GRUBHUB INC., 10-Q filed on 5/9/2016
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2016
May 6, 2016
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2016 
 
Document Fiscal Year Focus
2016 
 
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 Common Stock, Shares Outstanding
 
84,717,401 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
CURRENT ASSETS:
 
 
Cash and cash equivalents
$ 203,312 
$ 169,293 
Short term investments
121,129 
141,448 
Accounts receivable, less allowances for doubtful accounts
51,414 
42,051 
Prepaid expenses
3,578 
3,482 
Total current assets
379,433 
356,274 
PROPERTY AND EQUIPMENT:
 
 
Property and equipment, net of depreciation and amortization
24,226 
19,082 
OTHER ASSETS:
 
 
Other assets
3,383 
3,105 
Goodwill
396,220 
396,220 
Acquired intangible assets, net of amortization
280,772 
285,567 
Total other assets
680,375 
684,892 
TOTAL ASSETS
1,084,034 
1,060,248 
CURRENT LIABILITIES:
 
 
Restaurant food liability
74,375 
64,326 
Accounts payable
4,176 
8,189 
Accrued payroll
3,805 
4,841 
Taxes payable
423 
426 
Other accruals
15,699 
11,830 
Total current liabilities
98,478 
89,612 
LONG TERM LIABILITIES:
 
 
Deferred taxes, non-current
84,262 
87,584 
Other accruals
5,523 
5,456 
Total long term liabilities
89,785 
93,040 
Commitments and contingencies
   
   
STOCKHOLDERS’ EQUITY:
 
 
Series A Convertible Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of March 31, 2016 and December 31, 2015; issued and outstanding: no shares as of March 31, 2016 and December 31, 2015.
   
   
Common stock, $0.0001 par value. Authorized: 500,000,000 shares at March 31, 2016 and December 31, 2015; issued and outstanding: 84,623,138 and 84,979,869 shares as of March 31, 2016 and December 31, 2015, respectively
Accumulated other comprehensive loss
(826)
(604)
Additional paid-in capital
767,756 
759,292 
Retained earnings
128,833 
118,900 
Total Stockholders’ Equity
895,771 
877,596 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 1,084,034 
$ 1,060,248 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2016
Dec. 31, 2015
Statement Of Financial Position [Abstract]
 
 
Series A Convertible Preferred Stock, par value
$ 0.0001 
$ 0.0001 
Series A Convertible Preferred Stock, shares authorized
25,000,000 
25,000,000 
Series A Convertible Preferred Stock, shares issued
Series A Convertible Preferred Stock, shares outstanding
Common stock, par value
$ 0.0001 
$ 0.0001 
Common stock, shares authorized
500,000,000 
500,000,000 
Common stock, shares issued
84,623,138 
84,979,869 
Common stock, shares outstanding
84,623,138 
84,979,869 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]
 
 
Revenues
$ 112,240 
$ 88,249 
Costs and expenses:
 
 
Sales and marketing
28,833 
24,107 
Operations and support
34,987 
22,701 
Technology (exclusive of amortization)
10,192 
7,666 
General and administrative
13,589 
9,101 
Depreciation and amortization
7,308 
6,249 
Total costs and expenses
94,909 
69,824 
Income before provision for income taxes
17,331 
18,425 
Provision for income taxes
7,398 
7,855 
Net income attributable to common stockholders
$ 9,933 
$ 10,570 
Net income per share attributable to common stockholders:
 
 
Basic
$ 0.12 
$ 0.13 
Diluted
$ 0.12 
$ 0.12 
Weighted-average shares used to compute net income per share attributable to common stockholders:
 
 
Basic
84,710 
82,783 
Diluted
85,699 
85,098 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
Net income
$ 9,933 
$ 10,570 
OTHER COMPREHENSIVE LOSS
 
 
Foreign currency translation adjustments
(222)
(293)
COMPREHENSIVE INCOME
$ 9,711 
$ 10,277 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net income
$ 9,933 
$ 10,570 
Adjustments to reconcile net income to net cash from operating activities:
 
 
Depreciation
1,344 
1,215 
Provision for doubtful accounts
443 
93 
Deferred taxes
(3,321)
1,219 
Amortization of intangible assets
5,964 
5,034 
Stock-based compensation
6,901 
3,007 
Other
26 
239 
Change in assets and liabilities, net of the effects of business acquisitions:
 
 
Accounts receivable
(9,956)
(11,862)
Prepaid expenses and other assets
(136)
255 
Restaurant food liability
10,081 
24,376 
Accounts payable
(5,434)
(1,826)
Accrued payroll
(1,034)
(3,146)
Other accruals
3,855 
1,248 
Net cash provided by operating activities
18,666 
30,422 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Purchases of investments
(56,227)
(37,068)
Proceeds from maturity of investments
76,615 
38,060 
Capitalized website and development costs
(2,331)
(1,213)
Purchases of property and equipment
(3,259)
(441)
Acquisitions of businesses, net of cash acquired
 
(55,506)
Acquisition of other intangible assets
(250)
 
Other cash flows from investing activities
(173)
 
Net cash provided by (used in) investing activities
14,375 
(56,168)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Repurchases of common stock
(9,771)
 
Proceeds from exercise of stock options
1,012 
5,823 
Excess tax benefits related to stock-based compensation
10,610 
6,492 
Taxes paid related to net settlement of stock-based compensation awards
(682)
 
Net cash provided by financing activities
1,169 
12,315 
Net change in cash and cash equivalents
34,210 
(13,431)
Effect of exchange rates on cash
(191)
(210)
Cash and cash equivalents at beginning of year
169,293 
201,796 
Cash and cash equivalents at end of the period
203,312 
188,155 
SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS
 
 
Fair value of common stock issued for acquisitions
 
15,980 
Capitalized property, equipment and website and development costs in accounts payable at period end
$ 1,423 
$ 308 
Organization
Organization

1. Organization

Grubhub Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively referred to as the “Company”) provide an online and mobile platform for restaurant pick-up and delivery orders. Diners enter their delivery address or use geo-location within the mobile applications and the Company displays the menus and other relevant information for restaurants in its network. Orders may be placed directly online, via mobile applications or over the phone at no cost to the diner. The Company charges the restaurant a per order commission that is largely fee based. In certain markets, the Company also provides delivery services to restaurants on its platform that do not have their own delivery operations.

Significant Accounting Policies
Significant Accounting Policies

2. Significant Accounting Policies

Basis of Presentation

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, 2015 filed with the SEC on February 26, 2016 (the “2015 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Estimates include revenue recognition, the allowance for doubtful accounts, website and internal-use software development costs, goodwill, depreciable lives of property and equipment, recoverability of intangible assets with definite lives and other long-lived assets, stock-based compensation and income taxes. Actual results could differ from these estimates.

There have been no material changes to the Company’s significant accounting policies described in the 2015 Form 10-K.

Recently Issued Accounting Pronouncements

In April 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including adjustments to how excess tax benefits and payments for tax withholdings should be classified and accounting for forfeitures. Under ASU 2016-09, excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. ASU 2016-09 also provides entities with the option to elect an accounting policy to continue to estimate forfeitures of stock-based awards over the service period (current GAAP) or account for forfeitures when they occur. ASU 2016-09 is effective beginning in the first quarter of 2017 with early adoption permitted. ASU 2016-09 will be applied on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the date of adoption. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-09 on its consolidated financial statements and whether it will elect early adoption.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease under ASU 2016-02 will not significantly change from current GAAP. ASU 2016-02 is effective beginning in the first quarter of 2019 with early adoption permitted. The Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements, but anticipates that it will result in a significant increase in its long-term assets and liabilities and minimal impact to its results of operations and cash flows.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, “Income Taxes – Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The purpose of the standard is to simplify the presentation of deferred taxes on a classified balance sheet. Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet. The amendments in ASU 2015-17 require that all deferred tax assets and liabilities be classified as noncurrent in the balance sheet. The Company elected to early adopt ASU 2015-17 on a retrospective basis effective in the fourth quarter of 2015. The adoption of ASU 2015-17 impacted the presentation of the Company’s deferred tax assets and liabilities in the consolidated balance sheets and certain disclosures, but did not have an impact on results of operations or cash flows.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”), which eliminates the requirement to account for adjustments identified during the measurement-period in a business combination retrospectively. Instead, the acquirer must recognize measurement-period adjustments during the period in which they are identified, including the effect on earnings of any amounts that would have been recorded in previous periods had the purchase accounting been completed at the acquisition date. ASU 2015-16 was effective for and adopted by the Company in the first quarter of 2016. The adoption of ASU 2015- eliminates costs related to retrospective application of any measurement-period adjustments that may be identified, but has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.     

In April 2015, the FASB issued Accounting Standards Update 2015-05, “Intangibles -Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), which provides guidance on accounting for fees paid in a cloud computing arrangement. Under ASU 2015-05, if a cloud computing arrangement includes a software license, the software license element should be accounted for consistent with the purchase of other software licenses. If the cloud computing arrangement does not include a software license, it should be accounted for as a service contract. ASU 2015-05 was effective for and adopted by the Company in the first quarter of 2016. The Company elected to apply ASU 2015-05 prospectively; however, its adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Under the previous practice, debt issuance costs were recognized as a deferred charge (that is, an asset). The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 “Interest - Imputed Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”), which clarifies that the guidance in ASU 2015-03 does not apply to line-of-credit arrangements. According to ASU 2015-15, debt issuance costs related to line-of-credit arrangements will continue to be deferred and presented as an asset and subsequently amortized ratably over the term of the arrangement. The amendments in ASU 2015-03 and clarifications of ASU 2015-15 are effective for the Company in the first quarter of 2016. The Company entered into a credit agreement on April 29, 2016 (see Note 13, Subsequent Events, for additional details). The adoption of the ASUs will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued Accounting Standards Update 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which clarifies the implementation guidance on identifying performance obligations and licensing. ASU 2016-10 reduces the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. ASU 2014-09, ASU 2016-08 and ASU 2016-10 will be effective for the Company in the first quarter of 2018. Management is currently evaluating the impact the adoption of these ASUs will have on the Company’s consolidated financial position, results of operations or cash flows. The Company currently anticipates applying the modified retrospective approach when adopting these ASUs.

Acquisitions
Acquisitions

3. Acquisitions

2015 Acquisitions

On February 4, 2015, the Company acquired assets of DiningIn.com, Inc. and certain of its affiliates (collectively, “DiningIn”), and, on February 27, 2015, the Company acquired the membership units of Restaurants on the Run, LLC (“Restaurants on the Run”) and on December 4, 2015, the Company acquired the membership units of Mealport USA, LLC (“Delivered Dish”). Aggregate consideration for the three acquisitions was approximately $73.9 million in cash and 407,812 restricted shares of the Company’s common stock, or an estimated total transaction value of approximately $89.9 million based on the Company’s closing share price on the respective closing dates, net of cash acquired of $0.7 million. DiningIn, Restaurants on the Run and Delivered Dish provide delivery options for individual diners, group orders and corporate catering. The acquisitions have expanded and enhanced the Company’s service offerings for its customers, particularly in the delivery space.

The results of operations of DiningIn, Restaurants on the Run and Delivered Dish have been included in the Company’s financial statements since February 4, 2015, February 27, 2015 and December 4, 2015, respectively.

The excess of the consideration transferred in the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill, which represents the opportunity to expand restaurant delivery services and enhance the breadth and depth of the Company’s restaurant networks. The goodwill related to these acquisitions of $43.4 million is expected to be deductible for income tax purposes.

During the three months ended March 31, 2016 and 2015, the Company incurred certain expenses directly and indirectly related to acquisitions of $0.8 million and $0.6 million, respectively, which were recognized in general and administrative expenses within the condensed consolidated statements of operations.

The assets acquired and liabilities assumed of DiningIn, Restaurants on the Run and Delivered Dish were recorded at their estimated fair values as of the closing dates of February 4, 2015, February 27, 2015 and December 4, 2015, respectively. The following table summarizes the final purchase price allocation acquisition-date fair values of the assets and liabilities acquired in connection with the DiningIn, Restaurants on the Run and Delivered Dish acquisitions: 

 

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

$

698

 

Accounts receivable

 

 

 

2,331

 

Prepaid expenses and other assets

 

 

 

325

 

Customer and vendor relationships

 

 

 

44,259

 

Property and equipment

 

 

 

161

 

Developed technology

 

 

 

4,676

 

Goodwill

 

 

 

43,432

 

Trademarks

 

 

 

529

 

Accounts payable and accrued expenses

 

 

 

(5,826

)

Total purchase price plus cash acquired

 

 

 

90,585

 

Cash acquired

 

 

 

(698

)

Fair value of common stock issued

 

 

 

(15,980

)

Net cash paid

 

 

$

73,907

 

 

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 customer (restaurant) relationships, developed technology and trademarks. The fair value of the trademarks was measured based on the relief from royalty method. The cost approach, specifically the cost to recreate method, was used to value the developed technology. The income approach, specifically the multi-period excess earnings method, was used to value the customer (restaurant) relationships. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy.

The following unaudited pro forma information presents a summary of the operating results of the Company for the three months ended March 31, 2015 as if the acquisitions had occurred on January 1, 2014:

 

 

Three Months Ended

March 31, 2015

 

 

(in thousands)

 

Revenues

$

93,529

 

Net income

 

11,237

 

 

The pro forma adjustments reflect the amortization that would have been recognized for intangible assets, elimination of transaction costs incurred and pro forma tax adjustments for the three months ended March 31, 2015 as follows:

 

 

Three Months Ended

March 31, 2015

 

 

(in thousands)

 

Depreciation and amortization

$

428

 

Transaction costs

 

(566

)

Income tax expense

 

59

 

 

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

Marketable Securities
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, 2016 and December 31, 2015 were as follows:

 

 

 

March 31, 2016

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

44,338

 

 

$

 

 

$

(20

)

 

$

44,318

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

87,046

 

 

 

 

 

 

(133

)

 

 

86,913

 

Corporate bonds

 

 

25,088

 

 

 

5

 

 

 

(7

)

 

 

25,086

 

U.S. government agency bonds

 

 

8,995

 

 

 

20

 

 

 

 

 

 

9,015

 

Total

 

$

165,467

 

 

$

25

 

 

$

(160

)

 

$

165,332

 

 

 

 

December 31, 2015

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

22,744

 

 

$

 

 

$

(5

)

 

$

22,739

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

90,949

 

 

 

 

 

 

(102

)

 

 

90,847

 

Corporate bonds

 

 

41,503

 

 

 

9

 

 

 

(39

)

 

 

41,473

 

U.S. government agency bonds

 

 

8,996

 

 

 

8

 

 

 

 

 

 

9,004

 

Total

 

$

164,192

 

 

$

17

 

 

$

(146

)

 

$

164,063

 

 

All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of March 31, 2016.

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, 2016 and December 31, 2015 were as follows:

 

 

 

March 31, 2016

 

 

 

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

 

$

131,231

 

 

$

(153

)

 

$

 

 

$

 

 

$

131,231

 

 

$

(153

)

Corporate bonds

 

 

15,600

 

 

 

(7

)

 

 

 

 

 

 

 

 

15,600

 

 

 

(7

)

Total

 

$

146,831

 

 

$

(160

)

 

$

 

 

$

 

 

$

146,831

 

 

$

(160

)

 

 

 

December 31, 2015

 

 

 

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

 

$

113,586

 

 

$

(107

)

 

$

 

 

$

 

 

$

113,586

 

 

$

(107

)

Corporate bonds

 

 

31,952

 

 

 

(39

)

 

 

 

 

 

 

 

 

31,952

 

 

 

(39

)

Total

 

$

145,538

 

 

$

(146

)

 

$

 

 

$

 

 

$

145,538

 

 

$

(146

)

 

During the three months ended March 31, 2016 and 2015, 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 12, Fair Value Measurement, for further details).

Goodwill and Acquired Intangible Assets
Goodwill and Acquired Intangible Assets

5. Goodwill and Acquired Intangible Assets

The components of acquired intangible assets as of March 31, 2016 and December 31, 2015 were as follows:

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

 

(in thousands)

 

Developed technology

 

$

9,819

 

 

$

(7,578

)

 

$

2,241

 

 

$

9,819

 

 

$

(6,288

)

 

$

3,531

 

Customer and vendor relationships, databases

 

 

236,238

 

 

 

(47,886

)

 

 

188,352

 

 

 

236,238

 

 

 

(44,192

)

 

 

192,046

 

Trademarks

 

 

529

 

 

 

(276

)

 

 

253

 

 

 

529

 

 

 

(215

)

 

 

314

 

Other

 

 

250

 

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

 

Total amortizable intangible assets

 

 

246,836

 

 

 

(55,740

)

 

 

191,096

 

 

 

246,586

 

 

 

(50,695

)

 

 

195,891

 

Indefinite-lived trademarks

 

 

89,676

 

 

 

 

 

 

89,676

 

 

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

 

$

336,512

 

 

$

(55,740

)

 

$

280,772

 

 

$

336,262

 

 

$

(50,695

)

 

$

285,567

 

 

Amortization expense for acquired intangible assets was $5.0 million and $4.1 million for the three months ended March 31, 2016 and 2015, respectively.

There were no changes in the carrying amount of goodwill during the three months ended March 31, 2016. 

 

Estimated future amortization expense of acquired intangible assets as of March 31, 2016 was as follows:

 

 

 

(in thousands)

 

The remainder of 2016

 

$

13,463

 

2017

 

 

14,632

 

2018

 

 

14,538

 

2019

 

 

13,064

 

2020

 

 

12,661

 

Thereafter

 

 

122,738

 

Total

 

$

191,096

 

 

Property and Equipment
Property and Equipment

6. Property and Equipment

The components of the Company’s property and equipment as of March 31, 2016 and December 31, 2015 were as follows:

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(in thousands)

 

Computer equipment

 

$

11,647

 

 

$

10,080

 

Delivery equipment

 

 

813

 

 

 

555

 

Furniture and fixtures

 

 

2,163

 

 

 

2,092

 

Developed software

 

 

14,141

 

 

 

11,129

 

Purchased software and digital assets

 

 

523

 

 

 

361

 

Leasehold improvements

 

 

8,387

 

 

 

6,050

 

Property and equipment

 

 

37,674

 

 

 

30,267

 

Accumulated amortization and depreciation

 

 

(13,448

)

 

 

(11,185

)

Property and equipment, net

 

$

24,226

 

 

$

19,082

 

The Company recorded depreciation and amortization expense for property and equipment other than developed software of $1.4 million for each of the three months ended March 31, 2016 and 2015.

The Company capitalized developed software costs of $3.0 million and $1.5 million for the three months ended March 31, 2016 and 2015, 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, 2016 and 2015 was $0.9 million and $0.7 million, respectively.

Commitments and Contingencies
Commitments and Contingencies

7. Commitments and Contingencies

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 (the “Court”), Case No. 3:11-cv-1810 (“’1810 action”). In September 2011, Ameranth amended its complaint in the ’1810 action to also allege patent infringement against Seamless North America, LLC. Ameranth alleged that the Grubhub Holdings Inc. and Seamless North America, LLC ordering systems, products and services infringe claims 12 through 15 of U.S. Patent No. 6,384,850 (“’850 patent”) and claims 11 and 15 of U.S. Patent No. 6,871,325 (“’325 patent”).

In March 2012, Ameranth initiated eight additional actions for infringement of a third, related patent, U.S. Patent No. 8,146,077 (“’077 patent”), in the same forum, including separate actions against Grubhub Holdings Inc., Case No. 3:12-cv-739 (“’739 action”), and Seamless North America, LLC, Case No. 3:12-cv-737 (“’737 action”). In August 2012, the Court severed the claims against Grubhub Holdings Inc. and Seamless North America, LLC in the ’1810 action and consolidated them with the ’739 action and the ’737 action, respectively. Later, the Court consolidated these separate cases against Grubhub Holdings Inc. and Seamless North America, LLC, along with the approximately 40 other cases Ameranth filed in the same district, with the original ’1810 action. In their answers, Grubhub Holdings Inc. and Seamless North America, LLC denied infringement and interposed various defenses, including non-infringement, invalidity, unenforceability and inequitable conduct.

No trial date has been set for this case and the consolidated district court case remains stayed. 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, 2016, 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 early stage of the dispute 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.  

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 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.

Stock-Based Compensation
Stock-Based Compensation

8. Stock-Based Compensation

The Company has granted 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 $6.9 million and $3.0 million during the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2016 and 2015, the Company reported excess tax benefits as a decrease in cash flows from operations and an increase in cash flows from financing activities of $10.6 million and $6.5 million, respectively. Excess tax benefits reflect the total of the individual stock option exercise transactions and vesting of restricted stock awards and restricted stock units in which the reduction to the Company’s income tax liability is greater than the deferred tax assets that were previously recorded. During the three months ended March 31, 2016 and 2015, the Company capitalized $0.4 million and $0.1 million, respectively, of stock-based compensation expense as website and software development costs. As of March 31, 2016, $46.1 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.3 years. The total unrecognized stock-based compensation expense to be recognized in future periods as of March 31, 2016 does not consider the effect of stock-based awards that may be granted in subsequent periods.

Stock Options

The Company granted 82,912 and 1,239,410 stock options during the three months ended March 31, 2016 and 2015, 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 volatilities are based on a combination of the historical and implied volatilities of comparable publicly-traded companies and the historical volatility of the Company’s own common stock due to its limited trading history as there was no active external or internal market for the Company’s common stock prior to the Company’s initial public offering in April 2014. 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 of the award is estimated using a simplified method. 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, 2016 and 2015 were as follows: 

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Weighted-average fair value options granted

 

$

10.28

 

 

$

16.35

 

Average risk-free interest rate

 

 

1.55

%

 

 

1.39

%

Expected stock price volatilities

 

 

50.8

%

 

 

47.3

%

Dividend yield

 

None

 

 

None

 

Expected stock option life (years)

 

 

6.08

 

 

 

6.08

 

 

Stock option awards as of December 31, 2015 and March 31, 2016, and changes during the three months ended March 31, 2016, were as follows:

 

 

 

Options

 

 

Weighted-Average

Exercise Price

 

 

Aggregate Intrinsic

Value

(thousands)

 

 

Weighted-Average

Exercise Term

(years)

 

Outstanding at December 31, 2015

 

 

5,078,297

 

 

$

19.66

 

 

$

41,107

 

 

 

8.21

 

Granted

 

 

82,912

 

 

 

20.63

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(566,683

)

 

 

22.94

 

 

 

 

 

 

 

 

 

Exercised

 

 

(174,868

)

 

 

5.74

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

4,419,658

 

 

 

19.81

 

 

 

38,042

 

 

 

8.01

 

Vested and expected to vest at March 31, 2016

 

 

3,299,398

 

 

 

18.34

 

 

 

31,936

 

 

 

7.84

 

Exercisable at March 31, 2016

 

 

1,591,036

 

 

$

12.89

 

 

$

23,284

 

 

 

6.91

 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the fair value of the common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on each date. This amount will change in future periods based on the fair value of the Company’s stock and the number of options outstanding. The aggregate intrinsic value of awards exercised during the three months ended March 31, 2016 and 2015 was $2.8 million and $49.8 million, respectively.

The Company recorded compensation expense for stock options of $3.7 million and $2.8 million for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $22.3 million and is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Units and Restricted Stock Awards

Non-vested restricted stock units and restricted stock awards as of December 31, 2015 and March 31, 2016, and changes during the three months ended March 31, 2016 were as follows:

 

 

 

Restricted Stock Units

 

 

Restricted Stock Awards

 

 

 

Shares

 

 

Weighted-Average

Grant Date Fair

Value

 

 

Shares

 

 

Weighted-Average

Grant Date Fair

Value

 

Outstanding at December 31, 2015

 

 

888,483

 

 

$

27.85

 

 

 

67,744

 

 

$

42.01

 

Granted

 

 

591,618

 

 

 

25.01

 

 

 

 

 

 

 

Forfeited

 

 

(36,289

)

 

 

28.31

 

 

 

 

 

 

 

Vested

 

 

(2,729

)

 

 

37.62

 

 

 

(67,744

)

 

 

42.01

 

Outstanding at March 31, 2016

 

 

1,441,083

 

 

$

26.66

 

 

 

 

 

$

 

 

During the three months ended March 31, 2016 and 2015, compensation expense recognized related to restricted stock awards was $1.7 million and $0.2 million, respectively. During the three months ended March 31, 2016, compensation expense recognized related to restricted stock units was $1.5 million. Compensation expense related to restricted stock units was nominal during the three months ended March 31, 2015. The aggregate grant-date fair value of restricted stock awards and restricted stock units that vested during the three months ended March 31, 2016 was $2.9 million. As of March 31, 2016, $23.8 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 1,441,083 non-vested restricted stock units with weighted-average grant date fair values of $26.66 is expected to be recognized over a weighted-average period of 3.6 years. As of March 31, 2016, there were no remaining non-vested restricted stock awards or related unrecognized compensation cost. The fair value of these awards was determined based on the Company’s stock price at the grant date and assumes no expected dividend payments through the vesting period.

Income Taxes
Income Taxes

9. Income Taxes

During the three months ended March 31, 2016, the Illinois Department of Revenue completed an audit, subject to quality review, of the Company’s corporate income tax returns for the tax years ended December 31, 2013 and 2012 and proposed no changes. The Company does not expect any additional tax liabilities, penalties and/or interest as a result of the audit.

Stockholders' Equity
Stockholders' Equity

10. Stockholders’ Equity

As of March 31, 2016 and December 31, 2015, the Company was authorized to issue two classes of stock: common stock and Series A Preferred Stock.

Common Stock

Each holder of common stock has one vote per share of common stock held on all matters that are submitted for stockholder vote. At March 31, 2016 and December 31, 2015, there were 500,000,000 shares of common stock authorized. At March 31, 2016 and December 31, 2015, there were 84,623,138 and 84,979,869 shares issued and outstanding, respectively. The Company did not hold any shares as treasury shares as of March 31, 2016 or December 31, 2015.

 

On January 22, 2016, the Company’s Board of Directors approved a program that authorizes the repurchase of up to $100 million of the Company’s common stock exclusive of any fees, commissions or other expenses relating to such repurchases through open market purchases or privately negotiated transactions at the prevailing market price at the time of purchase. The repurchased stock may be retired or held as authorized but unissued treasury shares. The repurchase authorizations do not obligate the Company to acquire any particular amount of common stock or adopt any particular method of repurchase and may be modified, suspended or terminated at any time at management’s discretion. Repurchased and retired shares will result in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share at the time of the transaction. During the three months ended March 31, 2016, the Company repurchased and retired 506,673 shares of its common stock at a weighted-average share price of $19.26, or an aggregate of $9.8 million.

Series A Preferred Stock

The Company was authorized to issue 25,000,000 shares of preferred stock. There were no issued or outstanding shares of preferred stock as of March 31, 2016 or December 31, 2015.

The Company’s equity as of December 31, 2015 and March 31, 2016, and changes during the three months ended March 31, 2016, were as follows:

 

 

 

(in thousands)

 

Balance at December 31, 2015

 

$

877,596

 

Net income

 

 

9,933

 

Currency translation

 

 

(222

)

Stock-based compensation

 

 

7,295

 

Repurchases of common stock

 

 

(9,771

)

Shares repurchased to satisfy tax withholding upon vesting and retired

 

 

(682

)

Tax benefit related to stock-based compensation

 

 

10,610

 

Stock option exercises, net of withholdings and other

 

 

1,012

 

Balance at March 31, 2016

 

$

895,771

 

 

Earnings Per Share Attributable to Common Stockholders
Earnings Per Share Attributable to Common Stockholders

11. Earnings Per Share Attributable to Common Stockholders

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing net income by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents, including stock options, restricted stock units and restricted stock awards, except in cases where the effect of the common stock equivalent would be antidilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options and vesting of restricted stock units and restricted stock awards using the treasury stock method.

The following table presents the calculation of basic and diluted net income per share attributable to common stockholders for the three months ended March 31, 2016 and 2015:

 

 

Three Months Ended March 31, 2016

 

 

 

Three Months Ended March 31, 2015

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per  Share

Amount

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per  Share

Amount

 

 

(in thousands, except per share data)

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

9,933

 

 

 

84,710

 

 

$

0.12

 

 

 

$

10,570

 

 

 

82,783

 

 

$

0.13

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

900

 

 

 

 

 

 

 

 

 

 

 

2,314

 

 

 

 

 

Restricted stock units and restricted stock awards

 

 

 

 

89

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

9,933

 

 

 

85,699

 

 

$

0.12

 

 

 

$

10,570

 

 

 

85,098

 

 

$

0.12

 

 

During the three months ended March 31, 2016, the Company repurchased and retired 506,673 shares of its common stock. The repurchases resulted in a reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net earnings per share from the dates of the repurchases. See Note 10, Stockholders’ Equity, for additional details.

 

The number of shares of common stock underlying stock-based awards excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been antidilutive for the three months ended March 31, 2016 and 2015 were as follows:  

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Anti-dilutive shares underlying stock-based awards:

 

 

 

 

 

 

 

 

Stock options

 

 

2,272,040

 

 

 

1,519,805

 

Restricted stock awards

 

 

 

 

 

4,790

 

Restricted stock units

 

 

1,280,982

 

 

 

101,616

 

 

Fair Value Measurement
Fair Value Measurement

12. Fair Value Measurement

Certain assets and liabilities are required to be recorded at fair value on a recurring basis. Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The accounting guidance for fair value measurements prioritizes valuation methodologies based on the reliability of the inputs in the following three-tier value hierarchy:

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

Level 2

Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.

 

Level 3

Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

The Company applied the following methods and assumptions in estimating its fair value measurements: the Company’s commercial paper, investments in corporate and U.S. government agency bonds and certain money market funds are classified as Level 2 within the fair value hierarchy because they are valued using inputs other than quoted prices in active markets that are observable directly or indirectly. Accounts receivable and accounts payable approximate fair value due to their generally short-term maturities.

The following table presents the balances of assets measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015:

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Money market funds

 

$

 

 

$

117

 

 

$

 

 

$

 

 

$

1,083

 

 

$

 

Commercial paper

 

 

 

 

 

131,231

 

 

 

 

 

 

 

 

 

113,586

 

 

 

 

Corporate bonds

 

 

 

 

 

25,086

 

 

 

 

 

 

 

 

 

41,473

 

 

 

 

U.S. government agency

   bonds

 

 

 

 

 

9,015

 

 

 

 

 

 

 

 

 

9,004

 

 

 

 

Total

 

$

 

 

$

165,449

 

 

$

 

 

$

 

 

$

165,146

 

 

$

 

 

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a nonrecurring basis, generally as a result of acquisitions. See Note 3, Acquisitions, for further discussion of the fair value of assets and liabilities associated with acquisitions.

Subsequent Events
Subsequent Events

13. Subsequent Events

On April 29, 2016, the Company entered into a secured revolving credit facility (the “Credit Agreement”), which provides for aggregate revolving loans up to $185.0 million, subject to an increase of up to an additional $30 million under certain conditions. The credit facility will be available to the Company until April 28, 2021. The Credit Agreement will be used for general corporate purposes, including funding working capital and acquisitions. The Company’s obligations under the Credit Agreement are secured by a lien on substantially all of the tangible and intangible property of the Company and by a pledge of all of the equity interests of the Company’s domestic subsidiaries.  

The Company incurred origination fees at closing of the Credit Agreement of $1.2 million, which will be deferred and amortized over the term of the facility. There were no borrowings outstanding under the Credit Agreement as of the filing of this Quarterly Report on Form 10-Q.

On May 5, 2016, the Company acquired all of the issued and outstanding stock of KMLEE Investments Inc. and LABite.Com, Inc. (collectively, “LABite”). The purchase price for LABite was $66.5 million in cash, net of cash acquired of $3.2 million. LABite provides online, mobile and on-demand ordering and delivery services for restaurants in west coast and southwest cities of the United States.  The acquisition is expected to expand and enhance the Company’s service offerings for its customers, particularly in the delivery space.

Significant Accounting Policies (Policies)

Basis of Presentation

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, 2015 filed with the SEC on February 26, 2016 (the “2015 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Estimates include revenue recognition, the allowance for doubtful accounts, website and internal-use software development costs, goodwill, depreciable lives of property and equipment, recoverability of intangible assets with definite lives and other long-lived assets, stock-based compensation and income taxes. Actual results could differ from these estimates.

There have been no material changes to the Company’s significant accounting policies described in the 2015 Form 10-K.

Recently Issued Accounting Pronouncements

In April 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including adjustments to how excess tax benefits and payments for tax withholdings should be classified and accounting for forfeitures. Under ASU 2016-09, excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. ASU 2016-09 also provides entities with the option to elect an accounting policy to continue to estimate forfeitures of stock-based awards over the service period (current GAAP) or account for forfeitures when they occur. ASU 2016-09 is effective beginning in the first quarter of 2017 with early adoption permitted. ASU 2016-09 will be applied on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the date of adoption. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-09 on its consolidated financial statements and whether it will elect early adoption.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease under ASU 2016-02 will not significantly change from current GAAP. ASU 2016-02 is effective beginning in the first quarter of 2019 with early adoption permitted. The Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements, but anticipates that it will result in a significant increase in its long-term assets and liabilities and minimal impact to its results of operations and cash flows.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, “Income Taxes – Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The purpose of the standard is to simplify the presentation of deferred taxes on a classified balance sheet. Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet. The amendments in ASU 2015-17 require that all deferred tax assets and liabilities be classified as noncurrent in the balance sheet. The Company elected to early adopt ASU 2015-17 on a retrospective basis effective in the fourth quarter of 2015. The adoption of ASU 2015-17 impacted the presentation of the Company’s deferred tax assets and liabilities in the consolidated balance sheets and certain disclosures, but did not have an impact on results of operations or cash flows.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”), which eliminates the requirement to account for adjustments identified during the measurement-period in a business combination retrospectively. Instead, the acquirer must recognize measurement-period adjustments during the period in which they are identified, including the effect on earnings of any amounts that would have been recorded in previous periods had the purchase accounting been completed at the acquisition date. ASU 2015-16 was effective for and adopted by the Company in the first quarter of 2016. The adoption of ASU 2015- eliminates costs related to retrospective application of any measurement-period adjustments that may be identified, but has not had a material impact on the Company’s consolidated financial position, results of operations or cash flows.     

In April 2015, the FASB issued Accounting Standards Update 2015-05, “Intangibles -Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), which provides guidance on accounting for fees paid in a cloud computing arrangement. Under ASU 2015-05, if a cloud computing arrangement includes a software license, the software license element should be accounted for consistent with the purchase of other software licenses. If the cloud computing arrangement does not include a software license, it should be accounted for as a service contract. ASU 2015-05 was effective for and adopted by the Company in the first quarter of 2016. The Company elected to apply ASU 2015-05 prospectively; however, its adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Under the previous practice, debt issuance costs were recognized as a deferred charge (that is, an asset). The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 “Interest - Imputed Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”), which clarifies that the guidance in ASU 2015-03 does not apply to line-of-credit arrangements. According to ASU 2015-15, debt issuance costs related to line-of-credit arrangements will continue to be deferred and presented as an asset and subsequently amortized ratably over the term of the arrangement. The amendments in ASU 2015-03 and clarifications of ASU 2015-15 are effective for the Company in the first quarter of 2016. The Company entered into a credit agreement on April 29, 2016 (see Note 13, Subsequent Events, for additional details). The adoption of the ASUs will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. In August 2015, the FASB issued Accounting Standards Update 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which clarifies the implementation guidance on identifying performance obligations and licensing. ASU 2016-10 reduces the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. ASU 2014-09, ASU 2016-08 and ASU 2016-10 will be effective for the Company in the first quarter of 2018. Management is currently evaluating the impact the adoption of these ASUs will have on the Company’s consolidated financial position, results of operations or cash flows. The Company currently anticipates applying the modified retrospective approach when adopting these ASUs.

Acquisitions (Tables) (Dining In, Restaurants on Run and Delivered Dish)

The following table summarizes the final purchase price allocation acquisition-date fair values of the assets and liabilities acquired in connection with the DiningIn, Restaurants on the Run and Delivered Dish acquisitions: 

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

$

698

 

Accounts receivable

 

 

 

2,331

 

Prepaid expenses and other assets

 

 

 

325

 

Customer and vendor relationships

 

 

 

44,259

 

Property and equipment

 

 

 

161

 

Developed technology

 

 

 

4,676

 

Goodwill

 

 

 

43,432

 

Trademarks

 

 

 

529

 

Accounts payable and accrued expenses

 

 

 

(5,826

)

Total purchase price plus cash acquired

 

 

 

90,585

 

Cash acquired

 

 

 

(698

)

Fair value of common stock issued

 

 

 

(15,980

)

Net cash paid

 

 

$

73,907

 

 

The following unaudited pro forma information presents a summary of the operating results of the Company for the three months ended March 31, 2015 as if the acquisitions had occurred on January 1, 2014:

 

 

Three Months Ended

March 31, 2015

 

 

(in thousands)

 

Revenues

$

93,529

 

Net income

 

11,237

 

 

The pro forma adjustments reflect the amortization that would have been recognized for intangible assets, elimination of transaction costs incurred and pro forma tax adjustments for the three months ended March 31, 2015 as follows:

 

 

Three Months Ended

March 31, 2015

 

 

(in thousands)

 

Depreciation and amortization

$

428

 

Transaction costs

 

(566

)

Income tax expense

 

59

 

 

Marketable Securities (Tables)

The amortized cost, unrealized gains and losses and estimated fair value of the Company’s held-to-maturity marketable securities as of March 31, 2016 and December 31, 2015 were as follows:

 

 

 

March 31, 2016

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

44,338

 

 

$

 

 

$

(20

)

 

$

44,318

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

87,046

 

 

 

 

 

 

(133

)

 

 

86,913

 

Corporate bonds

 

 

25,088

 

 

 

5

 

 

 

(7

)

 

 

25,086

 

U.S. government agency bonds

 

 

8,995

 

 

 

20

 

 

 

 

 

 

9,015

 

Total

 

$

165,467

 

 

$

25

 

 

$

(160

)

 

$

165,332

 

 

 

 

December 31, 2015

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

22,744

 

 

$

 

 

$

(5

)

 

$

22,739

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

90,949