GRUBHUB INC., 10-Q filed on 5/10/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 03, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
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   91,177,437
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
CURRENT ASSETS:    
Cash and cash equivalents $ 189,694 $ 211,245
Short-term investments 14,704 14,084
Accounts receivable, less allowances for doubtful accounts 141,047 110,855
Income tax receivable 10,865 9,949
Prepaid expenses and other current assets 19,936 17,642
Total current assets 376,246 363,775
PROPERTY AND EQUIPMENT:    
Property and equipment, net of depreciation and amortization 136,347 119,495
OTHER ASSETS:    
Other assets 22,427 14,186
Operating lease right-of-use asset 78,674  
Goodwill 1,005,381 1,019,239
Acquired intangible assets, net of amortization 534,989 549,013
Total other assets 1,641,471 1,582,438
TOTAL ASSETS 2,154,064 2,065,708
CURRENT LIABILITIES:    
Restaurant food liability 140,469 127,344
Accounts payable 15,677 26,656
Accrued payroll 18,586 18,173
Taxes payable 1,179 422
Current portion of long-term debt 10,156 6,250
Current operating lease liability 13,436  
Other accruals 50,164 44,323
Total current liabilities 249,667 223,168
LONG-TERM LIABILITIES:    
Deferred taxes, non-current 31,411 46,383
Noncurrent operating lease liability 82,405  
Long-term debt 328,193 335,548
Other accruals 751 18,270
Total long-term liabilities 442,760 400,201
Commitments and contingencies
STOCKHOLDERS’ EQUITY:    
Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of March 31, 2019 and December 31, 2018; issued and outstanding: no shares as of March 31, 2019 and December 31, 2018.
Common stock, $0.0001 par value. Authorized: 500,000,000 shares at March 31, 2019 and December 31, 2018; issued and outstanding: 91,074,285 and 90,756,548 shares as of March 31, 2019 and December 31, 2018, respectively 9 9
Accumulated other comprehensive loss (1,664) (1,891)
Additional paid-in capital 1,107,047 1,094,866
Retained earnings 356,245 349,355
Total stockholders’ equity 1,461,637 1,442,339
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,154,064 $ 2,065,708
v3.19.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 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 91,074,285 90,756,548
Common stock, shares outstanding 91,074,285 90,756,548
v3.19.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Revenues $ 323,770 $ 232,570
Costs and expenses:    
Operations and support 161,350 96,283
Sales and marketing 78,454 48,756
Technology (exclusive of amortization) 27,250 17,331
General and administrative 22,787 17,697
Depreciation and amortization 25,089 20,951
Total costs and expenses 314,930 201,018
Income from operations 8,840 31,552
Interest expense - net 2,812 1,022
Income before provision for income taxes 6,028 30,530
Income tax benefit (862) (236)
Net income attributable to common stockholders $ 6,890 $ 30,766
Net income per share attributable to common stockholders:    
Basic $ 0.08 $ 0.35
Diluted $ 0.07 $ 0.34
Weighted-average shares used to compute net income per share attributable to common stockholders:    
Basic 90,951 87,085
Diluted 92,918 90,091
v3.19.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]    
Net income $ 6,890 $ 30,766
OTHER COMPREHENSIVE INCOME    
Foreign currency translation adjustments 227 356
COMPREHENSIVE INCOME $ 7,117 $ 31,122
v3.19.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 6,890 $ 30,766
Adjustments to reconcile net income to net cash from operating activities:    
Depreciation 6,193 5,050
Deferred taxes (986) (2,976)
Amortization of intangible assets and developed software 18,896 15,901
Stock-based compensation 16,478 10,231
Other 735 2,048
Change in assets and liabilities, net of the effects of business acquisitions:    
Accounts receivable (30,391) (172)
Income taxes receivable (916) 4,090
Prepaid expenses and other assets (10,666) (3,516)
Restaurant food liability 13,099 6,885
Accounts payable (18,644) 601
Accrued payroll 411 (3,295)
Other accruals 12,845 5,887
Net cash provided by operating activities 13,944 71,500
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of investments (12,160) (10,537)
Proceeds from maturity of investments 11,636 18,166
Capitalized website and development costs (10,692) (6,262)
Purchases of property and equipment (8,018) (5,462)
Acquisition of other intangible assets (5,379)  
Acquisitions of businesses, net of cash acquired 127 737
Other cash flows from investing activities   16
Net cash used in investing activities (24,486) (3,342)
CASH FLOWS FROM FINANCING ACTIVITIES    
Taxes paid related to net settlement of stock-based compensation awards (9,966) (11,485)
Proceeds from exercise of stock options 2,424 6,948
Repayments of borrowings under the credit facility (2,031) (25,781)
Payments for debt issuance costs (1,647)  
Net cash used in financing activities (11,220) (30,318)
Net change in cash, cash equivalents, and restricted cash (21,762) 37,840
Effect of exchange rates on cash, cash equivalents and restricted cash 232 356
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 194,272 276,435
SUPPLEMENTAL DISCLOSURE OF NON-CASH ITEMS    
Cash paid for income taxes 351 227
Capitalized property, equipment and website and development costs in accounts payable at period end 7,851 3,992
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH    
Cash and cash equivalents 189,694 272,258
Restricted cash included in prepaid expenses and other current assets $ 1,401 $ 1,500
Restricted Cash, Current, Asset, Statement of Financial Position [Extensible List] us-gaap:PrepaidExpenseAndOtherAssetsCurrent us-gaap:PrepaidExpenseAndOtherAssetsCurrent
Restricted cash included in other assets $ 3,177 $ 2,677
Restricted Cash, Noncurrent, Asset, Statement of Financial Position [Extensible List] us-gaap:OtherAssetsNoncurrent us-gaap:OtherAssetsNoncurrent
Total cash, cash equivalents, and restricted cash $ 194,272 $ 276,435
v3.19.1
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Total
Common stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (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 30,766       30,766
Cumulative effect adjustment upon adoption of ASU | ASU 2016-09 882       882
Currency translation 356     356  
Stock-based compensation 11,937   11,937    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 6,948   6,948    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   643,888      
Shares repurchased and retired to satisfy tax withholding upon vesting (11,485)   (11,485)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (147,471)      
Balance, ending at Mar. 31, 2018 1,157,220 $ 9 856,443 (872) 301,640
Balance, ending (in shares) at Mar. 31, 2018   87,287,041      
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 6,890       6,890
Currency translation 227     227  
Stock-based compensation 19,723   19,723    
Stock option exercises and vesting of restricted stock units, net of withholdings and other 2,424   2,424    
Stock option exercises and vesting of restricted stock units, net of withholdings and other (in shares)   442,171      
Shares repurchased and retired to satisfy tax withholding upon vesting (9,966)   (9,966)    
Shares repurchased and retired to satisfy tax withholding upon vesting (in shares)   (124,434)      
Balance, ending at Mar. 31, 2019 $ 1,461,637 $ 9 $ 1,107,047 $ (1,664) $ 356,245
Balance, ending (in shares) at Mar. 31, 2019   91,074,285      
v3.19.1
Organization
3 Months Ended
Mar. 31, 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 largely fee 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”.

v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 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 months ended March 31, 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 three months ended March 31, 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.

v3.19.1
Acquisitions
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Acquisitions

3. Acquisitions

There were no acquisitions during the three months ended March 31, 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 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 $415.5 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 allocations for Tapingo and LevelUp are subject to change within the measurement period as certain significant fair value estimates are 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 three months ended March 31, 2019.

The following table summarizes the preliminary purchase price allocation acquisition-date fair values of the asset 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

 

119,321

 

 

 

296,198

 

 

 

415,519

 

Net deferred tax asset

 

12,074

 

 

 

31,545

 

 

 

43,619

 

Accounts payable and accrued expenses

 

(4,478

)

 

 

(3,249

)

 

 

(7,727

)

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 for the three months ended March 31, 2019 and 2018 of $0.5 million and $1.3 million, respectively.

Pro Forma (unaudited)

The following unaudited pro forma information presents a summary of the operating results of the Company for the three months ended March 31, 2018 as if the acquisitions of Tapingo and LevelUp had occurred as of January 1 of the year prior to acquisition:

 

 

Three Months Ended

March 31, 2018

 

 

(in thousands, except per share data)

 

Revenues

$

243,347

 

Net income

 

21,621

 

Net income per share attributable to common shareholders:

 

 

 

Basic

$

0.25

 

Diluted

$

0.24

 

 

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 months ended March 31, 2018 were as follows:

 

 

Three Months Ended

March 31, 2018

 

 

(in thousands)

 

Depreciation and amortization

$

1,626

 

Transaction costs

 

(1,232

)

Stock-based compensation

 

1,872

 

Interest expense

 

525

 

Income tax benefit

 

(826

)

 

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.

v3.19.1
Marketable Securities
3 Months Ended
Mar. 31, 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 March 31, 2019 and December 31, 2018 were as follows:

 

 

 

March 31, 2019

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

11,451

 

 

$

 

 

$

(20

)

 

$

11,431

 

Corporate bonds

 

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

14,704

 

 

 

 

 

 

(78

)

 

 

14,626

 

Total

 

$

27,155

 

 

$

 

 

$

(98

)

 

$

27,057

 

 

 

 

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 March 31, 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 March 31, 2019 and December 31, 2018 were as follows:

 

 

 

March 31, 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

 

$

26,057

 

 

$

(98

)

 

$

 

 

$

 

 

$

26,057

 

 

$

(98

)

Total

 

$

26,057

 

 

$

(98

)

 

$

 

 

$

 

 

$

26,057

 

 

$

(98

)

 

 

 

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 March 31, 2019 and 2018 of $0.7 million and $0.6 million, respectively, within net interest expense on the condensed consolidated statements of operations. During the three months ended March 31, 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).

v3.19.1
Goodwill and Acquired Intangible Assets
3 Months Ended
Mar. 31, 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 March 31, 2019 and December 31, 2018 were as follows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Restaurant relationships

 

$

494,278

 

 

$

(110,647

)

 

$

383,631

 

 

$

494,278

 

 

$

(103,457

)

 

$

390,821

 

Diner acquisition

 

 

47,541

 

 

 

(12,683

)

 

 

34,858

 

 

 

47,541

 

 

 

(10,306

)

 

 

37,235

 

Developed technology

 

 

38,385

 

 

 

(12,304

)

 

 

26,081

 

 

 

38,385

 

 

 

(10,247

)

 

 

28,138

 

Trademarks

 

 

2,225

 

 

 

(2,225

)

 

 

 

 

 

2,225

 

 

 

(2,225

)

 

 

 

Below-market lease intangible

 

 

 

 

 

 

 

 

 

 

 

2,206

 

 

 

(124

)

 

 

2,082

 

Other

 

 

3,373

 

 

 

(2,630

)

 

 

743

 

 

 

3,676

 

 

 

(2,615

)

 

 

1,061

 

Total amortizable intangible assets

 

 

585,802

 

 

 

(140,489

)

 

 

445,313

 

 

 

588,311

 

 

 

(128,974

)

 

 

459,337

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

675,478

 

 

$

(140,489

)

 

$

534,989

 

 

$

677,987

 

 

$

(128,974

)

 

$

549,013

 

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 $11.5 million for the three months ended March 31, 2019 and 2018, respectively.

 

The change in the carrying amount of goodwill during the three months ended March 31, 2019 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 were as follows:

 

 

 

Goodwill

 

 

Accumulated Impairment Losses

 

 

Net Book Value

 

 

 

(in thousands)

 

Balance as of December 31, 2018

 

$

1,019,239

 

 

$

 

 

$

1,019,239

 

Acquisitions

 

 

(13,858

)

 

 

 

 

 

(13,858

)

Balance as of March 31, 2019

 

$

1,005,381

 

 

$

 

 

$

1,005,381

 

 

Estimated future amortization expense of acquired intangible assets as of March 31, 2019 was as follows:

 

 

 

(in thousands)

 

The remainder of 2019

 

$

35,105

 

2020

 

 

44,381

 

2021

 

 

38,745

 

2022

 

 

36,776

 

2023

 

 

30,281

 

Thereafter

 

 

260,025

 

Total

 

$

445,313

 

 

v3.19.1
Property and Equipment
3 Months Ended
Mar. 31, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment

6. Property and Equipment

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

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Developed software

 

$

104,818

 

 

$

90,302

 

Computer equipment

 

 

55,838

 

 

 

50,767

 

Leasehold improvements

 

 

41,827

 

 

 

39,550

 

Furniture and fixtures

 

 

12,408

 

 

 

10,801

 

Purchased software and digital assets

 

 

6,467

 

 

 

4,696

 

Construction in progress

 

 

6,446

 

 

 

1,976

 

Property and equipment

 

 

227,804

 

 

 

198,092

 

Accumulated depreciation and amortization

 

 

(91,457

)

 

 

(78,597

)

Property and equipment, net

 

$

136,347

 

 

$

119,495

 

The Company recorded depreciation and amortization expense for property and equipment other than developed software of $6.2 million and $5.1 million for the three months ended March 31, 2019 and 2018, respectively.

The Company capitalized developed software costs of $14.5 million and $8.2 million for the three months ended March 31, 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 March 31, 2019 and 2018 was $7.0 million and $4.4 million, respectively.

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. Commitments and Contingencies

Leases

As of March 31, 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 September 2029. 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 March 31, 2019, the Company recognized on its condensed consolidated balance sheets operating lease right-of-use assets of $78.7 million that represent the Company's right to use an underlying asset during the lease term and current and noncurrent operating lease liabilities of $13.4 million and $82.4 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 months ended March 31, 2019 were as follows:

 

 

Three Months Ended March 31, 2019

 

 

 

(in thousands)

 

Fixed operating lease cost

 

$

3,808

 

Short-term lease cost

 

 

450

 

Sublease income

 

 

(47

)

Total lease cost

 

$

4,211

 

Supplemental cash flow information related to the Company’s operating leases as well as the weighted-average lease term and discount rate as of March 31, 2019, were as follows:

 

 

Three Months Ended March 31, 2019

 

Cash paid for operating lease liabilities (in thousands)

 

$

3,169

 

Weighted-average remaining lease term (years)

 

 

8.9

 

Weighted-average discount rate

 

 

5.2

%

 

Future minimum lease payments under the Company’s operating lease agreements as of March 31, 2019 were as follows:

 

 

(in thousands)

 

The remainder of 2019

 

$

10,459

 

2020

 

 

14,878

 

2021

 

 

14,244

 

2022

 

 

12,218

 

2023

 

 

12,218

 

Thereafter

 

 

57,572

 

Total future lease payments

 

 

121,589

 

Less interest

 

 

(25,748

)

Present value of lease liabilities

 

$

95,841

 

The table above does not reflect the Company’s option to exercise early termination rights or the payment of related early termination fees. Additionally, as of March 31, 2019, the Company had future obligations for office facilities of approximately $27 million that have not yet commenced, and as such, have not been recognized on the Company's condensed consolidated balance sheets or included in the table above. This operating lease, with an eleven year term, is expected to commence in 2019.

 

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 March 31, 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.

v3.19.1
Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt

8. Debt

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

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Term loan

 

$

322,968

 

 

$

120,312

 

Revolving loan

 

 

17,313

 

 

 

222,000

 

Total debt

 

 

340,281

 

 

 

342,312

 

Less current portion

 

 

(10,156

)

 

 

(6,250

)

Less unamortized deferred debt issuance costs

 

 

(1,932

)

 

 

(514

)

Long-term debt

 

$

328,193

 

 

$

335,548

 

On February 6, 2019, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) which provides, among other things, for aggregate revolving loans up to $225 million and term loans in an aggregate principal amount of $325 million. In addition, the Company may incur up to $250 million of incremental revolving or term loans pursuant to the terms and conditions of the Credit Agreement. The credit facility under the Credit Agreement will be available to the Company until February 5, 2024. The Credit Agreement replaced the Company’s prior $350 million credit facility, which was due to expire on October 9, 2022. There have been no changes in the terms of the Credit Agreement as described in Part II, Item 8, Note 16, Subsequent Events, to the Company’s 2018 Form 10-K.

During the three months ended March 31, 2019, the Company made principal payments of $2.0 million from cash on hand. As of March 31, 2019, outstanding borrowings under the Credit Agreement were $340.3 million. The fair value of the Company’s outstanding debt approximates its carrying value as of March 31, 2019 (see Note 13, Fair Value Measurement, for additional details). The Company was in compliance with the covenants of the Credit Agreement as of March 31, 2019. Additional capacity under the Credit Agreement may be used for general corporate purposes, including funding working capital and future acquisitions.

As of March 31, 2019 and December 31, 2018, total unamortized debt issuance costs of $3.3 million and $1.9 million, respectively, were recorded as other assets and as a reduction of long-term debt on the condensed consolidated balance sheets in proportion to the borrowing capacities of the revolving and term loans.

Interest expense includes interest on outstanding borrowings, amortization of debt issuance costs and commitment fees on the undrawn portion available under the credit facility. The Company recognized interest expense of $3.5 million and $1.6 million during the three months ended March 31, 2019 and 2018, respectively.

v3.19.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

9. Stock-Based Compensation

The Company has granted non-qualified and incentive stock options, restricted stock units and restricted stock awards under its incentive plans. The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, including stock options, restricted stock awards and restricted stock units.

Stock-based Compensation Expense

The total stock-based compensation expense related to all stock-based awards was $16.5 million and $10.2 million during the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, $244.7 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.2 years.

Excess tax benefits reflect the total realized value of the Company’s tax deductions from individual stock option exercise transactions and the vesting of restricted stock units in excess of the deferred tax assets that were previously recorded. During the three months ended March 31, 2019 and 2018, the Company recognized excess tax benefits from stock-based compensation of $2.3 million and $8.2 million, respectively, within income tax benefit on the condensed consolidated statements of operations and within cash flows from operating activities on the condensed consolidated statements of cash flows.

The Company capitalized stock-based compensation expense as website and software development costs of $3.2 million and $1.7 million during the three months ended March 31, 2019 and 2018, respectively.

Stock Options

The Company granted 301,873 and 332,723 stock options under the Grubhub Inc. 2015 Long-Term Incentive Plan during the three months ended March 31, 2019 and 2018, respectively. The fair value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model. Expected volatility is based on the historical and implied volatilities of the Company’s own common stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term calculation for option awards considers a combination of the Company’s historical and estimated future exercise behavior. The risk-free rate for the period within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The assumptions used to determine the fair value of the stock options granted during the three months ended March 31, 2019 and 2018 were as follows: 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Weighted-average fair value options granted

 

$

31.27

 

 

$

33.24

 

Average risk-free interest rate

 

 

2.44

%

 

 

2.38

%

Expected stock price volatility

 

 

48.1

%

 

 

45.7

%

Dividend yield

 

None

 

 

None

 

Expected stock option life (years)

 

 

4.00

 

 

 

4.00

 

 

Stock option awards as of December 31, 2018 and March 31, 2019, and changes during the three months ended March 31, 2019, were as follows

 

 

Options

 

 

Weighted-Average

Exercise Price

 

 

Aggregate Intrinsic Value (thousands)

 

 

Weighted-Average

Exercise Term

(years)

 

Outstanding at December 31, 2018

 

 

2,650,839

 

 

$

33.13

 

 

$

120,977

 

 

 

6.87

 

Granted

 

 

301,873

 

 

 

78.08

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(15,978

)

 

 

98.64

 

 

 

 

 

 

 

 

 

Exercised

 

 

(105,881

)

 

 

22.90

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2019

 

 

2,830,853

 

 

 

37.93

 

 

 

99,134

 

 

 

6.97

 

Vested and expected to vest at March 31, 2019

 

 

2,825,796

 

 

 

37.87