GRUBHUB INC., 10-Q filed on 8/7/2014
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 1, 2014
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
GRUB 
 
Entity Registrant Name
GRUBHUB INC. 
 
Entity Central Index Key
0001594109 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
78,834,298 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
CURRENT ASSETS:
 
 
Cash and cash equivalents
$ 207,096 
$ 86,542 
Accounts receivable, less allowances for doubtful accounts
37,863 
29,304 
Deferred taxes, current
3,688 
3,688 
Prepaid expenses
2,505 
2,625 
Total current assets
251,152 
122,159 
PROPERTY AND EQUIPMENT:
 
 
Property and equipment, net of depreciation and amortization
16,529 
17,096 
OTHER ASSETS:
 
 
Other assets
4,039 
2,328 
Goodwill
352,788 
352,788 
Acquired intangible assets, net of amortization
261,390 
268,441 
Total other assets
618,217 
623,557 
TOTAL ASSETS
885,898 
762,812 
CURRENT LIABILITIES:
 
 
Restaurant food liability
84,486 
78,245 
Accounts payable
2,390 
3,353 
Accrued payroll
3,441 
1,720 
Taxes payable
1,377 
1,768 
Restructuring accrual
478 
176 
Other accruals
9,850 
7,329 
Total current liabilities
102,022 
92,591 
LONG TERM LIABILITIES:
 
 
Deferred taxes, non-current
98,633 
90,495 
Other accruals
3,939 
3,936 
Total long term liabilities
102,572 
94,431 
Commitments and Contingencies
   
   
Redeemable common stock, $0.0001 par value, no shares and 1,344,236 shares outstanding as of June 30, 2014 and December 31, 2013, respectively
 
18,415 
STOCKHOLDERS’ EQUITY:
 
 
Series A Convertible Preferred Stock, $0.0001 par value. Authorized: 25,000,000 shares as of June 30, 2014 and December 31, 2013; issued and outstanding: no shares as of June 30, 2014 and 19,284,113 shares as of December 31, 2013; aggregate liquidation preference of $86,200 as of December 31, 2013
 
Common stock, $0.0001 par value. Authorized: 500,000,000 and 165,000,000 shares at June 30, 2014 and December 31, 2013, respectively; issued and outstanding: 78,831,161 and 53,757,437 shares as of June 30, 2014 and December 31, 2013, respectively
Accumulated other comprehensive income
316 
132 
Additional paid-in capital
617,375 
500,356 
Retained earnings
63,605 
56,880 
Total Stockholders’ Equity
681,304 
557,375 
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY
$ 885,898 
$ 762,812 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Redeemable common stock, par value
$ 0.0001 
$ 0.0001 
Redeemable common stock, shares outstanding
1,344,236 
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
19,284,113 
Series A Convertible Preferred Stock, shares outstanding
19,284,113 
Series A Convertible Preferred Stock, liquidation preference
 
$ 86,200 
Common stock, par value
$ 0.0001 
$ 0.0001 
Common stock, shares authorized
500,000,000 
165,000,000 
Common stock, shares issued
78,831,161 
53,757,437 
Common stock, shares outstanding
78,831,161 
53,757,437 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Revenues
$ 60,006 
$ 26,857 
$ 118,619 
$ 52,658 
Costs and expenses:
 
 
 
 
Sales and marketing
16,168 
6,064 
32,285 
16,164 
Operations and support
14,734 
5,998 
29,841 
11,975 
Technology (exclusive of amortization)
6,066 
2,697 
11,413 
5,344 
General and administrative
8,620 
5,809 
16,944 
8,712 
Depreciation and amortization
5,615 
1,877 
11,130 
3,673 
Total costs and expenses
51,203 
22,445 
101,613 
45,868 
Income before provision for income taxes
8,803 
4,412 
17,006 
6,790 
Provision for income taxes
6,111 
2,589 
9,961 
3,711 
Net income
2,692 
1,823 
7,045 
3,079 
Preferred stock tax distributions
(320)
(648)
(320)
(648)
Net income attributable to common stockholders
$ 2,372 
$ 1,175 
$ 6,725 
$ 2,431 
Net income per share attributable to common stockholders:
 
 
 
 
Basic
$ 0.03 
$ 0.04 
$ 0.10 
$ 0.08 
Diluted
$ 0.03 
$ 0.04 
$ 0.09 
$ 0.07 
Weighted average shares used to compute net income per share attributable to common stockholders:
 
 
 
 
Basic
78,042 
31,373 
66,626 
31,368 
Diluted
82,074 
43,566 
79,854 
43,356 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Net income
$ 2,692 
$ 1,823 
$ 7,045 
$ 3,079 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
Foreign currency translation adjustments
135 
(1)
184 
(225)
COMPREHENSIVE INCOME
$ 2,827 
$ 1,822 
$ 7,229 
$ 2,854 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net income
$ 7,045 
$ 3,079 
Adjustments to reconcile net income to net cash from operating activities:
 
 
Depreciation
2,390 
1,278 
Provision for doubtful accounts
166 
86 
Deferred taxes
8,138 
(151)
Intangible asset amortization
8,740 
2,395 
Tenant allowance amortization
(79)
(79)
Stock-based compensation
4,687 
1,238 
Deferred rent
76 
(64)
Change in assets and liabilities, net of the effects of business acquisitions:
 
 
Accounts receivable
(8,725)
(7,081)
Prepaid expenses and other assets
(1,592)
452 
Accounts payable
(962)
1,510 
Restaurant food liability
6,241 
11,184 
Accrued payroll
1,721 
1,192 
Other accruals
2,439 
4,376 
Net cash provided by operating activities
30,285 
19,415 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Capitalized website and development costs
(1,112)
(1,434)
Purchases of property and equipment
(2,378)
(3,170)
Net cash used in investing activities
(3,490)
(4,604)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Net proceeds from the issuance of common stock
94,927 
 
Proceeds from exercise of stock options
1,145 
104 
Taxes paid related to net settlements of stock-based compensation awards
(2,061)
 
Repurchases of common stock
(116)
(1,259)
Preferred stock tax distributions
(320)
(651)
Net cash provided by (used in) financing activities
93,575 
(1,806)
Net change in cash and cash equivalents
120,370 
13,005 
Effect of exchange rates on cash
184 
(225)
Cash and cash equivalents at beginning of year
86,542 
41,161 
Cash and cash equivalents at end of the period
207,096 
53,941 
SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS
 
 
Cash paid for income taxes
1,321 
2,243 
Cashless exercise of stock options
1,049 
 
Settlement of receivable through cashless acquisition of treasury shares in connection with the cashless exercise of stock options
(3,225)
 
Cashless Exercise
 
 
SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS
 
 
Settlement of receivable through cashless acquisition of treasury shares in connection with the cashless exercise of stock options
$ (3,109)
 
Organization and Reorganization
Organization and Reorganization

1. Organization and Reorganization

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 location through an online interface and the Company displays the menus and other relevant information for restaurants in its network. Orders may be placed directly online or over the phone at no cost to the diner. The Company charges the restaurant a per order commission that is largely fee based.

Initial Public Offering

On April 4, 2014, the Company completed an initial public offering (the “IPO”) in which it issued and sold 4,000,000 shares of class A common stock at a public offering price of $26.00 per share. The Company received net proceeds of $94.9 million after deducting underwriting discounts and commissions of $6.5 million and other offering expenses of approximately $2.6 million. These expenses were recorded against the proceeds received from the IPO.

Certain selling stockholders offered an additional 3,405,614 shares of common stock in the IPO and also granted the underwriters an option to purchase up to 1,110,842 additional shares of common stock. The Company did not receive any proceeds from the sale of the shares sold by the selling stockholders.

Upon the closing of the IPO, all shares of the Company’s then-outstanding convertible Series A Preferred Stock automatically converted into an aggregate of 19,284,113 shares of common stock. Additionally, the put rights for the Company’s redeemable common stock were terminated upon the closing of the IPO.

The Company invested the funds received in non-interest bearing accounts, short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

Reorganization and History

On August 8, 2013, GrubHub Inc. acquired, through a series of transactions, all of the equity interests of each of Seamless North America, LLC, Seamless Holdings Corporation (“Seamless Holdings”) and GrubHub Holdings Inc. pursuant to that certain Reorganization and Contribution Agreement, dated as of May 19, 2013, by and among GrubHub Inc., Seamless North America, LLC, Seamless Holdings, GrubHub Holdings Inc. and the other parties thereto (the “Reorganization Agreement”). Following this transaction, the Company concluded that Seamless Holdings was deemed the acquirer for financial reporting purposes. See Note 3, Acquisitions, for additional details. Accordingly, the acquisition of GrubHub Holdings Inc. has been accounted for as a business combination. The results of operations of GrubHub Holdings Inc. have been included in the Company’s financial statements since August 9, 2013. In February 2014, GrubHub Seamless Inc. was renamed GrubHub Inc.

The financial position and results of operations of Seamless Holdings and Seamless North America, LLC have been included in the condensed consolidated financial statements for all periods presented.

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 Company’s prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933 on April 7, 2014. All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014.

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 development costs, goodwill, depreciable lives of property and equipment, recoverability of intangible assets with definite lives and other long-lived assets and stock-based compensation. Actual results could differ from these estimates.

Reverse Stock Split Ratio

On April 2, 2014, the Company effected a 1-for-2 reverse stock split of its issued and outstanding common stock and preferred stock. Any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share. All share and per-share amounts for all periods presented in these financial statements have been adjusted retroactively to reflect the reverse stock split.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“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. ASU 2014-09 will be effective for the Company in the first quarter of 2017. Management is currently evaluating the impact the adoption of ASU 2014-09 will have on the Company’s condensed consolidated financial position, results of operations or cash flows and the method of retrospective application, either full or modified.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”), which requires that a liability related to an unrecognized tax benefit be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward that the entity intends to use and is available for settlement at the reporting date. ASU 2013-11 was effective for and adopted by the Company in the first quarter of 2014 and applied prospectively to unrecognized tax benefits that existed at the effective date. The adoption of ASU 2013-11 impacted the Company’s financial statement presentation and disclosures, but otherwise did not impact the Company’s condensed consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued Accounting Standards Update No. 2013-02  “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the notes. ASU 2013-02 was effective for and adopted by the Company in the first quarter of 2013. The adoption of ASU 2013-02 impacted the Company’s financial statement presentation and disclosures, but otherwise did not impact the Company’s condensed consolidated financial position, results of operations or cash flows.

Acquisitions
Acquisitions

3. Acquisitions

GrubHub Holdings Inc.

On August 8, 2013, the Company acquired all of the equity interests of each of Seamless North America, LLC, Seamless Holdings and GrubHub Holdings Inc. pursuant to the Reorganization Agreement. In February 2014, GrubHub, Inc. changed its name to GrubHub Holdings Inc. The Company issued 23,318,580 shares of common stock and 8,098,430 shares of preferred stock to GrubHub Holdings Inc. in exchange for all of GrubHub Holdings Inc.’s equity interests (the “Merger”). The Company concluded that Seamless Holdings was deemed the acquirer for financial reporting purposes based on key deciding factors such as a majority ownership and majority of the board of director seats. Accordingly, the acquisition of GrubHub Holdings Inc. has been accounted for as a business combination. The results of operations of GrubHub Holdings Inc. have been included in the Company’s financial statements since August 9, 2013. GrubHub Holdings Inc. provides online food ordering through its website grubhub.com, and also operates allmenus.com, a website that stores and displays approximately 275,000 menus. The Merger has expanded the Company’s existing markets and access to new customers and created revenue and cost synergies which management believes will contribute to future profits.

The fair value of the equity issued to GrubHub Holdings Inc. in connection with the Merger was approximately $421.5 million. The value of the equity was determined using the estimated fair value of the stock of GrubHub Holdings Inc. at the merger date based on a valuation of GrubHub Holdings Inc. performed by management. The assets acquired and liabilities assumed were recorded at their estimated fair values as of August 8, 2013. The fair value of the equity of $421.5 million included approximately $11.0 million related to the fair value of the replacement awards that were attributed to the pre-combination service period for GrubHub Holdings Inc. option holders. The fair value of the replacement awards was determined using the Black-Scholes option pricing model. Post combination expense of $12.5 million is expected to be recognized post-Merger for the unrecognized compensation expense related to GrubHub Holdings Inc. stock options. See Note 7, Stock-Based Compensation, for further details.

The excess of the consideration transferred in the acquisition over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill, which represents the opportunity to expand existing markets and access new customers and to create revenue and cost synergies that management believes will contribute to future profits. The goodwill is not deductible for income tax purposes.

The Company incurred certain expenses directly and indirectly related to the Merger of $2.9 million and $3.3 million during the three and six months ended June 30, 2013, respectively, which were recognized in general and administrative expenses within the condensed consolidated statements of operations.

The following table summarizes the August 8, 2013 acquisition-date fair value of the assets and liabilities acquired in connection with the GrubHub Holdings Inc. business combination:

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

$

13,266

 

Accounts receivable

 

 

 

2,108

 

Other identifiable assets

 

 

 

4,422

 

Customer and vendor relationships

 

 

 

167,450

 

Deferred tax asset

 

 

 

4,013

 

Deferred tax liability

 

 

 

(88,937

)

Developed technology

 

 

 

5,143

 

Goodwill

 

 

 

239,346

 

Liabilities assumed

 

 

 

(10,602

)

Trademarks

 

 

 

85,276

 

Total net assets acquired

 

 

$

421,485

 

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 under the fair value hierarchy.

The following unaudited pro forma information presents a summary of the operating results of the Company for the three and six months ended June 30, 2013 as if GrubHub Inc. had acquired GrubHub Holdings Inc. as of January 1, 2013:

 

 

Three Months Ended

June 30, 2013

 

 

Six Months Ended

June 30, 2013

 

 

(in thousands)

 

Revenues

$

40,650

 

 

$

80,027

 

Net income

 

1,522

 

 

 

773

 

 

The pro forma adjustments reflect the additional amortization that would have been recognized for the intangible assets, replacement stock option awards compensation cost for services performed after the Merger, elimination of transaction costs incurred and pro forma tax adjustments for the three and six months ended June 30, 2013 as follows:

 

 

Three Months Ended

June 30, 2013

 

 

Six Months Ended

June 30, 2013

 

 

(in thousands)

 

Amortization of intangible assets

$

2,659

 

 

$

5,334

 

Stock-based compensation

 

1,210

 

 

 

2,424

 

Transaction costs

 

(6,669

)

 

 

(7,430

)

Income tax benefit

 

(730

)

 

 

(2,767

)

 

The unaudited pro forma revenues 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 Merger 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.

Goodwill and Acquired Intangible Assets
Goodwill and Acquired Intangible Assets

4. Goodwill and Acquired Intangible Assets

The components of acquired intangible assets as of June 30, 2014 and December 31, 2013 were as follows:

 

 

June 30, 2014

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

(in thousands)

 

Developed technology

$

5,143

 

 

$

(1,534

)

 

$

3,609

 

Customer and vendor relationships, databases

 

191,979

 

 

 

(23,874

)

 

 

168,105

 

Total amortizable intangible assets

 

197,122

 

 

 

(25,408

)

 

 

171,714

 

Indefinite-lived trademarks

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

$

286,798

 

 

$

(25,408

)

 

$

261,390

 

 

 

 

December 31, 2013

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

(in thousands)

 

Developed technology

$

5,143

 

 

$

(677

)

 

$

4,466

 

Customer and vendor relationships, databases

 

191,979

 

 

 

(17,680

)

 

 

174,299

 

Total amortizable intangible assets

 

197,122

 

 

 

(18,357

)

 

 

178,765

 

Indefinite-lived trademarks

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

$

286,798

 

 

$

(18,357

)

 

$

268,441

 

 

 

Amortization expense for acquired intangible assets was $3.5 million and $0.6 million for the three months ended June 30, 2014 and 2013, respectively, and $7.0 million and $1.1 million for the six months ended June 30, 2014 and 2013, respectively.

 

There were no changes in the carrying amount of goodwill for the six months ended June 30, 2014.

Estimated future amortization expense of acquired intangible assets as of June 30, 2014 was as follows:

 

 

(in thousands)

 

The remainder of 2014

$

7,051

 

2015

 

14,102

 

2016

 

13,344

 

2017

 

12,068

 

2018

 

12,068

 

Thereafter

 

113,081

 

Total

$

171,714

 

 

Property and Equipment
Property and Equipment

5. Property and Equipment

The components of the Company’s property and equipment as of June 30, 2014 and December 31, 2013 were as follows:

 

 

June 30, 2014

 

 

December 31, 2013

 

 

(in thousands)

 

Computer equipment

$

11,495

 

 

$

9,739

 

Furniture and fixtures

 

2,440

 

 

 

2,176

 

Developed software

 

15,064

 

 

 

13,930

 

Purchased software

 

2,129

 

 

 

2,124

 

Leasehold improvement

 

6,473

 

 

 

6,120

 

Property and equipment

 

37,601

 

 

 

34,089

 

Accumulated amortization and depreciation

 

(21,072

)

 

 

(16,993

)

Property and equipment, net

$

16,529

 

 

$

17,096

 

 

The Company recorded depreciation and amortization expense for property and equipment other than developed software for the three months ended June 30, 2014 and 2013 of $1.4 million and $0.8 million, respectively, and $2.7 million and $1.6 million for the six months ended June 30, 2014 and 2013, respectively.

The Company capitalized developed software costs of $0.7 million for each of the three months ended June 30, 2014 and 2013 and $1.1 million and $1.4 million for the six months ended June 30, 2014 and 2013, respectively. Amortization expense for developed software costs, recognized in depreciation and amortization in the condensed consolidated statements of operations, for the three months ended June 30, 2014 and 2013 was $0.7 million and $0.5 million, respectively, and $1.4 million and $1.0 million for the six months ended June 30, 2014 and 2013, respectively.

Commitments and Contingencies
Commitments and Contingencies

6. Commitments and Contingencies

Legal

In August 2011, 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 accuse Seamless North America, LLC of infringement. 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.

On November 26, 2013, the consolidated case was stayed pending the disposition of petitions for post-grant review of all the patents in the suit. These petitions were filed in the United States Patent and Trademark Office (the “PTO”) under the new Transitional Program for Covered Business Method Patents (the “CBM proceedings”). The CBM proceedings resulted in a March 26, 2014 ruling denying defendants’ petitions on the claims most relevant to GrubHub Holdings Inc. and Seamless North America LLC.    The consolidated case remains stayed.

No trial date has been set for this case. The Company believes this case lacks merit and that it has strong defenses to all of the infringement claims. The Company intends to defend the suit vigorously. However, the Company is unable to predict the likelihood of success of Ameranth’s infringement claims and is unable to predict the likelihood of success of its counterclaims. The Company has not recorded an accrual related to this lawsuit as of June 30, 2014, 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 matters described above, from time to time, the Company is involved in various other legal proceedings arising from the normal course of business activities. As of June 30, 2014, the Company had reserved $0.6 million for such litigation.

Indemnification

In connection with the Merger, the Company agreed to indemnify Aramark Holdings for negative income tax consequences associated with the October 2012 spin-off of Seamless Holdings that were the result of certain actions taken by the Company, including its solicitation of acquirers to purchase the Company prior to October 29, 2014, and in certain other instances, subject to a $15.0 million limitation. Management is not aware of any actions that would impact the indemnification obligation.

Restructuring

On November 20, 2013 the Company announced plans to close its Sandy, Utah office location in 2014. The Company recorded a restructuring accrual in the condensed consolidated balance sheets for severance and payroll related benefits as a result of the restructuring announcement. This amount represents the service vesting requirements for identified employees required to work through the expected closure date of the facility of December 31, 2014. The Company estimates total restructuring costs to be incurred will be approximately $1.2 million, including expense of $0.5 million to be recognized in the second half of 2014 related to the termination of the Sandy, Utah office lease agreement. For the three and six months ended June 30, 2014, restructuring expense of $0.2 million and $0.5 million, respectively, was recognized in general and administrative expenses in the condensed consolidated statements of operations.

The following table summarizes the Company’s restructuring activity during the six months ended June 30, 2014:

 

 

(in thousands)

 

Restructuring accrual balance at December 31, 2013

$

176

 

Restructuring expense

 

492

 

Cash payments

 

(190

)

Restructuring accrual balance at June 30, 2014

$

478

 

 

 

Stock-Based Compensation
Stock-Based Compensation

7. Stock-Based Compensation

As part of the Reorganization Agreement, the Company was required to replace GrubHub Holdings Inc.’s share-based payment awards. The fair value of the replacement awards attributable to pre-combination services at the time of the Merger was approximately $11.0 million, which was included as additional consideration transferred in the business combination in the total purchase price of $421.5 million. The fair value of the replacement options attributable to post combination services was approximately $12.5 million and will be recognized as compensation cost in the Company’s post-Merger consolidated financial statements over the remaining vesting period.

The Company granted 1,739,273 and 368,750 stock options during the six months ended June 30, 2014 and 2013, respectively. The fair market 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 historical volatilities of comparable publicly traded companies. 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 fair value at grant date was determined considering the performance of the Company at the grant date as well as future growth and profitability expectations by applying market and income approaches. 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 market value of the stock options granted during the six months ended June 30, 2014 and 2013 were as follows: 

 

 

2014

 

 

2013

 

Weighted average fair value options granted

$

13.12

 

 

$

1.66

 

Average risk-free interest rate

 

2.00

%

 

 

1.10

%

Expected stock price volatilities(a)

 

50.5

%

 

 

53.8

%

Dividend yield

None

 

 

None

 

Expected stock option life (years)

 

6.29

 

 

 

6.06

 

 

a)

There was no active external or internal market for the Company’s shares until April of 2014. Thus, it was not possible to estimate the expected volatility of the Company’s share price in estimating fair value of options granted. As a substitute for such volatility, the Company used the historical volatility of comparable companies.

 

Stock option awards as of December 31, 2013 and June 30, 2014, and changes during the six months ended June 30, 2014, were as follows:

 

 

Options

 

 

Weighted

Average

Exercise Price

 

 

Average Intrinsic

Value

(thousands)

 

 

Weighted Average

Exercise Term

(years)

 

Outstanding at December 31, 2013

 

7,669,553

 

 

$

4.08

 

 

$

56,844

 

 

 

8.29

 

Granted

 

1,739,273

 

 

 

15.13

 

 

 

 

 

 

 

 

 

Forfeited

 

(558,820

)

 

 

4.27

 

 

 

 

 

 

 

 

 

Exercised

 

(695,627

)

 

3.31

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2014

 

8,154,379

 

 

 

6.44

 

 

 

236,210

 

 

 

8.20

 

Vested and expected to vest at June 30, 2014

 

6,587,727

 

 

 

5.60

 

 

 

196,389

 

 

8.06

 

Exercisable at June 30, 2014

 

3,493,142

 

 

$

3.88

 

 

$

110,146

 

 

 

7.76

 

 

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 on June 30, 2014 and December 31, 2013, respectively, 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 market value of the Company’s stock and the number of options outstanding. The aggregate intrinsic value of awards exercised during the three and six months ended June 30, 2014 was $5.1 million and $11.6 million, respectively. The aggregate intrinsic value of awards exercised during the three and six months ended June 30, 2013 was less than $0.1 million.

The stock options vest over different lengths of time depending upon the grantee. Compensation expense is recognized over the vesting period. The Company recorded compensation expense of $2.3 million and $0.6 million for the three months ended June 30, 2014 and 2013, respectively, and $4.7 million and $1.2 million for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $21.1 million and is expected to be recognized over a weighted average period of 3.05 years.

Stockholders' Equity
Stockholders' Equity

8. Stockholders’ Equity

As of June 30, 2014 and December 31, 2013, the Company was authorized to issue two classes of stock: common stock and Series A Preferred Stock. Each share of Series A Preferred Stock was convertible, at the option of the holder thereof, into common stock on a one-for-one basis, subject to adjustment as defined in the Company’s amended and restated certificate of incorporation. The Company entered into a stockholders agreement in 2013 with certain stockholders. The agreement prevented those stockholders from transferring their shares without the consent of a majority of the stockholders.

On April 4, 2014, the Company completed the IPO in which the Company issued and sold 4,000,000 shares of common stock at a public offering price of $26.00 per share. The Company received net proceeds of $94.9 million after deducting underwriting discounts and commissions of $6.5 million and other offering expenses of approximately $2.6 million. Upon the closing of the IPO, the stockholder’s agreement ceased to be in effect.

Common Stock

Each holder of common stock will have one vote per share of common stock held on all matters that are submitted for stockholder vote. Upon liquidation, the common stock was junior to the rights and preferences of the Series A Preferred Stock as of December 31, 2013. At June 30, 2014 and December 31, 2013, there were 500,000,000 and 165,000,000 shares of common stock authorized, respectively. At June 30, 2014 and December 31, 2013, there were 78,831,161 and 53,757,437 shares issued and outstanding, respectively. The Company did not hold any shares as treasury shares as of June 30, 2014 or December 31, 2013.

Series A Preferred Stock

The Company was authorized to issue 25,000,000 shares of preferred stock as of June 30, 2014 and December 31, 2013. Upon the closing of the IPO on April 4, 2014, all shares of the Company’s then-outstanding convertible Series A Preferred Stock automatically converted on a one-for-one basis into an aggregate of 19,284,113 shares of common stock. There were no issued or outstanding shares of preferred stock as of June 30, 2014.

As of December 31, 2013, the 19,284,113 outstanding shares of Series A Preferred Stock had a liquidation preference of an amount per share equal to the original Series A Preferred Stock issue price of approximately $86.2 million.

Redeemable Common Stock

The put rights that would have required the Company to repurchase the Company’s then outstanding redeemable common stock at fair value (as defined in the stockholders agreement) determined at the redemption date were terminated and the shares converted on a one-for-one basis into an aggregate of 1,344,236 shares common stock upon the closing of the IPO on April 4, 2014.

As of December 31, 2013, there were 1,344,236 shares of common stock with put rights. As the redemption price was equivalent to the fair value of the instrument, the Company adjusted the carrying value of the redeemable common stock to its fair value with an adjustment to equity. The fair value of the redeemable common stock was $18.4 million at December 31, 2013. The Company had an annual redemption limit of $4.0 million.

The Company’s equity as of December 31, 2013 and June 30, 2014, and changes during the six months ended June 30, 2014, were as follows:

 

(in thousands)

 

Balance at December 31, 2013

$

557,375

 

Net income

 

7,045

 

Currency translation

 

184

 

Termination of put rights of redeeemable common stock,

   in connection with the IPO

 

34,950

 

Issuance of common stock in connection with the IPO, net of

   issuance costs

 

94,927

 

Change in fair value of redeemable common stock

 

(16,535

)

Stock-based compensation

 

4,709

 

Stock option exercises, net of withholdings and other

 

2,194

 

Preferred stock tax distributions

 

(320

)

Common stock repurchases

 

(3,225

)

Balance at June 30, 2014

$

681,304

 

 

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

9. 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, 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 using the treasury stock method and common stock issuable upon conversion of the Series A Preferred Stock. Upon the closing of the IPO, all shares of the Company’s then-outstanding convertible Series A Preferred Stock automatically converted into an aggregate of 19,284,113 shares of common stock.

The following table presents the calculation of basic and diluted net income per share attributable to common stockholders for the three months ended June 30, 2014 and 2013:

 

Three Months Ended June 30, 2014

 

 

Three Months Ended June 30, 2013

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(in thousands, except per share data)

 

Net income

$

2,692

 

 

 

 

 

 

 

 

 

 

$

1,823

 

 

 

 

 

 

 

 

 

Preferred stock tax distributions

 

(320

)

 

 

 

 

 

 

 

 

 

 

(648

)

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

2,372

 

 

 

78,042

 

 

$

0.03

 

 

 

1,175

 

 

 

31,373

 

 

$

0.04

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

320

 

 

 

636

 

 

 

 

 

 

 

648

 

 

 

11,186

 

 

 

 

 

Stock options

 

 

 

 

3,396

 

 

 

 

 

 

 

 

 

 

1,007

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

2,692

 

 

 

82,074

 

 

$

0.03

 

 

$

1,823

 

 

 

43,566

 

 

$

0.04

 

 

The following table presents the calculation of basic and diluted net income per share attributable to common stock holders for the six months ended June 30, 2014 and 2013:

 

Six Months Ended June 30, 2014

 

 

Six Months Ended June 30, 2013

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(in thousands, except per share data)

 

Net income

$

7,045

 

 

 

 

 

 

 

 

 

 

$

3,079

 

 

 

 

 

 

 

 

 

Preferred stock tax distributions

 

(320

)

 

 

 

 

 

 

 

 

 

 

(648

)

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

6,725

 

 

 

66,626

 

 

$

0.10

 

 

 

2,431

 

 

 

31,368

 

 

$

0.08

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

320

 

 

 

9,960

 

 

 

 

 

 

 

648

 

 

 

11,186

 

 

 

 

 

Stock options

 

 

 

 

3,268

 

 

 

 

 

 

 

 

 

 

802

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

7,045

 

 

 

79,854

 

 

$

0.09

 

 

$

3,079

 

 

 

43,356

 

 

$

0.07

 

 

For the three months ended June 30, 2014 and 2013, 140,283 and 352,500 shares of common stock underlying stock options, respectively, were excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been antidilutive. For the six months ended June 30, 2014 and 2013, 140,283 and 328,750 shares of common stock underlying stock options, respectively, were excluded because their effect would have been antidilutive.

Fair Value Measurement
Fair Value Measurement

10. Fair Value Measurement

Certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company applied the following methods and assumptions in estimating its fair value measurements: cash equivalents are comprised of highly liquid investments, including money market funds and certificates of deposit with original maturities of less than three months. The fair value measurement of these assets is based on quoted market prices in active markets and, therefore, these assets are recorded at fair value on a recurring basis and classified as Level 1 in the fair value hierarchy. Redeemable common stock consisted of put rights the Company granted to certain shareholders which required common shares to be repurchased at fair value (as defined in the stockholders agreement) determined as of the redemption date. The fair value measurement of redeemable common stock is based on Level 3 inputs as defined in the fair value hierarchy. 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 based on Level 1 inputs on a recurring basis as of June 30, 2014 and December 31, 2013:

 

 

June 30, 2014

 

 

December 31, 2013

 

 

(in thousands)

 

Cash equivalents

$

4,203

 

 

$

4,200

 

 

The fair value of the Company’s redeemable common stock, determined to be Level 3 under the fair value hierarchy, was measured based on the required redemption at the most recent fair value of the common stock. The put rights for the Company’s then outstanding redeemable common stock were terminated and the shares converted on a one-for-one basis into common stock upon the closing of the IPO on April 4, 2014. The following table presents the fair value, valuation techniques and related unobservable inputs for the Level 3 measurement as of December 31, 2013:

 

 

 

 

Fair value measurement

 

 

 

 

 

 

 

 

 

 

 

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

Valuation

 

Unobservable

 

Range

 

 

 

 

December 31, 2013

 

 

technique

 

input

 

December 31, 2013

 

Redeemable common stock

 

 

$

18,415

 

 

Probability Weighted

 

Discount rate

 

 

15.3

%

 

 

 

 

 

 

Expected Return

Method

 

Lack of marketability per common share

 

 

14.9

%

 

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.

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 Company’s prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933 on April 7, 2014. All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014.

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 development costs, goodwill, depreciable lives of property and equipment, recoverability of intangible assets with definite lives and other long-lived assets and stock-based compensation. Actual results could differ from these estimates.

Reverse Stock Split Ratio

On April 2, 2014, the Company effected a 1-for-2 reverse stock split of its issued and outstanding common stock and preferred stock. Any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share. All share and per-share amounts for all periods presented in these financial statements have been adjusted retroactively to reflect the reverse stock split.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“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. ASU 2014-09 will be effective for the Company in the first quarter of 2017. Management is currently evaluating the impact the adoption of ASU 2014-09 will have on the Company’s condensed consolidated financial position, results of operations or cash flows and the method of retrospective application, either full or modified.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”), which requires that a liability related to an unrecognized tax benefit be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward that the entity intends to use and is available for settlement at the reporting date. ASU 2013-11 was effective for and adopted by the Company in the first quarter of 2014 and applied prospectively to unrecognized tax benefits that existed at the effective date. The adoption of ASU 2013-11 impacted the Company’s financial statement presentation and disclosures, but otherwise did not impact the Company’s condensed consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued Accounting Standards Update No. 2013-02  “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the notes. ASU 2013-02 was effective for and adopted by the Company in the first quarter of 2013. The adoption of ASU 2013-02 impacted the Company’s financial statement presentation and disclosures, but otherwise did not impact the Company’s condensed consolidated financial position, results of operations or cash flows.

Acquisitions (Tables)

The following table summarizes the August 8, 2013 acquisition-date fair value of the assets and liabilities acquired in connection with the GrubHub Holdings Inc. business combination:

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

$

13,266

 

Accounts receivable

 

 

 

2,108

 

Other identifiable assets

 

 

 

4,422

 

Customer and vendor relationships

 

 

 

167,450

 

Deferred tax asset

 

 

 

4,013

 

Deferred tax liability

 

 

 

(88,937

)

Developed technology

 

 

 

5,143

 

Goodwill

 

 

 

239,346

 

Liabilities assumed

 

 

 

(10,602

)

Trademarks

 

 

 

85,276

 

Total net assets acquired

 

 

$

421,485

 

 

The following unaudited pro forma information presents a summary of the operating results of the Company for the three and six months ended June 30, 2013 as if GrubHub Inc. had acquired GrubHub Holdings Inc. as of January 1, 2013:

 

 

Three Months Ended

June 30, 2013

 

 

Six Months Ended

June 30, 2013

 

 

(in thousands)

 

Revenues

$

40,650

 

 

$

80,027

 

Net income

 

1,522

 

 

 

773

 

 

The pro forma adjustments reflect the additional amortization that would have been recognized for the intangible assets, replacement stock option awards compensation cost for services performed after the Merger, elimination of transaction costs incurred and pro forma tax adjustments for the three and six months ended June 30, 2013 as follows:

 

 

Three Months Ended

June 30, 2013

 

 

Six Months Ended

June 30, 2013

 

 

(in thousands)

 

Amortization of intangible assets

$

2,659

 

 

$

5,334

 

Stock-based compensation

 

1,210

 

 

 

2,424

 

Transaction costs

 

(6,669

)

 

 

(7,430

)

Income tax benefit

 

(730

)

 

 

(2,767

)

 

Goodwill and Acquired Intangible Assets (Tables)

The components of acquired intangible assets as of June 30, 2014 and December 31, 2013 were as follows:

 

 

June 30, 2014

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

(in thousands)

 

Developed technology

$

5,143

 

 

$

(1,534

)

 

$

3,609

 

Customer and vendor relationships, databases

 

191,979

 

 

 

(23,874

)

 

 

168,105

 

Total amortizable intangible assets

 

197,122

 

 

 

(25,408

)

 

 

171,714

 

Indefinite-lived trademarks

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

$

286,798

 

 

$

(25,408

)

 

$

261,390

 

 

 

 

December 31, 2013

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

(in thousands)

 

Developed technology

$

5,143

 

 

$

(677

)

 

$

4,466

 

Customer and vendor relationships, databases

 

191,979

 

 

 

(17,680

)

 

 

174,299

 

Total amortizable intangible assets

 

197,122

 

 

 

(18,357

)

 

 

178,765

 

Indefinite-lived trademarks

 

89,676

 

 

 

 

 

 

89,676

 

Total acquired intangible assets

$

286,798

 

 

$

(18,357

)

 

$

268,441

 

 

Estimated future amortization expense of acquired intangible assets as of June 30, 2014 was as follows:

 

 

(in thousands)

 

The remainder of 2014

$

7,051

 

2015

 

14,102

 

2016

 

13,344

 

2017

 

12,068

 

2018

 

12,068

 

Thereafter

 

113,081

 

Total

$

171,714

 

 

Property and Equipment (Tables)
Components of Property and Equipment

The components of the Company’s property and equipment as of June 30, 2014 and December 31, 2013 were as follows:

 

 

June 30, 2014

 

 

December 31, 2013

 

 

(in thousands)

 

Computer equipment

$

11,495

 

 

$

9,739

 

Furniture and fixtures

 

2,440

 

 

 

2,176

 

Developed software

 

15,064

 

 

 

13,930

 

Purchased software

 

2,129

 

 

 

2,124

 

Leasehold improvement

 

6,473

 

 

 

6,120

 

Property and equipment

 

37,601

 

 

 

34,089

 

Accumulated amortization and depreciation

 

(21,072

)

 

 

(16,993

)

Property and equipment, net

$

16,529

 

 

$

17,096

 

 

Commitments and Contingencies (Tables)
Summary of Restructuring Activity

The following table summarizes the Company’s restructuring activity during the six months ended June 30, 2014:

 

 

(in thousands)

 

Restructuring accrual balance at December 31, 2013

$

176

 

Restructuring expense

 

492

 

Cash payments

 

(190

)

Restructuring accrual balance at June 30, 2014

$

478

 

 

Stock-Based Compensation (Tables)

The assumptions used to determine the fair market value of the stock options granted during the six months ended June 30, 2014 and 2013 were as follows: 

 

2014

 

 

2013

 

Weighted average fair value options granted

$

13.12

 

 

$

1.66

 

Average risk-free interest rate

 

2.00

%

 

 

1.10

%

Expected stock price volatilities(a)

 

50.5

%

 

 

53.8

%

Dividend yield

None

 

 

None

 

Expected stock option life (years)

 

6.29

 

 

 

6.06

 

 

a)

There was no active external or internal market for the Company’s shares until April of 2014. Thus, it was not possible to estimate the expected volatility of the Company’s share price in estimating fair value of options granted. As a substitute for such volatility, the Company used the historical volatility of comparable companies.

Stock option awards as of December 31, 2013 and June 30, 2014, and changes during the six months ended June 30, 2014, were as follows:

 

 

Options

 

 

Weighted

Average

Exercise Price

 

 

Average Intrinsic

Value

(thousands)

 

 

Weighted Average

Exercise Term

(years)

 

Outstanding at December 31, 2013

 

7,669,553

 

 

$

4.08

 

 

$

56,844

 

 

 

8.29

 

Granted

 

1,739,273

 

 

 

15.13

 

 

 

 

 

 

 

 

 

Forfeited

 

(558,820

)

 

 

4.27

 

 

 

 

 

 

 

 

 

Exercised

 

(695,627

)

 

3.31

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2014

 

8,154,379

 

 

 

6.44

 

 

 

236,210

 

 

 

8.20

 

Vested and expected to vest at June 30, 2014

 

6,587,727

 

 

 

5.60

 

 

 

196,389

 

 

8.06

 

Exercisable at June 30, 2014

 

3,493,142

 

 

$

3.88

 

 

$

110,146

 

 

 

7.76

 

 

Stockholders' Equity (Tables)
Equity and Changes in Equity During Period

The Company’s equity as of December 31, 2013 and June 30, 2014, and changes during the six months ended June 30, 2014, were as follows:

 

(in thousands)

 

Balance at December 31, 2013

$

557,375

 

Net income

 

7,045

 

Currency translation

 

184

 

Termination of put rights of redeeemable common stock,

   in connection with the IPO

 

34,950

 

Issuance of common stock in connection with the IPO, net of

   issuance costs

 

94,927

 

Change in fair value of redeemable common stock

 

(16,535

)

Stock-based compensation

 

4,709

 

Stock option exercises, net of withholdings and other

 

2,194

 

Preferred stock tax distributions

 

(320

)

Common stock repurchases

 

(3,225

)

Balance at June 30, 2014

$

681,304

 

 

Earnings Per Share Attributable to Common Stockholders (Tables)
Computation of Basic and Diluted Net Income Per Share

The following table presents the calculation of basic and diluted net income per share attributable to common stockholders for the three months ended June 30, 2014 and 2013:

 

Three Months Ended June 30, 2014

 

 

Three Months Ended June 30, 2013

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(in thousands, except per share data)

 

Net income

$

2,692

 

 

 

 

 

 

 

 

 

 

$

1,823

 

 

 

 

 

 

 

 

 

Preferred stock tax distributions

 

(320

)

 

 

 

 

 

 

 

 

 

 

(648

)

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

2,372

 

 

 

78,042

 

 

$

0.03

 

 

 

1,175

 

 

 

31,373

 

 

$

0.04

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

320

 

 

 

636

 

 

 

 

 

 

 

648

 

 

 

11,186

 

 

 

 

 

Stock options

 

 

 

 

3,396

 

 

 

 

 

 

 

 

 

 

1,007

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

2,692

 

 

 

82,074

 

 

$

0.03

 

 

$

1,823

 

 

 

43,566

 

 

$

0.04

 

 

The following table presents the calculation of basic and diluted net income per share attributable to common stock holders for the six months ended June 30, 2014 and 2013:

 

Six Months Ended June 30, 2014

 

 

Six Months Ended June 30, 2013

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

Income

 

 

Shares

 

 

Per  Share

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(in thousands, except per share data)

 

Net income

$

7,045