GRUBHUB INC., 10-Q filed on 11/7/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Nov. 01, 2019
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
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   91,449,376
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 1-36389  
Entity Tax Identification Number 46-2908664  
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 IL  
Entity Address, Postal Zip Code 60602  
City Area Code 877  
Local Phone Number 585-7878  
Title of 12(b) Security Common Stock, $0.0001 par value per share  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Document Transition Report false  
Document Quarterly Report true  
Entity Interactive Data Current Yes  
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 394,000 $ 211,245
Short-term investments 32,214 14,084
Accounts receivable, less allowances for doubtful accounts 123,309 110,855
Income tax receivable 2,227 9,949
Prepaid expenses and other current assets 18,632 17,642
Total current assets 570,382 363,775
PROPERTY AND EQUIPMENT:    
Property and equipment, net of depreciation and amortization 160,368 119,495
OTHER ASSETS:    
Other assets 25,452 14,186
Operating lease right-of-use asset 100,736  
Goodwill 1,007,968 1,019,239
Acquired intangible assets, net of amortization 513,848 549,013
Total other assets 1,648,004 1,582,438
TOTAL ASSETS 2,378,754 2,065,708
CURRENT LIABILITIES:    
Restaurant food liability 130,544 127,344
Accounts payable 23,392 26,656
Accrued payroll 22,537 18,173
Current portion of long-term debt   6,250
Current operating lease liability 8,056  
Other accruals 59,686 44,745
Total current liabilities 244,215 223,168
LONG-TERM LIABILITIES:    
Deferred taxes, non-current 28,681 46,383
Noncurrent operating lease liability 111,554  
Long-term debt 492,776 335,548
Other accruals 817 18,270
Total long-term liabilities 633,828 400,201
Commitments and contingencies
STOCKHOLDERS’ EQUITY:    
Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of September 30, 2019 and December 31, 2018; issued and outstanding: no shares as of September 30, 2019 and December 31, 2018.
Common stock, $0.0001 par value. Authorized: 500,000,000 shares at September 30, 2019 and December 31, 2018; issued and outstanding: 91,412,557 and 90,756,548 shares as of September 30, 2019 and December 31, 2018, respectively 9 9
Accumulated other comprehensive loss (2,346) (1,891)
Additional paid-in capital 1,144,541 1,094,866
Retained earnings 358,507 349,355
Total stockholders’ equity 1,500,711 1,442,339
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,378,754 $ 2,065,708
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 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 91,412,557 90,756,548
Common stock, shares outstanding 91,412,557 90,756,548
v3.19.3
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Revenues $ 322,053 $ 247,225 $ 970,881 $ 719,536
Costs and expenses:        
Operations and support 161,387 111,511 485,143 310,239
Sales and marketing 71,617 49,426 224,199 144,413
Technology (exclusive of amortization) 29,483 21,258 86,133 57,306
General and administrative 25,329 22,195 73,900 58,072
Depreciation and amortization 30,649 20,987 82,961 61,787
Total costs and expenses 318,465 225,377 952,336 631,817
Income from operations 3,588 21,848 18,545 87,719
Interest expense - net 6,025 337 14,304 1,367
Income (loss) before provision for income taxes (2,437) 21,511 4,241 86,352
Income tax (benefit) expense (3,447) (1,234) (4,911) 2,721
Net income attributable to common stockholders $ 1,010 $ 22,745 $ 9,152 $ 83,631
Net income per share attributable to common stockholders:        
Basic $ 0.01 $ 0.25 $ 0.10 $ 0.94
Diluted $ 0.01 $ 0.24 $ 0.10 $ 0.91
Weighted-average shares used to compute net income per share attributable to common stockholders:        
Basic 91,349 90,494 91,159 89,027
Diluted 92,847 93,678 92,850 92,091
v3.19.3
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Net income $ 1,010 $ 22,745 $ 9,152 $ 83,631
OTHER COMPREHENSIVE LOSS        
Foreign currency translation adjustments (366) (92) (455) (392)
COMPREHENSIVE INCOME $ 644 $ 22,653 $ 8,697 $ 83,239
v3.19.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 9,152 $ 83,631
Adjustments to reconcile net income to net cash from operating activities:    
Depreciation 21,665 16,189
Amortization of intangible assets and developed software 61,296 45,598
Stock-based compensation 54,806 36,445
Deferred taxes (6,208) 2,048
Other 5,210 4,572
Change in assets and liabilities, net of the effects of business acquisitions:    
Accounts receivable (13,335) (17,969)
Income taxes receivable 7,722 (5,533)
Prepaid expenses and other assets (11,955) (15,455)
Restaurant food liability 3,247 1,608
Accounts payable (50) 5,265
Accrued payroll 4,366 5,311
Other accruals 20,088 3,752
Net cash provided by operating activities 156,004 165,462
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of investments (49,506) (47,642)
Proceeds from maturity of investments 31,736 54,916
Capitalized website and development costs (35,068) (21,471)
Purchases of property and equipment (42,702) (31,984)
Acquisition of other intangible assets (8,889) 0
Acquisitions of businesses, net of cash acquired 127 (366,856)
Other cash flows from investing activities (250) 38
Net cash used in investing activities (104,552) (412,999)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from the issuance of long-term debt 500,000 175,000
Repayments of borrowings under the credit facility (342,313) (52,344)
Proceeds from the issuance of common stock   200,000
Taxes paid related to net settlement of stock-based compensation awards (20,503) (28,238)
Proceeds from exercise of stock options 4,040 13,010
Payments for debt issuance costs (9,136)  
Net cash provided by financing activities 132,088 307,428
Net change in cash, cash equivalents, and restricted cash 183,540 59,891
Effect of exchange rates on cash, cash equivalents and restricted cash (293) (406)
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 399,049 297,724
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS    
Cash paid for income taxes 567 7,508
Capitalized property, equipment and website and development costs in accounts payable at period end 4,659 4,069
Net working capital adjustment receivable   530
Fair value of equity awards assumed on acquisition   2,594
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH    
Cash and cash equivalents 394,000 $ 294,550
Restricted cash included in prepaid expenses and other current assets $ 1,907  
Restricted Cash, Current, Asset, Statement of Financial Position [Extensible List] us-gaap:PrepaidExpenseAndOtherAssetsCurrent us-gaap:PrepaidExpenseAndOtherAssetsCurrent
Restricted cash included in other assets $ 3,142 $ 3,174
Restricted Cash, Noncurrent, Asset, Statement of Financial Position [Extensible List] us-gaap:OtherAssetsNoncurrent us-gaap:OtherAssetsNoncurrent
Total cash, cash equivalents, and restricted cash $ 399,049 $ 297,724
v3.19.3
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 83,631       83,631
Cumulative effect adjustment upon adoption of ASU | ASU 2016-09 882       882
Currency translation (392)     (392)  
Stock-based compensation 42,755   42,755    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 13,010   13,010    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   1,283,896      
Shares repurchased and retired to satisfy tax withholding upon vesting (28,238)   (28,238)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (296,725)      
Issuance of common stock, investment 200,000   200,000    
Issuance of common stock, investments   2,820,464      
Stock-based compensation, acquisitions 2,594   2,594    
Balance, ending at Sep. 30, 2018 1,432,058 $ 9 1,079,164 (1,620) 354,505
Balance, ending (in shares) at Sep. 30, 2018   90,598,259      
Balance, beginning at Jun. 30, 2018 1,396,408 $ 9 1,066,167 (1,528) 331,760
Balance, beginning (in shares) at Jun. 30, 2018   90,337,427      
Net income 22,745       22,745
Currency translation (92)     (92)  
Stock-based compensation 16,872   16,872    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 3,052   3,052    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   337,128      
Shares repurchased and retired to satisfy tax withholding upon vesting (9,521)   (9,521)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (76,296)      
Stock-based compensation, acquisitions 2,594   2,594    
Balance, ending at Sep. 30, 2018 1,432,058 $ 9 1,079,164 (1,620) 354,505
Balance, ending (in shares) at Sep. 30, 2018   90,598,259      
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 9,152       9,152
Currency translation (455)     (455)  
Stock-based compensation 66,138   66,138    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 4,040   4,040    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   934,911      
Shares repurchased and retired to satisfy tax withholding upon vesting (20,503)   (20,503)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (278,902)      
Balance, ending at Sep. 30, 2019 1,500,711 $ 9 1,144,541 (2,346) 358,507
Balance, ending (in shares) at Sep. 30, 2019   91,412,557      
Balance, beginning at Jun. 30, 2019 1,481,700 $ 9 1,126,174 (1,980) 357,497
Balance, beginning (in shares) at Jun. 30, 2019   91,230,916      
Net income 1,010       1,010
Currency translation (366)     (366)  
Stock-based compensation 22,400   22,400    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 1,110   1,110    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   258,384      
Shares repurchased and retired to satisfy tax withholding upon vesting (5,143)   (5,143)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (76,743)      
Balance, ending at Sep. 30, 2019 $ 1,500,711 $ 9 $ 1,144,541 $ (2,346) $ 358,507
Balance, ending (in shares) at Sep. 30, 2019   91,412,557      
v3.19.3
Organization
9 Months Ended
Sep. 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”.

v3.19.3
Significant Accounting Policies
9 Months Ended
Sep. 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 nine months ended September 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 nine months ended September 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.

v3.19.3
Acquisitions
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisitions

3. Acquisitions

There were no acquisitions during the nine months ended September 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 $418.1 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. See Note 5, Goodwill and Acquired Intangible Assets, for a description of changes to the purchase price allocations for Tapingo and LevelUp during the nine months ended September 30, 2019.

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

 

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

 

121,908

 

 

 

296,198

 

 

 

418,106

 

Net deferred tax asset

 

9,582

 

 

 

31,545

 

 

 

41,127

 

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 $1.2 million and $2.6 million for the three months ended September 30, 2019 and 2018, respectively, and of $2.0 million and $5.1 million for the nine months ended September 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 nine months ended September 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

September 30, 2018

 

 

Nine Months Ended

September 30, 2018

 

 

(in thousands, except per share data)

 

Revenues

$

257,972

 

 

$

752,324

 

Net income

 

18,090

 

 

 

60,826

 

Net income per share attributable to common shareholders:

 

 

 

 

 

 

 

Basic

$

0.20

 

 

$

0.68

 

Diluted

$

0.19

 

 

$

0.66

 

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 nine months ended September 30, 2018 were as follows:

 

Three Months Ended

September 30, 2018

 

 

Nine Months Ended

September 30, 2018

 

 

(in thousands)

 

Depreciation and amortization

$

1,337

 

 

$

4,403

 

Transaction costs

 

(2,645

)

 

 

(5,010

)

Stock-based compensation

 

(41

)

 

 

3,581

 

Interest expense

 

432

 

 

 

1,441

 

Income tax (benefit) expense

 

272

 

 

 

(1,306

)

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.

v3.19.3
Marketable Securities
9 Months Ended
Sep. 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 September 30, 2019 and December 31, 2018 were as follows:

 

 

September 30, 2019

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

26,124

 

 

$

 

 

$

(67

)

 

$

26,057

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

29,408

 

 

 

 

 

 

(152

)

 

 

29,256

 

Corporate bonds

 

 

2,806

 

 

 

2

 

 

 

 

 

 

2,808

 

Total

 

$

58,338

 

 

$

2

 

 

$

(219

)

 

$

58,121

 

 

 

 

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 September 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 September 30, 2019 and December 31, 2018 were as follows:

 

 

September 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

 

$

55,313

 

 

$

(219

)

 

$

 

 

$

 

 

$

55,313

 

 

$

(219

)

Total

 

$

55,313

 

 

$

(219

)

 

$

 

 

$

 

 

$

55,313

 

 

$

(219

)

 

 

 

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 each of the three months ended September 30, 2019 and 2018 of $1.3 million, and for the nine months ended September 30, 2019 and 2018 of $2.7 million and $3.2 million, respectively, within net interest expense on the condensed consolidated statements of operations. During the three and nine months ended September 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).

v3.19.3
Goodwill and Acquired Intangible Assets
9 Months Ended
Sep. 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 September 30, 2019 and December 31, 2018 were as follows:

 

 

September 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

 

 

$

(126,661

)

 

$

371,127

 

 

$

494,278

 

 

$

(103,457

)

 

$

390,821

 

Diner acquisition

 

 

48,293

 

 

 

(17,494

)

 

 

30,799

 

 

 

47,541

 

 

 

(10,306

)

 

 

37,235

 

Developed technology

 

 

35,826

 

 

 

(13,859

)

 

 

21,967

 

 

 

38,385

 

 

 

(10,247

)

 

 

28,138

 

Other

 

 

2,918

 

 

 

(2,639

)

 

 

279

 

 

 

3,676

 

 

 

(2,615

)

 

 

1,061

 

Trademarks

 

 

 

 

 

 

 

 

 

 

 

2,225

 

 

 

(2,225

)

 

 

 

Below-market lease intangible

 

 

 

 

 

 

 

 

 

 

 

2,206

 

 

 

(124

)

 

 

2,082

 

Total amortizable intangible assets

 

 

584,825

 

 

 

(160,653

)

 

 

424,172

 

 

 

588,311

 

 

 

(128,974

)

 

 

459,337

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

674,501

 

 

$

(160,653

)

 

$

513,848

 

 

$

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 nine months ended September 30, 2019. The gross carrying amount and accumulated amortization of the Company’s trademarks, developed technology and other intangible assets as of September 30, 2019 were adjusted in aggregate by $5.5 million and $5.4 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 $13.5 million and $10.0 million for the three months ended September 30, 2019 and 2018, respectively, and $37.3 million and $31.1 million for the nine months ended September 30, 2019 and 2018, respectively.

The change in the carrying amount of goodwill during the nine months ended September 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

 

 

(11,271

)

 

 

 

 

 

(11,271

)

Balance as of September 30, 2019

 

$

1,007,968

 

 

$

 

 

$

1,007,968

 

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

 

 

(in thousands)

 

The remainder of 2019

 

$

13,367

 

2020

 

 

45,645

 

2021

 

 

38,812

 

2022

 

 

36,843

 

2023

 

 

30,348

 

Thereafter

 

 

259,157

 

Total

 

$

424,172

 

 

v3.19.3
Property and Equipment
9 Months Ended
Sep. 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 September 30, 2019 and December 31, 2018 were as follows:

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Developed software

 

$

136,904

 

 

$

90,302

 

Computer equipment

 

 

68,351

 

 

 

50,767

 

Leasehold improvements

 

 

53,119

 

 

 

39,550

 

Furniture and fixtures

 

 

14,361

 

 

 

10,801

 

Purchased software and digital assets

 

 

11,100

 

 

 

4,696

 

Construction in progress

 

 

214

 

 

 

1,976

 

Property and equipment

 

 

284,049

 

 

 

198,092

 

Accumulated depreciation and amortization

 

 

(123,681

)

 

 

(78,597

)

Property and equipment, net

 

$

160,368

 

 

$

119,495

 

 

The Company recorded depreciation and amortization expense for property and equipment other than developed software of $8.1 million and $5.7 million for the three months ended September 30, 2019 and 2018, respectively, and $21.7 million and $16.2 million for the nine months ended September 30, 2019 and 2018, respectively.

The Company capitalized developed software costs of $16.5 million and $10.8 million for the three months ended September 30, 2019 and 2018, respectively, and $46.8 million and $28.1 million for the nine months ended September 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 September 30, 2019 and 2018 was $9.1 million and $5.3 million, respectively, and $24.0 million and $14.5 million for the nine months ended September 30, 2019 and 2018, respectively.

v3.19.3
Commitments and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. Commitments and Contingencies

Leases

As of September 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 terms include 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 September 30, 2019, the Company recognized on its condensed consolidated balance sheets operating lease right-of-use assets of $100.7 million that represent the Company's right to use an underlying asset during the lease term and current and noncurrent operating lease liabilities of $8.1 million and $111.6 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 consist of rent expense for leased office space, during the three and nine months ended September 30, 2019 were as follows:

 

 

Three Months Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2019

 

 

 

(in thousands)

 

Fixed operating lease cost

 

$

4,591

 

 

$

12,344

 

Short-term lease cost

 

 

531

 

 

 

1,384

 

Sublease income

 

 

(318

)

 

 

(490

)

Total lease cost

 

$

4,804

 

 

$

13,238

 

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

 

 

Nine Months Ended

September 30, 2019

 

Cash paid for operating lease liabilities (in thousands)

 

$

10,298

 

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

 

$

28,109

 

Weighted-average remaining lease term (years)

 

 

9.1

 

Weighted-average discount rate

 

 

5.0

%

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

 

 

(in thousands)

 

The remainder of 2019

 

$

3,383

 

2020

 

 

10,302

 

2021

 

 

18,522

 

2022

 

 

16,530

 

2023

 

 

16,605

 

Thereafter

 

 

87,496

 

Total future lease payments

 

$

152,838

 

Less interest

 

 

(33,228

)

Present value of lease liabilities

 

$

119,610

 

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 September 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.

v3.19.3
Debt
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Debt

8. Debt

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

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Senior Notes

 

$

500,000

 

 

$

 

Term loan