1,891)
Additional paid-in capital 1,126,174 1,094,866
Retained earnings 357,497 349,355
Total stockholders’ equity 1,481,700 1,442,339
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,343,249 $ 2,065,708
v3.19.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Preferred Stock, par value $ 0.0001 $ 0.0001
Preferred Stock, shares authorized 25,000,000 25,000,000
Preferred Stock, shares issued 0 0
Preferred Stock, shares outstanding 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 500,000,000 500,000,000
Common stock, shares issued 91,230,916 90,756,548
Common stock, shares outstanding 91,230,916 90,756,548
v3.19.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Revenues $ 325,058 $ 239,741 $ 648,828 $ 472,311
Costs and expenses:        
Operations and support 162,406 102,445 323,756 198,728
Sales and marketing 74,128 46,231 152,582 94,987
Technology (exclusive of amortization) 29,400 18,717 56,650 36,048
General and administrative 25,784 18,180 48,571 35,877
Depreciation and amortization 27,223 19,849 52,312 40,800
Total costs and expenses 318,941 205,422 633,871 406,440
Income from operations 6,117 34,319 14,957 65,871
Interest expense - net 5,467 8 8,279 1,030
Income before provision for income taxes 650 34,311 6,678 64,841
Income tax (benefit) expense (602) 4,191 (1,464) 3,955
Net income attributable to common stockholders $ 1,252 $ 30,120 $ 8,142 $ 60,886
Net income per share attributable to common stockholders        
Basic $ 0.01 $ 0.34 $ 0.09 $ 0.69
Diluted $ 0.01 $ 0.33 $ 0.09 $ 0.67
Weighted-average shares used to compute net income per share attributable to common stockholders:        
Basic 91,177 89,503 91,064 88,294
Diluted 92,786 92,503 92,852 91,297
v3.19.2
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Net income $ 1,252 $ 30,120 $ 8,142 $ 60,886
OTHER COMPREHENSIVE LOSS        
Foreign currency translation adjustments (316) (656) (89) (300)
COMPREHENSIVE INCOME $ 936 $ 29,464 $ 8,053 $ 60,586
v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 8,142 $ 60,886
Adjustments to reconcile net income to net cash from operating activities:    
Depreciation 13,626 10,526
Deferred taxes 298 (3,308)
Amortization of intangible assets and developed software 38,686 30,274
Stock-based compensation 36,527 22,170
Other 3,240 3,042
Change in assets and liabilities, net of the effects of business acquisitions:    
Accounts receivable (13,349) 3,888
Income taxes receivable 429 1,882
Prepaid expenses and other assets (14,857) (8,446)
Restaurant food liability (3,078) (9,870)
Accounts payable (10,216) (107)
Accrued payroll 3,122 (1,961)
Other accruals 7,219 7,041
Net cash provided by operating activities 69,789 116,017
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of investments (25,526) (44,271)
Proceeds from maturity of investments 21,636 29,116
Capitalized website and development costs (22,188) (13,145)
Purchases of property and equipment (23,140) (19,266)
Acquisition of other intangible assets (8,889) 0
Acquisitions of businesses, net of cash acquired 127 737
Other cash flows from investing activities   24
Net cash used in investing activities (57,980) (46,805)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from the issuance of senior notes 500,000  
Repayments of borrowings under the credit facility (342,313) (51,562)
Proceeds from the issuance of common stock   200,000
Taxes paid related to net settlement of stock-based compensation awards (15,360) (18,717)
Proceeds from exercise of stock options 2,930 9,958
Payments for debt issuance costs (8,954)  
Net cash provided by financing activities 136,303 139,679
Net change in cash, cash equivalents, and restricted cash 148,112 208,891
Effect of exchange rates on cash, cash equivalents and restricted cash (2) (318)
Cash, cash equivalents, and restricted cash at beginning of year 215,802 238,239
Cash, cash equivalents, and restricted cash at end of the period 363,912 446,812
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS    
Cash paid for income taxes 567 7,426
Capitalized property, equipment and website and development costs in accounts payable at period end 5,310 1,430
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH    
Cash and cash equivalents 358,847 442,678
Restricted cash included in prepaid expenses and other current assets $ 1,904 $ 1,500
Restricted Cash, Current, Asset, Statement of Financial Position [Extensible List] us-gaap:PrepaidExpenseAndOtherAssetsCurrent us-gaap:PrepaidExpenseAndOtherAssetsCurrent
Restricted cash included in other assets $ 3,161 $ 2,634
Restricted Cash, Noncurrent, Asset, Statement of Financial Position [Extensible List] us-gaap:OtherAssetsNoncurrent us-gaap:OtherAssetsNoncurrent
Total cash, cash equivalents, and restricted cash $ 363,912 $ 446,812
v3.19.2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Total
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Balance, beginning at Dec. 31, 2017 $ 1,117,816 $ 9 $ 849,043 $ (1,228) $ 269,992
Balance, beginning (in shares) at Dec. 31, 2017   86,790,624      
Net income 60,886       60,886
Cumulative effect adjustment upon adoption of ASU | ASU 2016-09 882       882
Currency translation (300)     (300)  
Stock-based compensation 25,883   25,883    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 9,958   9,958    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   946,768      
Shares repurchased and retired to satisfy tax withholding upon vesting (18,717)   (18,717)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (220,429)      
Issuance of common stock, investment 200,000   200,000    
Issuance of common stock, investments   2,820,464      
Balance, ending at Jun. 30, 2018 1,396,408 $ 9 1,066,167 (1,528) 331,760
Balance, ending (in shares) at Jun. 30, 2018   90,337,427      
Balance, beginning at Mar. 31, 2018 1,157,220 $ 9 856,443 (872) 301,640
Balance, beginning (in shares) at Mar. 31, 2018   87,287,041      
Net income 30,120       30,120
Currency translation (656)     (656)  
Stock-based compensation 13,946   13,946    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 3,010   3,010    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   302,880      
Shares repurchased and retired to satisfy tax withholding upon vesting (7,232)   (7,232)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (72,958)      
Issuance of common stock, investment 200,000   200,000    
Issuance of common stock, investments   2,820,464      
Balance, ending at Jun. 30, 2018 1,396,408 $ 9 1,066,167 (1,528) 331,760
Balance, ending (in shares) at Jun. 30, 2018   90,337,427      
Balance, beginning at Dec. 31, 2018 1,442,339 $ 9 1,094,866 (1,891) 349,355
Balance, beginning (in shares) at Dec. 31, 2018   90,756,548      
Net income 8,142       8,142
Currency translation (89)     (89)  
Stock-based compensation 43,738   43,738    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 2,930   2,930    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   676,527      
Shares repurchased and retired to satisfy tax withholding upon vesting (15,360)   (15,360)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (202,159)      
Balance, ending at Jun. 30, 2019 1,481,700 $ 9 1,126,174 (1,980) 357,497
Balance, ending (in shares) at Jun. 30, 2019   91,230,916      
Balance, beginning at Mar. 31, 2019 1,461,637 $ 9 1,107,047 (1,664) 356,245
Balance, beginning (in shares) at Mar. 31, 2019   91,074,285      
Net income 1,252       1,252
Currency translation (316)     (316)  
Stock-based compensation 24,015   24,015    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 506   506    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   234,356      
Shares repurchased and retired to satisfy tax withholding upon vesting (5,394)   (5,394)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (77,725)      
Balance, ending at Jun. 30, 2019 $ 1,481,700 $ 9 $ 1,126,174 $ (1,980) $ 357,497
Balance, ending (in shares) at Jun. 30, 2019   91,230,916      
v3.19.2
Organization
6 Months Ended
Jun. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization

1. Organization

Grubhub Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively referred to as the “Company”) provide an online and mobile takeout marketplace for restaurant pick-up and delivery orders. The Company connects diners and restaurants through restaurant technology and easy-to-use platforms. 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. The Company primarily charges the restaurant a per order commission that is primarily percentage-based. In many markets, the Company also provides delivery services to restaurants on its platform that do not have their own delivery operations. The Company’s takeout marketplace, and related platforms where the Company provides marketing services to generate orders, are collectively referred to as the “Platform”.

v3.19.2
Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies

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, 2018 filed with the SEC on February 28, 2019 (the “2018 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

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. Significant items subject to such estimates, judgments and assumptions include revenue recognition, website and internal-use software development costs, goodwill, recoverability of intangible assets with finite 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, 2019 related to leases. There have been no other material changes to the Company’s significant accounting policies described in the 2018 Form 10-K.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (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, and in subsequent updates, the FASB issued Accounting Standards Codification Topic 842, Leases (“ASC Topic 842”). Under ASC Topic 842, a lessee recognizes a liability to make lease payments and a right-of-use asset for all leases (with the exception of short-term leases) in the statement of financial position at the commencement date. ASC Topic 842 was effective for and adopted by the Company in the first quarter of 2019. The Company adopted ASC Topic 842 using the modified retrospective transition method applied to all existing leases beginning January 1, 2019. Periods prior to adoption were not adjusted and continue to be reported in accordance with historic accounting guidance under ASC Topic 840. The Company elected the optional practical expedient package which, among other things, includes retaining the historical classification of leases. The adoption of ASC Topic 842 resulted in the recognition on the condensed consolidated balance sheets as of January 1, 2019 of right-of-use assets of $81.2

million and lease liabilities for operating leases of $97.7 million but did not result in a cumulative-effect adjustment on retained earnings. The operating lease right-of-use asset includes the impact upon adoption of ASC Topic 842 of the derecognition of lease incentives, deferred rent, below-market lease intangibles, cease-use liabilities and prepaid rent balances recognized in prepaid expenses and other current assets and current and noncurrent other accruals on the consolidated balance sheets as of December 31, 2018. The adoption of ASC Topic 842 did not have and is not expected to have a material impact to the Company's consolidated results of operations or cash flows. See Note 7, Commitments and Contingencies, for additional details.

v3.19.2
Acquisitions
6 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Acquisitions

3. Acquisitions

There were no acquisitions during the six months ended June 30, 2019.

2018 Acquisitions

On November 7, 2018, the Company acquired all of the issued and outstanding shares of Tapingo Ltd. (“Tapingo”) for approximately $152.1 million, including $151.7 million of cash paid (net of cash acquired of $1.5 million) and $0.4 million of other non-cash consideration. Tapingo is a leading platform for campus food ordering with direct integration into college meal plans and point of sale systems. The acquisition of Tapingo has enhanced the Company’s diner network on college campuses.

On September 13, 2018, the Company acquired SCVNGR, Inc. d/b/a LevelUp (“LevelUp”) for approximately $369.4 million, including $366.8 million of cash paid (net of cash acquired of $6.0 million) and $2.6 million of other non-cash consideration. LevelUp is a leading provider of mobile diner engagement and payment solutions for national and regional restaurant brands. The acquisition of LevelUp has simplified the Company’s integrations with restaurants’ systems, increased diner engagement and accelerated product development.

The Company assumed Tapingo and LevelUp employees’ unvested incentive stock option (“ISO”) awards as of the respective closing dates. Approximately $0.4 million and $2.6 million of the fair value of the assumed ISO awards granted to acquired Tapingo and LevelUp employees, respectively, was attributable to the pre-combination services of the awardees and was included in the respective purchase prices. These amounts are reflected within goodwill in the respective purchase price allocations. As of the respective acquisition dates, aggregate post-combination expense of approximately $21.4 million was expected to be recognized related to the combined assumed ISO awards over the remaining post-combination service period.

The results of operations of Tapingo and LevelUp have been included in the Company’s financial statements since November 7, 2018 and September 13, 2018, respectively.

The excess of the consideration transferred in the acquisitions over the amounts assigned to the fair value of the assets acquired was recorded as goodwill, which represents the value of LevelUp’s technology team, the ability to simplify integrations with restaurants on the Company’s platform, and the expanded breadth and depth of the Company’s network of diners and campus relationships. The total goodwill related to the acquisitions of Tapingo and LevelUp of $415.6 million is not deductible for income tax purposes.

The assets acquired and liabilities assumed of Tapingo and LevelUp were recorded at their estimated fair values as of the closing dates of November 7, 2018 and September 13, 2018, respectively. The purchase price allocation for Tapingo is subject to change within the measurement period as the valuation of deferred taxes is subject to management review and approval. See Note 5, Goodwill and Acquired Intangible Assets, for a description of changes to the purchase price allocations for Tapingo and LevelUp during the six months ended June 30, 2019.

The following table summarizes the preliminary and final purchase price allocation acquisition-date fair values of the asset and liabilities acquired in connection with the Tapingo and LevelUp acquisitions, respectively:

 

Tapingo

 

 

LevelUp

 

 

Total

 

 

(in thousands)

 

Accounts receivable

$

3,101

 

 

$

6,201

 

 

$

9,302

 

Prepaid expenses and other current assets

 

843

 

 

 

1,396

 

 

 

2,239

 

Property and equipment

 

 

 

 

895

 

 

 

895

 

Other assets

 

163

 

 

 

 

 

 

163

 

Restaurant relationships

 

11,279

 

 

 

10,217

 

 

 

21,496

 

Diner acquisition

 

 

 

 

3,912

 

 

 

3,912

 

Below-market lease intangible

 

 

 

 

2,205

 

 

 

2,205

 

Developed technology

 

9,755

 

 

 

20,107

 

 

 

29,862

 

Goodwill

 

119,417

 

 

 

296,198

 

 

 

415,615

 

Net deferred tax asset

 

12,073

 

 

 

31,545

 

 

 

43,618

 

Accounts payable and accrued expenses

 

(4,573

)

 

 

(3,249

)

 

 

(7,822

)

Total purchase price net of cash acquired

$

152,058

 

 

$

369,427

 

 

$

521,485

 

Fair value of assumed ISOs attributable to pre-combination service

 

(372

)

 

 

(2,594

)

 

 

(2,966

)

Net cash paid

$

151,686

 

 

$

366,833

 

 

$

518,519

 

 

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 and developed technology as follows:

 

Valuation Method

 

Tapingo

 

LevelUp

Restaurant relationships

Multi-period excess earnings

 

With or without comparative business valuation

Diner acquisition

n/a

 

Cost to recreate

Developed technology

Cost to recreate

 

Multi-period excess earnings

 

The fair value of the LevelUp below-market lease was measured based on the present value of the difference between the contractual amounts to be paid pursuant to the lease and an estimate of current fair market lease rates measured over the non-cancelable remaining term of the lease. As of January 1, 2019, the below-market lease intangible asset was derecognized from acquired intangible assets resulting in a corresponding adjustment to the opening balance of operating lease right-of-use assets on the condensed consolidated balance sheets upon adoption of ASC Topic 842.

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 of $0.3 million and $1.2 million for the three months ended June 30, 2019 and 2018, respectively, and of $0.8 million and $2.5 million for the six months ended June 30, 2019 and 2018, respectively.

Pro Forma (unaudited)

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, 2018 as if the acquisitions of Tapingo and LevelUp had occurred as of January 1 of the year prior to acquisition: 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

(in thousands, except per share data)

 

Revenues

$

251,005

 

 

$

494,352

 

Net income

 

21,115

 

 

 

42,736

 

Net income per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic

$

0.24

 

 

$

0.48

 

Diluted

$

0.23

 

 

$

0.47

 

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 assumed equity awards and interest expense for transaction financings, as well as the pro forma tax impact of such adjustments for the three and six months ended June 30, 2018 were as follows:

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

(in thousands)

 

Depreciation and amortization

$

1,440

 

 

$

3,066

 

Transaction costs

 

(1,133

)

 

 

(2,365

)

Stock-based compensation

 

1,750

 

 

 

3,622

 

Interest expense

 

484

 

 

 

1,009

 

Income tax benefit

 

(752

)

 

 

(1,578

)

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 period presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.

v3.19.2
Marketable Securities
6 Months Ended
Jun. 30, 2019
Investments Debt And Equity Securities [Abstract]  
Marketable Securities

4. Marketable Securities

The amortized cost, unrealized gains and losses and estimated fair value of the Company’s held-to-maturity marketable securities as of June 30, 2019 and December 31, 2018 were as follows:

 

 

June 30, 2019

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

8,810

 

 

$

 

 

$

(19

)

 

$

8,791

 

Corporate bonds

 

 

449

 

 

 

 

 

 

 

 

 

449

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

16,892

 

 

 

 

 

 

(96

)

 

 

16,796

 

Corporate bonds

 

 

1,298

 

 

 

 

 

 

 

 

 

1,298

 

Total

 

$

27,449

 

 

$

 

 

$

(115

)

 

$

27,334

 

 

 

 

December 31, 2018

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

12,097

 

 

$

 

 

$

(21

)

 

$

12,076

 

Corporate bonds

 

 

870

 

 

 

 

 

 

 

 

 

870

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

13,334

 

 

 

 

 

 

(88

)

 

 

13,246

 

Corporate bonds

 

 

750

 

 

 

 

 

 

 

 

 

750

 

Total

 

$

27,051

 

 

$

 

 

$

(109

)

 

$

26,942

 

All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of June 30, 2019.

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, 2019 and December 31, 2018 were as follows:

 

 

June 30, 2019

 

 

 

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

 

$

25,587

 

 

$

(115

)

 

$

 

 

$

 

 

$

25,587

 

 

$

(115

)

Total

 

$

25,587

 

 

$

(115

)

 

$

 

 

$

 

 

$

25,587

 

 

$

(115

)

 

 

 

December 31, 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

 

$

25,322

 

 

$

(109

)

 

$

 

 

$

 

 

$

25,322

 

 

$

(109

)

Corporate bonds

 

 

750

 

 

 

 

 

 

 

 

 

 

 

 

750

 

 

 

 

Total

 

$

26,072

 

 

$

(109

)

 

$

 

 

$

 

 

$

26,072

 

 

$

(109

)

The Company recognized interest income during the three months ended June 30, 2019 and 2018 of $0.7 million and $1.3 million, respectively, and for the six months ended June 30, 2019 and 2018 of $1.4 million and $1.9 million, respectively, within net interest expense on the condensed consolidated statements of operations. During the three and six months ended June 30, 2019 and 2018, the Company did not recognize any other-than-temporary impairment losses related to its marketable securities.

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

v3.19.2
Goodwill and Acquired Intangible Assets
6 Months Ended
Jun. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Acquired Intangible Assets

5. Goodwill and Acquired Intangible Assets

The components of acquired intangible assets as of June 30, 2019 and December 31, 2018 were as follows:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Restaurant relationships

 

$

497,788

 

 

$

(117,778

)

 

$

380,010

 

 

$

494,278

 

 

$

(103,457

)

 

$

390,821

 

Diner acquisition

 

 

48,293

 

 

 

(15,080

)

 

 

33,213

 

 

 

47,541

 

 

 

(10,306

)

 

 

37,235

 

Developed technology

 

 

35,826

 

 

 

(11,802

)

 

 

24,024

 

 

 

38,385

 

 

 

(10,247

)

 

 

28,138

 

Other

 

 

3,221

 

 

 

(2,721

)

 

 

500

 

 

 

3,676

 

 

 

(2,615

)

 

 

1,061

 

Trademarks

 

 

 

 

 

 

 

 

 

 

 

2,225

 

 

 

(2,225

)

 

 

 

Below-market lease intangible

 

 

 

 

 

 

 

 

 

 

 

2,206

 

 

 

(124

)

 

 

2,082

 

Total amortizable intangible assets

 

 

585,128

 

 

 

(147,381

)

 

 

437,747

 

 

 

588,311

 

 

 

(128,974

)

 

 

459,337

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

674,804

 

 

$

(147,381

)

 

$

527,423

 

 

$

677,987

 

 

$

(128,974

)

 

$

549,013

 

 

The Company acquired $3.5 million and $0.8 million of restaurant and diner network assets, respectively, during the six months ended June 30, 2019. The gross carrying amount and accumulated amortization of the Company’s trademarks, developed technology and other intangible assets as of June 30, 2019 were adjusted in aggregate by $5.2 million and $5.1 million, respectively, for certain fully amortized assets that were no longer in use. Additionally, upon adoption of ASC Topic 842, the acquired below-market lease intangible was derecognized resulting in a corresponding adjustment to the operating lease right-of-use asset within the condensed consolidated balance sheets as of January 1, 2019. Amortization of the acquired below-market lease intangible was recognized as rent expense within the condensed consolidated statements of operations. See Note 7, Commitments and Contingencies, for further details.

Amortization expense for acquired intangible assets recognized within depreciation and amortization on the condensed consolidated statements of operations was $11.9 million and $9.6 million for the three months ended June 30, 2019 and 2018, respectively, and $23.8 million and $21.1 million for the six months ended June 30, 2019 and 2018, respectively.

The change in the carrying amount of goodwill during the six months ended June 30, 2019, which was primarily related to changes in the fair value of net deferred tax assets for the purchase price allocations of the Tapingo and LevelUp acquisitions during the measurement period, was as follows:

 

 

Goodwill

 

 

Accumulated Impairment Losses

 

 

Net Book Value

 

 

 

(in thousands)

 

Balance as of December 31, 2018

 

$

1,019,239

 

 

$

 

 

$

1,019,239

 

Acquisitions – measurement period adjustments

 

 

(13,762

)

 

 

 

 

 

(13,762

)

Balance as of June 30, 2019

 

$

1,005,477

 

 

$

 

 

$

1,005,477

 

Estimated future amortization expense of acquired intangible assets as of June 30, 2019 was as follows:

 

 

(in thousands)

 

The remainder of 2019

 

$

26,942

 

2020

 

 

45,645

 

2021

 

 

38,812

 

2022

 

 

36,843

 

2023

 

 

30,348

 

Thereafter

 

 

259,157

 

Total

 

$

437,747

 

 

v3.19.2
Property and Equipment
6 Months Ended
Jun. 30, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment

6. Property and Equipment

The components of the Company’s property and equipment as of June 30, 2019 and December 31, 2018 were as follows:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Developed software

 

$

120,405

 

 

$

90,302

 

Computer equipment

 

 

62,857

 

 

 

50,767

 

Leasehold improvements

 

 

49,210

 

 

 

39,550

 

Furniture and fixtures

 

 

14,209

 

 

 

10,801

 

Purchased software and digital assets

 

 

8,780

 

 

 

4,696

 

Construction in progress

 

 

140

 

 

 

1,976

 

Property and equipment

 

 

255,601

 

 

 

198,092

 

Accumulated depreciation and amortization

 

 

(106,606

)

 

 

(78,597

)

Property and equipment, net

 

$

148,995

 

 

$

119,495

 

The Company recorded depreciation and amortization expense for property and equipment other than developed software of $7.4 million and $5.4 million for the three months ended June 30, 2019 and 2018, respectively, and $13.6 million and $10.5 million for the six months ended June 30, 2019 and 2018, respectively.

The Company capitalized developed software costs of $15.8 million and $9.1 million for the three months ended June 30, 2019 and 2018, respectively, and $30.3 million and $17.3 million for the six months ended June 30, 2019 and 2018, respectively. Amortization expense for developed software costs, recognized in depreciation and amortization in the condensed consolidated statements of operations, for the three months ended June 30, 2019 and 2018 was $7.9 million and $4.8 million, respectively, and $14.9 million and $9.2 million for the six months ended June 30, 2019 and 2018, respectively.

v3.19.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. Commitments and Contingencies

Leases

As of June 30, 2019, the Company had operating lease agreements for its office facilities in various locations throughout the U.S, as well as in the U.K. and Israel, which expire at various dates through May 2030. The terms of the lease agreements provide for fixed rental payments on a graduated basis. For its primary operating leases, the Company can, after the initial lease term, renew its leases under right of first offer terms at fair value at the time of renewal for a period of five years.  The Company's lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

The Company determines if an arrangement is a lease at inception of a contract. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Non-lease components associated with lease components in the Company’s lease contracts are treated as a single lease component. As of June 30, 2019, the Company recognized on its condensed consolidated balance sheets operating lease right-of-use assets of $104.1 million that represent the Company's right to use an underlying asset during the lease term and current and noncurrent operating lease liabilities of $6.9 million and $114.7 million, respectively, that represent the Company's obligation to make lease payments. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. To determine the incremental borrowing rate, the Company uses information including the risk-free interest rate for the remaining lease term, the Company’s implied credit rating and interest rates of similar debt instruments of entities with comparable credit ratings. The Company recognizes rent expense on a straight-line basis over the lease term, which is allocated on a headcount basis to operations and support, sales and marketing, technology and general and administrative costs and expenses in the condensed consolidated statements of operations.

The components of lease costs, which consists of rent expense for leased office space, during the three and six months ended June 30, 2019 were as follows:

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

 

 

(in thousands)

 

Fixed operating lease cost

 

$

3,945

 

 

$

7,753

 

Short-term lease cost

 

 

403

 

 

 

853

 

Sublease income

 

 

(125

)

 

 

(172

)

Total lease cost

 

$

4,223

 

 

$

8,434

 

Supplemental cash flow information related to the Company’s operating leases as well as the weighted-average lease term and discount rate as of June 30, 2019 were as follows:

 

 

Six Months Ended June 30, 2019

 

Cash paid for operating lease liabilities (in thousands)

 

$

6,733

 

Operating lease assets obtained in exchange for new operating lease obligations (in thousands)

 

$

28,109

 

Weighted-average remaining lease term (years)

 

 

9.3

 

Weighted-average discount rate

 

 

5.0

%

Future lease payments under the Company’s operating lease agreements as of June 30, 2019 were as follows:

 

 

(in thousands)

 

The remainder of 2019

 

$

6,906

 

2020

 

 

10,288

 

2021

 

 

18,515

 

2022

 

 

16,530

 

2023

 

 

16,605

 

Thereafter

 

 

87,496

 

Total future lease payments

 

$

156,340

 

Less interest

 

 

(34,741

)

Present value of lease liabilities

 

$

121,599

 

The table above does not reflect the Company’s option to exercise early termination rights or the payment of related early termination fees. Lease incentives reduce lease payments in the period in which they are expected to be received.

As previously reported in the 2018 Form 10-K under ASC Topic 840, future minimum lease payments under the Company’s operating lease agreements that had initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:

 

 

(in thousands)

 

2019

 

$

13,009

 

2020

 

 

14,874

 

2021

 

 

14,243

 

2022

 

 

12,219

 

2023

 

 

12,220

 

Thereafter

 

 

57,503

 

Total

 

$

124,068

 

Legal

In August 2011, Ameranth, Inc. (“Ameranth”) filed a patent infringement action against a number of defendants, including Grubhub Holdings Inc., in the U.S. District Court for the Southern District of California, Case No. 3:11-cv-1810. Ameranth subsequently initiated additional actions for infringement of a related patent, including separate actions against Grubhub Holdings Inc., Case No. 3:12-cv-739, and Seamless North America, LLC, Case No. 3:12-cv-737, which were consolidated along with approximately 40 other cases Ameranth filed in the same district.

In September 2018, the district court granted summary judgment (on another defendant’s motion) of unpatentability on the sole remaining patent and vacated the December 3, 2018 jury trial date for the claims against Grubhub Holdings Inc. and Seamless North America, LLC. In October 2018, the district court entered final judgment on all claims in the case in which summary judgment was granted, and then stayed the remaining cases (including the cases against Grubhub and Seamless). Ameranth then appealed this decision to the U.S. Court of Appeals for the Federal Circuit. The Company believes this case lacks merit and that it has strong defenses to all of the infringement claims. The Company intends to defend the suit vigorously. However, the Company is unable to predict the likelihood of success of Ameranth’s infringement claims and is unable to predict the likelihood of success of its counterclaims. The Company has not recorded an accrual related to this lawsuit as of June 30, 2019, as it does not believe a material loss is probable. It is a reasonable possibility that a loss may be incurred; however, the possible range of loss is not estimable given the status of the case and the uncertainty as to whether the claims at issue are with or without merit, will be settled out of court, or will be determined in the Company’s favor, whether the Company may be required to expend significant management time and financial resources on the defense of such claims, and whether the Company will be able to recover any losses under its insurance policies.

In addition to the matter described above, from time to time, the Company is involved in various other legal proceedings arising from the normal course of business activities, including labor and employment claims, some of which relate to the alleged misclassification of independent contractors. In September 2015, a claim was brought in the United States District Court for the Northern District of California under the Private Attorneys General Act by an individual plaintiff on behalf of himself and seeking to represent other drivers and the State of California. The claim sought monetary penalties and injunctive relief for alleged violations of the California Labor Code based on the alleged misclassification of drivers as independent contractors. A decision was issued on February 8, 2018, and the court ruled in favor of the Company, finding that plaintiff was properly classified as an independent contractor. In March 2018, the plaintiff appealed this decision to the U.S. Court of Appeals for the Ninth Circuit. The Company does

not believe any of the foregoing claims will have a material impact on its consolidated financial statements. However, there is no assurance that any claim will not be combined into a collective or class action.

Indemnification

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

v3.19.2
Debt
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Debt

8. Debt

The following table summarizes the carrying value of the Company’s debt as of June 30, 2019 and December 31, 2018:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Senior Notes

 

$

500,000

 

 

$

 

Term loan

 

 

 

 

 

120,312

 

Revolving loan

 

 

 

 

 

222,000

 

Total debt

 

$

500,000

 

 

$

342,312

 

Less current portion