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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 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.
Follow-on Offering
On September 3, 2014, the Company completed a follow-on offering in which it issued and sold 1,250,000 shares of common stock at a public offering price of $40.25 per share. The Company received net proceeds of $47.6 million after deducting underwriting discounts and commissions of $1.9 million and other offering expenses of approximately $0.8 million. These expenses were recorded against the proceeds received from the follow-on offering.
Certain selling stockholders offered an additional 9,218,198 shares of common stock. These selling stockholders also granted the underwriters an option to purchase up to 1,570,229 additional shares of common stock, which was not exercised. The Company did not receive any proceeds from the sale of the shares sold by the selling stockholders.
The Company invested the funds received from the IPO and the follow-on offering in non-interest bearing accounts, short-term interest-bearing obligations and investment-grade investments.
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 consolidated financial statements for all periods presented.
|
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include all wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated statements of operations include the results of entities acquired from the dates of the acquisitions for accounting purposes.
The share and per share amounts for all periods presented reflect the completion of the Company’s 1-for-2 reverse stock split, which the Company effected on April 2, 2014.
Use of Estimates
The preparation of consolidated financial statements in conformity 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 finite lives and other long-lived assets and stock-based compensation. To the extent there are material differences between these estimates, judgments or assumptions and actual results, the Company’s consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application.
Cash and Cash Equivalents
Cash includes demand deposits with banks or financial institutions. Cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and that are so near their maturity that they present minimal risk of changes in value because of changes in interest rates. The Company’s cash equivalents include only investments with original maturities of three months or less. The Company regularly maintains cash in excess of federally insured limits at financial institutions.
Marketable Securities
Marketable securities consist primarily of commercial paper and investment grade U.S. and non-U.S.-issued corporate debt securities. The Company invests in a diversified portfolio of marketable securities and limits the concentration of its investment in any particular security. Marketable securities with original maturities of three months or less are included in cash and cash equivalents and marketable securities with original maturities greater than three months, but less than one year, are included in short term investments on the consolidated balance sheets. The Company determines the classification of its marketable securities as available-for-sale or held-to-maturity at the time of purchase and reassesses these determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the intent to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost and are periodically assessed for other-than-temporary impairment. The amortized cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity, which is recognized as interest income within general and administrative expense in the consolidated statements of operations. Interest income is recognized when earned.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments. The financial statements of the Company’s U.K. subsidiary are translated from their functional currency into U.S. dollars. Assets and liabilities are translated at period end rates of exchange, and revenue and expenses are translated using average rates of exchange. The resulting gain or loss is included in accumulated other comprehensive income (loss) on the consolidated balance sheets.
Property and Equipment, Net
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. The useful lives are as follows:
Computer equipment |
|
2-3 years |
Furniture and fixtures |
|
5 years |
Developed software |
|
1-3 years |
Purchased software |
|
3-5 years |
Leasehold improvements |
|
Shorter of expected useful life or lease term |
The Company reduced the estimated useful life on any computer equipment, furniture and fixtures, and leasehold improvements related to its Sandy, Utah location to coincide with the expected closure date of the facility. (See Note 8, “Commitments and Contingencies”).
Maintenance and repair costs are charged to expense as incurred. Major improvements, which extend the useful life of the related asset, are capitalized. Upon disposal of a fixed asset, the Company records a gain or loss based on the difference between the proceeds received and the net book value of the disposed asset.
Accounts Receivable, Net
Accounts receivable primarily represent the net cash due from the Company’s payment processor for cleared transactions and amounts owed from corporate customers. The carrying amount of the Company’s receivables is reduced by an allowance for doubtful accounts that reflects management’s best estimate of amounts that will not be collected. The allowance is recorded through a charge to bad debt expense which is recorded within general and administrative expense in the consolidated statements of operations. The allowance is based on historical loss experience and any specific risks identified in collection matters.
Management provides for probable uncollectible amounts through a charge against bad debt expense and a credit to an allowance based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off against the allowance. The Company does not charge interest on trade receivables.
Changes in the Company’s allowance for doubtful accounts for the periods presented were as follows:
|
|
Year Ended December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Balance at beginning of year |
|
$ |
510 |
|
|
$ |
210 |
|
Additions to expense |
|
|
426 |
|
|
|
473 |
|
Writeoffs, net of recoveries and other adjustments |
|
|
(213 |
) |
|
|
(173 |
) |
Balance at end of year |
|
$ |
723 |
|
|
$ |
510 |
|
Advertising Costs
Advertising costs are generally expensed as incurred in connection with the requisite service period. Certain advertising production costs are capitalized and expensed when the advertisement first takes place. For the years ended December 31, 2014, 2013 and 2012, expenses attributable to advertising totaled approximately $45.9 million, $25.0 million and $20.4 million, respectively. Advertising costs are recorded in sales and marketing expense on the Company’s consolidated statements of operations.
Stock-Based Compensation
The Company measures compensation expense for all stock-based awards at fair value on the date of grant and recognizes compensation expense over the service period on a straight-line basis for awards expected to vest.
The Company uses the Black-Scholes option-pricing model to determine the fair value for stock options. In valuing the Company’s options, the Company makes assumptions about risk-free interest rates, dividend yields, volatility and weighted-average expected lives, including estimated forfeiture rates. Risk-free interest rates are derived from U.S. Treasury securities as of the option grant date. Expected dividend yield is based on the Company’s historical dividend payments, which have been zero to date. As the Company did not have public trading history for its common shares until April of 2014, the expected volatility for the Company’s common stock is estimated using the published historical volatilities of industry peers representing the verticals in which the Company operates. The Company estimates the weighted-average expected life of the options as the average of the vesting option schedule and the term of the award, since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time stock-based awards have been exercisable. The term of the award is estimated using the simplified method. Forfeiture rates are estimated using historical actual forfeiture trends as well as the Company’s judgment of future forfeitures. These rates are evaluated quarterly and any change in compensation expense is recognized in the period of the change. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates are revised. The Company considers many factors when estimating expected forfeitures, including the types of awards and employee class. Actual results, and future changes in estimates, may differ substantially from management’s current estimates.
The Company has elected to use the with-and-without method in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit for stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes available to the Company have been utilized.
Provision for Income Taxes
The provision for income taxes is determined using the asset and liability method. Under this method, deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates that are applicable in a given year.
The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (“tax contingencies”). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. The Company includes interest and penalties related to tax contingencies in the provision for income taxes in the consolidated statements of operations. See Note 10, “Income Taxes.” Management of the Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.
Seamless North America, LLC became a partnership for tax purposes in June of 2011. The income tax consequences of a partnership are borne by its partners. The tax consequences of this partnership were borne by Aramark and SLW Investors from June of 2011 through October 29, 2012. Starting October 30, 2012, 74% of the partnership’s taxable income was reflected as taxable income at Seamless Holdings, a subsidiary of GrubHub Inc. Starting on August 9, 2013, 100% of the partnership’s taxable income was recognized as taxable income by the Company. If Seamless North America, LLC had been taxed as a C corporation for all of its earnings throughout 2013 and 2012, the tax expense recorded in these consolidated statements of operations would have increased by $0.9 million and $2.7 million, respectively.
Intangible Assets
Intangible assets with finite useful lives are amortized using the straight-line method over their useful lives and are reviewed for impairment. The Company evaluates intangible assets and other long-lived assets for impairment whenever events or circumstances indicate that they may not be recoverable, or at least annually. Recoverability is measured by comparing the carrying amount of an asset group to the future undiscounted net cash flows expected to be generated by that asset group. If this comparison indicates impairment, the amount of impairment to be recognized is calculated as the difference between the carrying value and the fair value of the asset group, generally measured by discounting estimated future cash flows. There were no impairment indicators present during the years ended December 31, 2014, 2013 and 2012.
Website and Software Development Costs
The costs incurred in the preliminary stages of website and software development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized and amortized on a straight-line basis over the estimated useful life of the application. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful lives. Amortization expense related to capitalized website and software development costs is included in depreciation and amortization in the consolidated statements of operations. The Company capitalized $3.6 million, $2.6 million and $2.3 million of website development costs during the years ended December 31, 2014, 2013 and 2012, respectively.
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the assets acquired at the date of acquisition. Absent any special circumstances that could require an interim test, the Company has elected to test for goodwill impairment at September 30 of each year.
The Company tests for impairment using a two-step process. The first step of the goodwill impairment test identifies if there is potential goodwill impairment. If step one indicates that an impairment may exist, a second step is performed to measure the amount of the goodwill impairment, if any, by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value of goodwill is less than the carrying amount, a write-down is recorded. The Company has determined that there was no goodwill impairment as of December 31, 2014 or 2013.
Fair Value
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. See Note 14, “Fair Value Measurement,” for details of the fair value hierarchy and the related inputs used by the Company.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. For the years ended December 31, 2014, 2013 and 2012, the Company had no customers which accounted for more than 1% of revenue or 10% of accounts receivable.
Revenue Recognition
In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable and (iv) collectability is reasonably assured. The Company considers a signed agreement, a binding contract with the restaurant or other similar documentation reflecting the terms and conditions under which products or services will be provided to be persuasive evidence of an arrangement.
The Company generates revenues primarily when diners place an order on the platform through its websites, its mobile applications, third-party websites that incorporate API or one of the Company’s listed phone numbers. Restaurants pay a commission, typically a percentage of the transaction, on orders that are processed through the platform. Most of the restaurants on the platform can choose their level of commission rate, at or above a base rate, to affect their relative priority in the sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order than restaurants paying lower commission rates. Some restaurants on the platform pay a monthly system fee for better branding and more robust placement. As an agent of the merchant in the transaction, the Company recognizes as revenues only the commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.
The Company periodically provides incentive offers to restaurants and diners to use the platform. These promotions are generally cash credits to be applied against purchases. These incentive offers are recorded as reductions in revenues, generally on the date the corresponding revenue is recorded.
Revenues from online and phone delivery orders are recognized when these orders are placed at the restaurants. The amount of revenue recorded by the Company is based on the contractual arrangement with the related restaurant, and is adjusted for any cash credits, including incentive offers provided to restaurants and diners, related to the transaction. The Company also recognizes as revenue any fees charged to the restaurant or diner for delivery services provided by the Company. Although the Company will process the entire amount of the transaction with the diner, it will record revenue on a net basis because the Company is acting as an agent of the merchant in the transaction. The Company will record an amount representing the restaurant food liability for the net balance due the restaurant. Costs incurred for processing the transactions and providing delivery services are included in operations and support in the consolidated statements of operations.
Deferred Rent
For the Company’s operating leases, the Company recognizes rent expenses on a straight-line basis over the terms of the leases. Accordingly, the Company records the difference between cash rent payments and the recognition of rent expenses as a deferred rent liability in the consolidated balance sheets. The Company has landlord-funded leasehold improvements that are recorded as tenant allowances which are being amortized as a reduction of rent expense over the noncancelable terms of the operating leases.
Segments
The Company has one reportable segment, which has been identified based on how the chief operating decision maker manages the business, makes operating decisions and evaluates operating performance.
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 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 consolidated financial position, results of operations or cash flows.
|
3. Acquisitions
GrubHub Holdings Inc.
On August 8, 2013 (the “Merger Date”), 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 stored and displayed approximately 275,000 menus at the time of acquisition. 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 recognized post-Merger for the unrecognized compensation expense related to GrubHub Holdings Inc. stock options. See Note 9, “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 $4.7 million during the year ended December 31, 2013, which were recognized in general and administrative expense within the 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) and vendor 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) and vendor 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 year ended December 31, 2013 as if GrubHub Inc. had acquired GrubHub Holdings Inc. as of January 1, 2013:
|
|
Year Ended December 31, 2013 |
|
|
|
|
(in thousands) |
|
|
Revenues |
|
$ |
170,086 |
|
Net income |
|
|
4,160 |
|
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 year ended December 31, 2013 as follows:
|
|
Year Ended December 31, 2013 |
|
|
|
|
(in thousands) |
|
|
Amortization of intangible assets |
|
$ |
6,475 |
|
Stock-based compensation |
|
|
2,997 |
|
Transaction costs |
|
|
(9,131 |
) |
Income tax benefit |
|
|
(3,050 |
) |
The unaudited pro forma revenues are not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had the Merger been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.
|
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 December 31, 2014 were as follows:
|
|
December 31, 2014 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
1,882 |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
1,882 |
|
Short term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial paper |
|
|
38,081 |
|
|
|
— |
|
|
|
(26 |
) |
|
|
38,055 |
|
Corporate bonds |
|
|
73,260 |
|
|
|
2 |
|
|
|
(64 |
) |
|
|
73,198 |
|
Total |
|
$ |
113,223 |
|
|
$ |
3 |
|
|
$ |
(91 |
) |
|
$ |
113,135 |
|
All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of December 31, 2014.
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 December 31, 2014 were as follows:
|
|
December 31, 2014 |
|
|||||||||||||||||||||
|
|
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 |
|
$ |
38,055 |
|
|
$ |
(26 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
38,055 |
|
|
$ |
(26 |
) |
Corporate bonds |
|
|
64,557 |
|
|
|
(65 |
) |
|
|
— |
|
|
|
— |
|
|
|
64,557 |
|
|
|
(65 |
) |
Total |
|
$ |
102,612 |
|
|
$ |
(91 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
102,612 |
|
|
$ |
(91 |
) |
During the year ended December 31, 2014, the Company did not recognize any other-than-temporary impairment losses related to its marketable securities. The Company did not have any marketable securities prior to July 1, 2014.
The Company’s marketable securities are classified within Level 2 of the fair value hierarchy (see Note 14, “Fair Value Measurement”, for further details).
|
5. Related Party Transactions
Note Receivable
On December 31, 2011, the Company loaned Aramark $16.0 million and entered into a note receivable with an interest rate of 3.4% per annum. The note was paid in full along with the accumulated accrued interest in January of 2012. Additionally, during 2012, the Company made short-term advances to Aramark, which were also repaid in 2012.
Due to Related Party
During the years ended December 31, 2012 and 2013, the Company had a cash management program with Aramark whereby all payroll and related costs were funded by Aramark and all cumulative excess cash balances were deposited with Aramark. The program was terminated in 2013 and no balance was due as of December 31, 2013.
Corporate Services Agreement
The Company had an arrangement with Aramark pursuant to which Aramark would provide support to the Company for certain corporate, accounting, information technology and other administrative services. Total expenses incurred under this arrangement were $0.1 million and $0.4 million during the years ended December 31, 2013 and 2012, respectively. The arrangement was terminated in 2013.
|
6. Goodwill and Acquired Intangible Assets
The components of acquired intangible assets as of December 31, 2014 and 2013 were as follows:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Developed technology |
|
$ |
5,143 |
|
|
$ |
(2,392 |
) |
|
$ |
2,751 |
|
|
$ |
5,143 |
|
|
$ |
(677 |
) |
|
$ |
4,466 |
|
Customer and vendor relationships, databases |
|
|
191,979 |
|
|
|
(30,067 |
) |
|
|
161,912 |
|
|
|
191,979 |
|
|
|
(17,680 |
) |
|
|
174,299 |
|
Total amortizable intangible assets |
|
|
197,122 |
|
|
|
(32,459 |
) |
|
|
164,663 |
|
|
|
197,122 |
|
|
|
(18,357 |
) |
|
|
178,765 |
|
Indefinite-lived trademarks |
|
|
89,676 |
|
|
|
— |
|
|
|
89,676 |
|
|
|
89,676 |
|
|
|
— |
|
|
|
89,676 |
|
Total acquired intangible assets |
|
$ |
286,798 |
|
|
$ |
(32,459 |
) |
|
$ |
254,339 |
|
|
$ |
286,798 |
|
|
$ |
(18,357 |
) |
|
$ |
268,441 |
|
Amortization expense for acquired intangible assets was $14.1 million, $6.9 million and $2.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.
The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 were as follows.
|
|
Goodwill |
|
|
Accumulated Impairment Losses |
|
|
Net Book Value |
|
|||
|
|
(in thousands) |
|
|||||||||
Balance as of December 31, 2012 |
|
$ |
113,442 |
|
|
$ |
— |
|
|
$ |
113,442 |
|
Acquisition of GrubHub Holdings Inc. |
|
|
239,346 |
|
|
|
— |
|
|
|
239,346 |
|
Balance as of December 31, 2013 |
|
|
352,788 |
|
|
|
— |
|
|
|
352,788 |
|
Balance as of December 31, 2014 |
|
$ |
352,788 |
|
|
$ |
— |
|
|
$ |
352,788 |
|
During the year ended December 31, 2013, the Company recorded additions to other intangible assets of $257.9 million as a result of the Merger. The components of the acquired intangibles added during the year ended December 31, 2013 were as follows:
|
|
December 31, 2013 |
|
|||||
|
|
Amount |
|
|
Weighted-Average Amortization Period (years) |
|
||
Developed technology |
|
$ |
5,143 |
|
|
|
3 |
|
Customer and vendor relationships, databases |
|
|
167,450 |
|
|
|
16.4 |
|
Indefinite-lived trademarks |
|
|
85,276 |
|
|
Indefinite |
|
|
|
|
$ |
257,869 |
|
|
|
|
|
Estimated future amortization expense of acquired intangible assets as of December 31, 2014 was as follows:
|
|
(in thousands) |
|
|
2015 |
|
$ |
14,102 |
|
2016 |
|
|
13,344 |
|
2017 |
|
|
12,068 |
|
2018 |
|
|
12,068 |
|
2019 |
|
|
10,656 |
|
Thereafter |
|
|
102,425 |
|
Total |
|
$ |
164,663 |
|
As of December 31, 2014, the estimated remaining weighted-average useful lives of the Company’s acquired intangibles was 14.2 years. The Company recognizes amortization expense for acquired intangibles on a straight-line basis.
|
7. Property and Equipment
The components of the Company’s property and equipment as of December 31, 2014 and 2013 were as follows:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||
|
|
(in thousands) |
|
|||||
Computer equipment |
|
$ |
12,114 |
|
|
$ |
9,739 |
|
Furniture and fixtures |
|
|
1,876 |
|
|
|
2,176 |
|
Developed software |
|
|
12,378 |
|
|
|
13,930 |
|
Purchased software |
|
|
2,149 |
|
|
|
2,124 |
|
Leasehold improvements |
|
|
5,900 |
|
|
|
6,120 |
|
Property and equipment |
|
|
34,417 |
|
|
|
34,089 |
|
Accumulated amortization and depreciation |
|
|
(18,414 |
) |
|
|
(16,993 |
) |
Property and equipment, net |
|
$ |
16,003 |
|
|
$ |
17,096 |
|
The Company recorded depreciation and amortization expense for property and equipment other than developed software for the years ended December 31, 2014, 2013 and 2012 of $5.7 million, $4.0 million and $2.0 million, respectively. The gross carrying amount and accumulated amortization and depreciation of the Company’s property and equipment as of December 31, 2014 have been adjusted for certain fully depreciated assets that were disposed of with the closure of the Utah facility in the fourth quarter of 2014 (see Note 8, “Commitments and Contingencies”, for further details).
The Company capitalized developed software costs of $3.6 million, $2.6 million and $2.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. Amortization expense for developed software costs, recognized in depreciation and amortization in the consolidated statements of operations, for the years ended December 31, 2014, 2013 and 2012 was $2.9 million, $2.6 million and $1.6 million, respectively. The gross carrying amount and accumulated amortization of the Company’s developed software as of December 31, 2014 have also been adjusted for certain fully depreciated assets that were no longer in use due to the continued development of the Company’s platform.
|
8. Commitments and Contingencies
Office Facility Leases
The Company has various operating lease agreements for its office facilities which expire at various dates through June 2022. The terms of the lease agreements provide for rental payments on a graduated basis. The Company can, after the initial lease term, renew its leases under right of first offer terms at fair value at the time of renewal for a period of 5 years. The Company recognizes rent expense on a straight-line basis over the lease term.
Rental expense, primarily for leased office space under the operating lease commitments, was $3.6 million, $2.5 million and $2.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Future minimum lease payments under the Company’s operating lease agreements that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2014 were as follows:
|
|
(in thousands) |
|
|
2015 |
|
$ |
3,646 |
|
2016 |
|
|
3,482 |
|
2017 |
|
|
2,939 |
|
2018 |
|
|
1,750 |
|
2019 |
|
|
1,749 |
|
Thereafter |
|
|
4,374 |
|
Total |
|
$ |
17,940 |
|
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 patent 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 December 31, 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 December 31, 2014, the Company had accrued $0.1 million for such litigation, which included an aggregate reserve of $0.7 million included in current liabilities less an expected insurance recovery of $0.6 million included in current assets in the consolidated balance sheets.
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 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.
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 consolidated balance sheets for severance and payroll related benefits and other facility closure costs as a result of the restructuring announcement. The amounts recorded represented the service vesting requirements for identified employees who worked for various periods beyond the communication date and related lease termination costs. The facility was closed on November 30, 2014, however, certain employees worked until January 2, 2015. During the year ended December 31, 2014, total restructuring costs incurred were approximately $1.3 million, including expense of $0.5 million related to the termination of the Sandy, Utah office lease agreement. During the year ended December 31, 2013, total restructuring costs incurred were $0.2 million. Restructuring expense was recognized in general and administrative expense in the consolidated statements of operations. Remaining severance and payroll-related benefits due to terminated employees as of December 31, 2014 are expected to be paid in the first quarter of 2015. The Company does not expect to incur any additional restructuring expense related to the Sandy, Utah facility closure.
The following table summarizes the Company’s restructuring activity during the year ended December 31, 2014:
|
|
(in thousands) |
|
|
Restructuring accrual balance at December 31, 2013 |
|
$ |
176 |
|
Restructuring expense |
|
|
1,313 |
|
Cash payments |
|
|
(741 |
) |
Restructuring accrual balance at December 31, 2014 |
|
$ |
748 |
|
|
9. Stock-Based Compensation
Under the GrubHub Inc. 2013 Omnibus Incentive Plan (the “2013 Plan”), the Company has granted certain employees and directors non-qualified stock options and restricted stock units. The 2013 Plan authorizes the issuance of up to 10,351,283 shares of common stock. The Board of Directors of the Company and committee or subcommittee of the Board of Directors has discretion to establish the terms and conditions for grants, including, but not limited to, the number shares and vesting and forfeiture provisions. 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 and restricted stock units. For all stock options outstanding as of December 31, 2014, the exercise price of the stock options equals the fair value of the stock option on the grant date. The stock options and restricted stock units vest over different lengths of time, but generally over 4 years, and are subject to forfeiture upon termination of employment prior to vesting. The maximum term for stock options issued to employees under the 2013 Plan is 10 years, and they expire 10 years from the date of grant. Compensation expense for stock options and restricted stock units is recognized ratably over the vesting period.
The rights granted to the recipient of a restricted stock unit award generally accrue over the vesting period. Participants holding restricted stock units are not entitled to any ordinary cash dividends paid by the Company with respect to such shares unless otherwise provided by the terms of the award. The Company does not expect to pay any dividends in the foreseeable future.
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 is recognized as compensation cost in the Company’s post-Merger consolidated financial statements over the remaining vesting period.
Stock Options
The Company granted 2,019,413, 3,698,708 and 1,619,167 stock options during the years ended December 31, 2014, 2013 and 2012, 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 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, prior to the IPO, 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 value of the stock options granted during the years ended December 31, 2014, 2013 and 2012 were as follows:
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
Weighted-average fair value options granted |
|
$ |
13.87 |
|
|
$ |
3.97 |
|
|
$ |
1.46 |
|
Average risk-free interest rate |
|
|
1.97 |
% |
|
|
1.41 |
% |
|
|
0.87 |
% |
Expected stock price volatilities(a) |
|
|
50.3 |
% |
|
|
50.7 |
% |
|
|
54.8 |
% |
Dividend yield |
|
None |
|
|
None |
|
|
None |
|
|||
Expected stock option life (years) |
|
|
6.26 |
|
|
|
5.20 |
|
|
|
6.11 |
|
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, 2014 and 2013, and changes during the year ended December 31, 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 |
|
|
2,019,413 |
|
|
|
18.35 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(953,472 |
) |
|
|
6.68 |
|
|
|
|
|
|
|
|
|
Exercised(a) |
|
|
(2,554,699 |
) |
|
|
3.73 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 |
|
|
6,180,795 |
|
|
|
8.49 |
|
|
|
172,661 |
|
|
|
7.87 |
|
Vested and expected to vest at December 31, 2014 |
|
|
4,738,666 |
|
|
|
7.56 |
|
|
|
138,012 |
|
|
|
7.73 |
|
Exercisable at December 31, 2014 |
|
|
2,506,615 |
|
|
$ |
4.02 |
|
|
$ |
80,962 |
|
|
|
7.22 |
|
(a)Included 138,048 shares of restricted common stock owned by officers of the Company that contained forfeiture provisions. ___________________________________________
|
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 years ended December 31, 2014, 2013 and 2012 was $74.0 million, $3.4 million and $0.1 million, respectively.
The Company recorded compensation expense for stock options of $9.4 million, $4.9 million and $2.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. During the year ended December 31, 2014, the Company capitalized $0.1 million of stock-based compensation expense as website and software development costs. As of December, 2014, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $19.2 million and is expected to be recognized over a weighted-average period of 2.95 years.
During the year ended December 31, 2014, the Company reported excess tax benefits as a decrease in cash flows from operations and an increase in cash flows from financing activities of $13.0 million. Excess tax benefits were suspended during the years ended December 31, 2013 and 2012 due to net operating losses. Excess tax benefits reflect the total of the individual stock option exercise transactions in which the reduction to the Company’s income tax liability is greater than the deferred tax assets that were previously recorded.
Restricted Stock Units
Non-vested restricted stock unit awards as of December 31, 2014 and 2013, and changes during the year ended December 31, 2014 were as follows:
|
|
Shares |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Outstanding at December 31, 2013 |
|
|
— |
|
|
$ |
— |
|
Granted |
|
|
2,899 |
|
|
|
31.90 |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Outstanding at December 31, 2014 |
|
|
2,899 |
|
|
$ |
31.90 |
|
During the year ended December 31, 2014, compensation expense recognized related to restricted stock units was nominal. There were no non-vested restricted stock units or related expense during the years ended December 31, 2013 and 2012. As of December, 2014, $0.1 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 2,899 non-vested restricted stock units with a weighted-average grant date fair value of $31.90 is expected to be recognized over a weighted-average period of 4.0 years. 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.
There were no excess tax benefits related to restricted stock units during the years ended December 31, 2014, 2013 and 2012.
|
10. Income Taxes
The Company files income tax returns in the U.S. federal, the United Kingdom and various state jurisdictions. The Company’s primary operating unit is Seamless North America, LLC, which was incorporated in 1999 as a taxable C-Corporation, and acquired by Aramark in April of 2006. The Company was converted to a single member limited liability company (“LLC”) in April of 2007. In June of 2011, the entity was converted into a partnership for tax purposes upon the sale of a 26% interest to SLW Investors. In October of 2012, Aramark spun off its interest in Seamless North America, LLC by contributing the partnership interest to a newly formed C-Corporation, Seamless Holdings, and distributing those shares to the shareholders of Aramark. The income taxes paid on behalf of Seamless North America, LLC by Aramark, while it was a single member LLC, have been reflected as income tax expense and as contributed capital for the period prior to the sale to SLW Investors in June of 2011. On that date, the Company recorded tax benefits of approximately $8.1 million relating to the reversal of existing deferred tax liabilities relating to the C-Corporation and recognition of a deferred tax asset at the partnership level relating to tax status of the underlying LLC. A deferred tax liability of approximately $8.2 million was assumed by Seamless Holdings at the time it was spun off from Aramark in October of 2012. This liability was reflected as an offset to equity, as part of the spin off.
For the years ended December 31, 2014, 2013 and 2012, the income tax provision was comprised of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
(in thousands) |
|
|||||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
8,073 |
|
|
$ |
2,912 |
|
|
$ |
316 |
|
State |
|
|
7,610 |
|
|
|
3,056 |
|
|
|
132 |
|
Foreign |
|
|
426 |
|
|
|
468 |
|
|
|
365 |
|
Total current |
|
|
16,109 |
|
|
|
6,436 |
|
|
|
813 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
1,056 |
|
|
|
1,300 |
|
|
|
— |
|
State |
|
|
3,556 |
|
|
|
406 |
|
|
|
— |
|
Total deferred |
|
|
4,612 |
|
|
|
1,706 |
|
|
|
— |
|
Total income tax expense |
|
$ |
20,721 |
|
|
$ |
8,142 |
|
|
$ |
813 |
|
Income before provision for income taxes for the years ended December 31, 2014, 2013 and 2012, was as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
(in thousands) |
|
|||||||||
Domestic source |
|
$ |
43,069 |
|
|
$ |
12,986 |
|
|
$ |
7,153 |
|
Foreign source |
|
|
1,915 |
|
|
|
1,903 |
|
|
|
1,579 |
|
Income before provision for income taxes |
|
$ |
44,984 |
|
|
$ |
14,889 |
|
|
$ |
8,732 |
|
The following is a reconciliation of income taxes computed at the U.S. federal statutory rate to the income taxes reported in the consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
(in thousands) |
|
|||||||||
Income tax expense at statutory rate |
|
$ |
15,747 |
|
|
$ |
5,211 |
|
|
$ |
3,056 |
|
State income taxes |
|
|
8,038 |
|
|
|
2,522 |
|
|
|
251 |
|
Deferred tax impact of reorganization |
|
|
(2,382 |
) |
|
|
— |
|
|
|
— |
|
Nondeductible transaction costs |
|
|
— |
|
|
|
1,148 |
|
|
|
— |
|
Tax benefit of partnership status |
|
|
— |
|
|
|
(726 |
) |
|
|
(2,211 |
) |
Valuation allowance reversal |
|
|
— |
|
|
|
(502 |
) |
|
|
— |
|
Foreign rate differential |
|
|
(253 |
) |
|
|
(220 |
) |
|
|
(188 |
) |
All other |
|
|
(429 |
) |
|
|
709 |
|
|
|
(95 |
) |
Total income tax expense |
|
$ |
20,721 |
|
|
$ |
8,142 |
|
|
$ |
813 |
|
On December 31, 2014, the Company undertook a series of transactions intended to simplify its legal and tax structure in the U.S. The result of the reorganization was a combination of GrubHub Holdings Inc. and Seamless North America, which resulted in the deemed liquidation of the Seamless North America, LLC partnership status for tax purposes. The reorganization resulted in a net income tax benefit of $0.4 million for the year ended December 31, 2014. The income tax benefit consisted of a deferred tax benefit of $2.2 million as a result of converting the Seamless North America, LLC partnership into a division of GrubHub Holdings Inc., partially offset by an increase in deferred tax expense of $1.8 million as a result of the adjusted deferred state tax rate applicable to the Company’s U.S. operations.
The Company recorded a $2.0 million increase in deferred tax expense during the second quarter of 2014 as a result of a change in state tax law.
The tax effects of temporary differences giving rise to deferred income tax assets and liabilities as of December 31, 2014 and 2013 were as follows:
|
|
As of December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Loss and credit carryforwards |
|
$ |
7,212 |
|
|
$ |
16,606 |
|
Accrued expenses |
|
|
2,221 |
|
|
|
620 |
|
Stock-based compensation |
|
|
7,752 |
|
|
|
5,200 |
|
Total deferred tax assets |
|
|
17,185 |
|
|
|
22,426 |
|
Valuation allowance |
|
|
(910 |
) |
|
|
(902 |
) |
Net deferred tax assets |
|
|
16,275 |
|
|
|
21,524 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(2,721 |
) |
|
|
(1,145 |
) |
Intangible assets |
|
|
(104,973 |
) |
|
|
(105,435 |
) |
Investment in partnership |
|
|
— |
|
|
|
(1,751 |
) |
Total deferred tax liabilities |
|
|
(107,694 |
) |
|
|
(108,331 |
) |
Net deferred tax liability |
|
$ |
(91,419 |
) |
|
$ |
(86,807 |
) |
Classification of net deferred tax assets (liabilities) on the consolidated balance sheets as of December 31, 2014 and 2013 was as follows:
|
|
As of December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in thousands) |
|
|||||
Current assets |
|
$ |
825 |
|
|
$ |
3,688 |
|
Non-current liabilities |
|
|
(92,244 |
) |
|
|
(90,495 |
) |
Total deferred tax liability |
|
$ |
(91,419 |
) |
|
$ |
(86,807 |
) |
During 2013, the Company reversed the $0.5 million valuation allowance it previously established against the net deferred tax assets of its subsidiary, Slick City Media, Inc., as the Company believes that it is more likely than not that these assets will be utilized, based on projected future income levels. The NOL carryover of this subsidiary, which was acquired in October of 2011, as well as the NOL and credit carryovers of GrubHub Holdings Inc., which was acquired on August 8, 2013, are subject to Section 382 and 383 of the Internal Revenue Code, which places limits on the utilization of acquired NOL and credit carryovers. Based on preliminary analysis performed by the Company, management does not believe that Sections 382 and 383 will significantly delay the utilization of these subsidiaries’ NOL and credit carryovers. A partial valuation reserve of $0.9 million was recorded as of December 31, 2014 and 2013 against certain state-only credits as those credits have a short carryover period and the Company believes that this portion of the credit carryovers will more likely than not expire before they are utilized.
The Company has not provided U.S. income tax on the accumulated earnings of its U.K. subsidiary, Seamless Europe, Ltd. of approximately $6.6 million as of December 31, 2014, as it intends to permanently reinvest those undistributed earnings into future operations in that country. The Company estimates the potential additional U.S. tax liabilities that would result from the complete repatriation of those accumulated earnings to be approximately $1.9 million as of December 31, 2014.
The Company had the following tax loss and credit carryforwards as of December 31, 2014 and 2013:
|
|
2014 |
|
|
2013 |
|
|
Beginning Year of Expiration |
||
|
|
(in thousands) |
||||||||
U.S. federal loss carryforwards |
|
$ |
7,706 |
|
|
$ |
34,297 |
|
|
2027 |
U.S. state and local loss carryforwards |
|
|
9,856 |
|
|
|
36,201 |
|
|
2027 |
U.S. contribution carryforwards |
|
|
166 |
|
|
|
85 |
|
|
2015 |
Illinois Edge Credits(a) |
|
|
2,938 |
|
|
|
1,654 |
|
|
2017 |
New York unincorporated business tax credits(a) |
|
|
875 |
|
|
|
— |
|
|
2021 |
U.S. research and development credits |
|
|
— |
|
|
|
53 |
|
|
2031 |
U.S. Alternative Minimum Tax Credit carryover |
|
|
— |
|
|
|
240 |
|
|
No expiration |
(a) |
Amounts are before the federal benefit of state tax |
_______________________________________________________________________
In addition to the federal and state NOL carryforwards shown above, the Company has $43.8 million in additional loss carryovers attributable to excess tax benefits on stock option exercises that will be recorded to additional paid-in capital when those losses are deemed utilized applying the “with and without” method of accounting for excess tax benefits.
The Company is not currently under examination in any taxing jurisdiction, and its tax returns are subject to the normal statute of limitations, three years from the filing date for federal income tax purposes. The federal and state statute of limitations generally remain open for years in which tax losses are generated until three years from the year those losses are utilized. Under these rules, the 2007 and later NOLs of Slick City Media, Inc. are still subject to audit by the IRS and state and local jurisdictions. Also, the 2007 and later year NOLs of GrubHub Holdings Inc. and its acquired businesses are still subject to audit by the IRS and state and local jurisdictions. The September 30, 2011 and later U.K. returns of Seamless Europe Ltd. are subject to exam by the U.K. tax authorities.
The Company is subject to taxation in the U.S. federal and various state jurisdictions. Significant judgment is required in determining the provision for income taxes and recording the related income tax assets and liabilities. The Company’s practice for accounting for uncertainty in income taxes is to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not criteria, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
The following table summarizes the Company’s unrecognized tax benefit activity during the years ended December 31, 2014 and 2013, excluding the related accrual for interest:
|
|
As of December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in thousands) |
|
|||||
Balance at beginning of year |
|
$ |
1,097 |
|
|
$ |
— |
|
Reductions for tax positions of prior years |
|
|
(491 |
) |
|
|
— |
|
Additions for tax positions of prior years |
|
|
50 |
|
|
|
166 |
|
Additions for tax positions of the current year |
|
|
2,532 |
|
|
|
931 |
|
Balance at end of year |
|
$ |
3,188 |
|
|
$ |
1,097 |
|
The Company records interest and penalties, if any, as a component of its income tax expense in the consolidated statements of operations. The non-current income tax liabilities are recorded in long-term liabilities in the consolidated balance sheets. At December 31, 2014, the Company did not anticipate any significant adjustments to its unrecognized tax benefits caused by the settlement of tax examinations or other factors, within the next twelve months. Included in the consolidated balance sheets at December 31, 2014 and 2013 were deferred tax assets that relate to the potential settlement of these unrecognized tax benefits. After consideration of these amounts, $1.0 million and $0.5 million of the amount accrued at December 31, 2014 and 2013, respectively, would impact the effective tax rate if reversed.
|
11. Stockholders’ Equity
As of December 31, 2014 and 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 it 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.
On September 3, 2014, the Company completed a follow-on offering in which it issued and sold 1,250,000 shares of common stock at a public offering price of $40.25 per share. The Company received net proceeds of $47.6 million after deducting underwriting discounts and commissions of $1.9 million and other offering expenses of approximately $0.8 million. These expenses were recorded against the proceeds received from the follow-on offering.
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 December 31, 2014 and 2013, there were 500,000,000 and 165,000,000 shares of common stock authorized, respectively. At December 31, 2014 and 2013, there were 81,905,325 and 53,757,437 shares of common stock issued and outstanding, respectively. The Company did not hold any shares as treasury shares as of December 31, 2014 and 2013.
Series A Preferred Stock
The Company was authorized to issue 25,000,000 shares of preferred stock as of December 31, 2014 and 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 December 31, 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 of 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.
|
12. Retirement Plan
Beginning February 1, 2012, the Company has maintained a defined contribution plan for employees. The plan is qualified under section 401(k) of the Internal Revenue Code. From February 1, 2012 to September 30, 2012, the Company matched 67% of the first 6% of eligible contributions. From October 1, 2012 to December 31, 2014, the Company matched 100% of the first 3% of employees’ contributions and 50% of the next 2% of employees’ contributions that were made. The Company may also make discretionary profit sharing contributions as determined by the Company’s Board of Directors. The Company’s matching contributions to the plan were $1.0 million, $0.7 million and $0.3 million during the years ended December 31, 2014, 2013 and 2012, respectively.
|
14. 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: certain investments and certificates of deposit with original maturities of less than three months are considered highly liquid investments. The fair value measurement of these assets is based on quoted market prices in active markets and, therefore, any such assets are recorded at fair value on a recurring basis and classified as Level 1 within the fair value hierarchy. The Company’s commercial paper, investments in corporate 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. 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 as of December 31, 2013 was 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 on a recurring basis as of December 31, 2014 and 2013:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Money market funds |
|
$ |
— |
|
|
$ |
1,386 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial paper |
|
|
— |
|
|
|
38,055 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Corporate bonds |
|
|
— |
|
|
|
75,080 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,415 |
|
Total |
|
$ |
— |
|
|
$ |
114,521 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18,415 |
|
The fair value of the Company’s redeemable common stock 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) |
|
|
|
|
|
|
Range |
|
||
|
|
December 31, 2013 |
|
|
Valuation technique |
|
Unobservable 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.
|
15. Subsequent Events
On February 4, 2015 and February 27, 2015, the Company completed the acquisitions of the assets of restaurant delivery service provider, DiningIn and Restaurants on the Run, Inc., respectively. Aggregate consideration for the two acquisitions was approximately $55.5 million in cash and 407,812 shares of the Company’s common stock, or an estimated total transaction value of approximately $71.5 million, net of cash acquired of $0.8 million, based on the Company’s closing share price on the respective closing dates. The acquisitions will expand and enhance the Company’s service offerings for its customers, particularly in the delivery space.
The Company is still in the process of obtaining data to determine the purchase price allocations.
|
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include all wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated statements of operations include the results of entities acquired from the dates of the acquisitions for accounting purposes.
The share and per share amounts for all periods presented reflect the completion of the Company’s 1-for-2 reverse stock split, which the Company effected on April 2, 2014.
Use of Estimates
The preparation of consolidated financial statements in conformity 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 finite lives and other long-lived assets and stock-based compensation. To the extent there are material differences between these estimates, judgments or assumptions and actual results, the Company’s consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application.
Cash and Cash Equivalents
Cash includes demand deposits with banks or financial institutions. Cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and that are so near their maturity that they present minimal risk of changes in value because of changes in interest rates. The Company’s cash equivalents include only investments with original maturities of three months or less. The Company regularly maintains cash in excess of federally insured limits at financial institutions.
Marketable Securities
Marketable securities consist primarily of commercial paper and investment grade U.S. and non-U.S.-issued corporate debt securities. The Company invests in a diversified portfolio of marketable securities and limits the concentration of its investment in any particular security. Marketable securities with original maturities of three months or less are included in cash and cash equivalents and marketable securities with original maturities greater than three months, but less than one year, are included in short term investments on the consolidated balance sheets. The Company determines the classification of its marketable securities as available-for-sale or held-to-maturity at the time of purchase and reassesses these determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the intent to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost and are periodically assessed for other-than-temporary impairment. The amortized cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity, which is recognized as interest income within general and administrative expense in the consolidated statements of operations. Interest income is recognized when earned.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments. The financial statements of the Company’s U.K. subsidiary are translated from their functional currency into U.S. dollars. Assets and liabilities are translated at period end rates of exchange, and revenue and expenses are translated using average rates of exchange. The resulting gain or loss is included in accumulated other comprehensive income (loss) on the consolidated balance sheets.
Property and Equipment, Net
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. The useful lives are as follows:
Computer equipment |
|
2-3 years |
Furniture and fixtures |
|
5 years |
Developed software |
|
1-3 years |
Purchased software |
|
3-5 years |
Leasehold improvements |
|
Shorter of expected useful life or lease term |
The Company reduced the estimated useful life on any computer equipment, furniture and fixtures, and leasehold improvements related to its Sandy, Utah location to coincide with the expected closure date of the facility. (See Note 8, “Commitments and Contingencies”).
Maintenance and repair costs are charged to expense as incurred. Major improvements, which extend the useful life of the related asset, are capitalized. Upon disposal of a fixed asset, the Company records a gain or loss based on the difference between the proceeds received and the net book value of the disposed asset.
Accounts Receivable, Net
Accounts receivable primarily represent the net cash due from the Company’s payment processor for cleared transactions and amounts owed from corporate customers. The carrying amount of the Company’s receivables is reduced by an allowance for doubtful accounts that reflects management’s best estimate of amounts that will not be collected. The allowance is recorded through a charge to bad debt expense which is recorded within general and administrative expense in the consolidated statements of operations. The allowance is based on historical loss experience and any specific risks identified in collection matters.
Management provides for probable uncollectible amounts through a charge against bad debt expense and a credit to an allowance based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off against the allowance. The Company does not charge interest on trade receivables.
Changes in the Company’s allowance for doubtful accounts for the periods presented were as follows:
|
|
Year Ended December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Balance at beginning of year |
|
$ |
510 |
|
|
$ |
210 |
|
Additions to expense |
|
|
426 |
|
|
|
473 |
|
Writeoffs, net of recoveries and other adjustments |
|
|
(213 |
) |
|
|
(173 |
) |
Balance at end of year |
|
$ |
723 |
|
|
$ |
510 |
|
Advertising Costs
Advertising costs are generally expensed as incurred in connection with the requisite service period. Certain advertising production costs are capitalized and expensed when the advertisement first takes place. For the years ended December 31, 2014, 2013 and 2012, expenses attributable to advertising totaled approximately $45.9 million, $25.0 million and $20.4 million, respectively. Advertising costs are recorded in sales and marketing expense on the Company’s consolidated statements of operations.
Stock-Based Compensation
The Company measures compensation expense for all stock-based awards at fair value on the date of grant and recognizes compensation expense over the service period on a straight-line basis for awards expected to vest.
The Company uses the Black-Scholes option-pricing model to determine the fair value for stock options. In valuing the Company’s options, the Company makes assumptions about risk-free interest rates, dividend yields, volatility and weighted-average expected lives, including estimated forfeiture rates. Risk-free interest rates are derived from U.S. Treasury securities as of the option grant date. Expected dividend yield is based on the Company’s historical dividend payments, which have been zero to date. As the Company did not have public trading history for its common shares until April of 2014, the expected volatility for the Company’s common stock is estimated using the published historical volatilities of industry peers representing the verticals in which the Company operates. The Company estimates the weighted-average expected life of the options as the average of the vesting option schedule and the term of the award, since the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time stock-based awards have been exercisable. The term of the award is estimated using the simplified method. Forfeiture rates are estimated using historical actual forfeiture trends as well as the Company’s judgment of future forfeitures. These rates are evaluated quarterly and any change in compensation expense is recognized in the period of the change. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates are revised. The Company considers many factors when estimating expected forfeitures, including the types of awards and employee class. Actual results, and future changes in estimates, may differ substantially from management’s current estimates.
The Company has elected to use the with-and-without method in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit for stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes available to the Company have been utilized.
Provision for Income Taxes
The provision for income taxes is determined using the asset and liability method. Under this method, deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates that are applicable in a given year.
The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (“tax contingencies”). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. The Company includes interest and penalties related to tax contingencies in the provision for income taxes in the consolidated statements of operations. See Note 10, “Income Taxes.” Management of the Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.
Seamless North America, LLC became a partnership for tax purposes in June of 2011. The income tax consequences of a partnership are borne by its partners. The tax consequences of this partnership were borne by Aramark and SLW Investors from June of 2011 through October 29, 2012. Starting October 30, 2012, 74% of the partnership’s taxable income was reflected as taxable income at Seamless Holdings, a subsidiary of GrubHub Inc. Starting on August 9, 2013, 100% of the partnership’s taxable income was recognized as taxable income by the Company. If Seamless North America, LLC had been taxed as a C corporation for all of its earnings throughout 2013 and 2012, the tax expense recorded in these consolidated statements of operations would have increased by $0.9 million and $2.7 million, respectively.
Intangible Assets
Intangible assets with finite useful lives are amortized using the straight-line method over their useful lives and are reviewed for impairment. The Company evaluates intangible assets and other long-lived assets for impairment whenever events or circumstances indicate that they may not be recoverable, or at least annually. Recoverability is measured by comparing the carrying amount of an asset group to the future undiscounted net cash flows expected to be generated by that asset group. If this comparison indicates impairment, the amount of impairment to be recognized is calculated as the difference between the carrying value and the fair value of the asset group, generally measured by discounting estimated future cash flows. There were no impairment indicators present during the years ended December 31, 2014, 2013 and 2012.
Website and Software Development Costs
The costs incurred in the preliminary stages of website and software development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized and amortized on a straight-line basis over the estimated useful life of the application. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful lives. Amortization expense related to capitalized website and software development costs is included in depreciation and amortization in the consolidated statements of operations. The Company capitalized $3.6 million, $2.6 million and $2.3 million of website development costs during the years ended December 31, 2014, 2013 and 2012, respectively.
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the assets acquired at the date of acquisition. Absent any special circumstances that could require an interim test, the Company has elected to test for goodwill impairment at September 30 of each year.
The Company tests for impairment using a two-step process. The first step of the goodwill impairment test identifies if there is potential goodwill impairment. If step one indicates that an impairment may exist, a second step is performed to measure the amount of the goodwill impairment, if any, by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value of goodwill is less than the carrying amount, a write-down is recorded. The Company has determined that there was no goodwill impairment as of December 31, 2014 or 2013.
Fair Value
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. See Note 14, “Fair Value Measurement,” for details of the fair value hierarchy and the related inputs used by the Company.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. For the years ended December 31, 2014, 2013 and 2012, the Company had no customers which accounted for more than 1% of revenue or 10% of accounts receivable.
Revenue Recognition
In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable and (iv) collectability is reasonably assured. The Company considers a signed agreement, a binding contract with the restaurant or other similar documentation reflecting the terms and conditions under which products or services will be provided to be persuasive evidence of an arrangement.
The Company generates revenues primarily when diners place an order on the platform through its websites, its mobile applications, third-party websites that incorporate API or one of the Company’s listed phone numbers. Restaurants pay a commission, typically a percentage of the transaction, on orders that are processed through the platform. Most of the restaurants on the platform can choose their level of commission rate, at or above a base rate, to affect their relative priority in the sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order than restaurants paying lower commission rates. Some restaurants on the platform pay a monthly system fee for better branding and more robust placement. As an agent of the merchant in the transaction, the Company recognizes as revenues only the commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.
The Company periodically provides incentive offers to restaurants and diners to use the platform. These promotions are generally cash credits to be applied against purchases. These incentive offers are recorded as reductions in revenues, generally on the date the corresponding revenue is recorded.
Revenues from online and phone delivery orders are recognized when these orders are placed at the restaurants. The amount of revenue recorded by the Company is based on the contractual arrangement with the related restaurant, and is adjusted for any cash credits, including incentive offers provided to restaurants and diners, related to the transaction. The Company also recognizes as revenue any fees charged to the restaurant or diner for delivery services provided by the Company. Although the Company will process the entire amount of the transaction with the diner, it will record revenue on a net basis because the Company is acting as an agent of the merchant in the transaction. The Company will record an amount representing the restaurant food liability for the net balance due the restaurant. Costs incurred for processing the transactions and providing delivery services are included in operations and support in the consolidated statements of operations.
Deferred Rent
For the Company’s operating leases, the Company recognizes rent expenses on a straight-line basis over the terms of the leases. Accordingly, the Company records the difference between cash rent payments and the recognition of rent expenses as a deferred rent liability in the consolidated balance sheets. The Company has landlord-funded leasehold improvements that are recorded as tenant allowances which are being amortized as a reduction of rent expense over the noncancelable terms of the operating leases.
Segments
The Company has one reportable segment, which has been identified based on how the chief operating decision maker manages the business, makes operating decisions and evaluates operating performance.
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 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 consolidated financial position, results of operations or cash flows.
|
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. The useful lives are as follows:
Computer equipment |
|
2-3 years |
Furniture and fixtures |
|
5 years |
Developed software |
|
1-3 years |
Purchased software |
|
3-5 years |
Leasehold improvements |
|
Shorter of expected useful life or lease term |
Changes in the Company’s allowance for doubtful accounts for the periods presented were as follows:
|
|
Year Ended December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
Balance at beginning of year |
|
$ |
510 |
|
|
$ |
210 |
|
Additions to expense |
|
|
426 |
|
|
|
473 |
|
Writeoffs, net of recoveries and other adjustments |
|
|
(213 |
) |
|
|
(173 |
) |
Balance at end of year |
|
$ |
723 |
|
|
$ |
510 |
|
|
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 year ended December 31, 2013 as if GrubHub Inc. had acquired GrubHub Holdings Inc. as of January 1, 2013:
|
|
Year Ended December 31, 2013 |
|
|
|
|
(in thousands) |
|
|
Revenues |
|
$ |
170,086 |
|
Net income |
|
|
4,160 |
|
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 year ended December 31, 2013 as follows:
|
|
Year Ended December 31, 2013 |
|
|
|
|
(in thousands) |
|
|
Amortization of intangible assets |
|
$ |
6,475 |
|
Stock-based compensation |
|
|
2,997 |
|
Transaction costs |
|
|
(9,131 |
) |
Income tax benefit |
|
|
(3,050 |
) |
|
The amortized cost, unrealized gains and losses and estimated fair value of the Company’s held-to-maturity marketable securities as of December 31, 2014 were as follows:
|
|
December 31, 2014 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
1,882 |
|
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
1,882 |
|
Short term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial paper |
|
|
38,081 |
|
|
|
— |
|
|
|
(26 |
) |
|
|
38,055 |
|
Corporate bonds |
|
|
73,260 |
|
|
|
2 |
|
|
|
(64 |
) |
|
|
73,198 |
|
Total |
|
$ |
113,223 |
|
|
$ |
3 |
|
|
$ |
(91 |
) |
|
$ |
113,135 |
|
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 December 31, 2014 were as follows:
|
|
December 31, 2014 |
|
|||||||||||||||||||||
|
|
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 |
|
$ |
38,055 |
|
|
$ |
(26 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
38,055 |
|
|
$ |
(26 |
) |
Corporate bonds |
|
|
64,557 |
|
|
|
(65 |
) |
|
|
— |
|
|
|
— |
|
|
|
64,557 |
|
|
|
(65 |
) |
Total |
|
$ |
102,612 |
|
|
$ |
(91 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
102,612 |
|
|
$ |
(91 |
) |
|
The components of acquired intangible assets as of December 31, 2014 and 2013 were as follows:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Developed technology |
|
$ |
5,143 |
|
|
$ |
(2,392 |
) |
|
$ |
2,751 |
|
|
$ |
5,143 |
|
|
$ |
(677 |
) |
|
$ |
4,466 |
|
Customer and vendor relationships, databases |
|
|
191,979 |
|
|
|
(30,067 |
) |
|
|
161,912 |
|
|
|
191,979 |
|
|
|
(17,680 |
) |
|
|
174,299 |
|
Total amortizable intangible assets |
|
|
197,122 |
|
|
|
(32,459 |
) |
|
|
164,663 |
|
|
|
197,122 |
|
|
|
(18,357 |
) |
|
|
178,765 |
|
Indefinite-lived trademarks |
|
|
89,676 |
|
|
|
— |
|
|
|
89,676 |
|
|
|
89,676 |
|
|
|
— |
|
|
|
89,676 |
|
Total acquired intangible assets |
|
$ |
286,798 |
|
|
$ |
(32,459 |
) |
|
$ |
254,339 |
|
|
$ |
286,798 |
|
|
$ |
(18,357 |
) |
|
$ |
268,441 |
|
The components of the acquired intangibles added during the year ended December 31, 2013 were as follows:
|
|
December 31, 2013 |
|
|||||
|
|
Amount |
|
|
Weighted-Average Amortization Period (years) |
|
||
Developed technology |
|
$ |
5,143 |
|
|
|
3 |
|
Customer and vendor relationships, databases |
|
|
167,450 |
|
|
|
16.4 |
|
Indefinite-lived trademarks |
|
|
85,276 |
|
|
Indefinite |
|
|
|
|
$ |
257,869 |
|
|
|
|
|
The components of acquired intangible assets as of December 31, 2014 and 2013 were as follows:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Developed technology |
|
$ |
5,143 |
|
|
$ |
(2,392 |
) |
|
$ |
2,751 |
|
|
$ |
5,143 |
|
|
$ |
(677 |
) |
|
$ |
4,466 |
|
Customer and vendor relationships, databases |
|
|
191,979 |
|
|
|
(30,067 |
) |
|
|
161,912 |
|
|
|
191,979 |
|
|
|
(17,680 |
) |
|
|
174,299 |
|
Total amortizable intangible assets |
|
|
197,122 |
|
|
|
(32,459 |
) |
|
|
164,663 |
|
|
|
197,122 |
|
|
|
(18,357 |
) |
|
|
178,765 |
|
Indefinite-lived trademarks |
|
|
89,676 |
|
|
|
— |
|
|
|
89,676 |
|
|
|
89,676 |
|
|
|
— |
|
|
|
89,676 |
|
Total acquired intangible assets |
|
$ |
286,798 |
|
|
$ |
(32,459 |
) |
|
$ |
254,339 |
|
|
$ |
286,798 |
|
|
$ |
(18,357 |
) |
|
$ |
268,441 |
|
The components of the acquired intangibles added during the year ended December 31, 2013 were as follows:
|
|
December 31, 2013 |
|
|||||
|
|
Amount |
|
|
Weighted-Average Amortization Period (years) |
|
||
Developed technology |
|
$ |
5,143 |
|
|
|
3 |
|
Customer and vendor relationships, databases |
|
|
167,450 |
|
|
|
16.4 |
|
Indefinite-lived trademarks |
|
|
85,276 |
|
|
Indefinite |
|
|
|
|
$ |
257,869 |
|
|
|
|
|
The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013 were as follows.
|
|
Goodwill |
|
|
Accumulated Impairment Losses |
|
|
Net Book Value |
|
|||
|
|
(in thousands) |
|
|||||||||
Balance as of December 31, 2012 |
|
$ |
113,442 |
|
|
$ |
— |
|
|
$ |
113,442 |
|
Acquisition of GrubHub Holdings Inc. |
|
|
239,346 |
|
|
|
— |
|
|
|
239,346 |
|
Balance as of December 31, 2013 |
|
|
352,788 |
|
|
|
— |
|
|
|
352,788 |
|
Balance as of December 31, 2014 |
|
$ |
352,788 |
|
|
$ |
— |
|
|
$ |
352,788 |
|
Estimated future amortization expense of acquired intangible assets as of December 31, 2014 was as follows:
|
|
(in thousands) |
|
|
2015 |
|
$ |
14,102 |
|
2016 |
|
|
13,344 |
|
2017 |
|
|
12,068 |
|
2018 |
|
|
12,068 |
|
2019 |
|
|
10,656 |
|
Thereafter |
|
|
102,425 |
|
Total |
|
$ |
164,663 |
|
|
The components of the Company’s property and equipment as of December 31, 2014 and 2013 were as follows:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||
|
|
(in thousands) |
|
|||||
Computer equipment |
|
$ |
12,114 |
|
|
$ |
9,739 |
|
Furniture and fixtures |
|
|
1,876 |
|
|
|
2,176 |
|
Developed software |
|
|
12,378 |
|
|
|
13,930 |
|
Purchased software |
|
|
2,149 |
|
|
|
2,124 |
|
Leasehold improvements |
|
|
5,900 |
|
|
|
6,120 |
|
Property and equipment |
|
|
34,417 |
|
|
|
34,089 |
|
Accumulated amortization and depreciation |
|
|
(18,414 |
) |
|
|
(16,993 |
) |
Property and equipment, net |
|
$ |
16,003 |
|
|
$ |
17,096 |
|
|
Future minimum lease payments under the Company’s operating lease agreements that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2014 were as follows:
|
|
(in thousands) |
|
|
2015 |
|
$ |
3,646 |
|
2016 |
|
|
3,482 |
|
2017 |
|
|
2,939 |
|
2018 |
|
|
1,750 |
|
2019 |
|
|
1,749 |
|
Thereafter |
|
|
4,374 |
|
Total |
|
$ |
17,940 |
|
The following table summarizes the Company’s restructuring activity during the year ended December 31, 2014:
|
|
(in thousands) |
|
|
Restructuring accrual balance at December 31, 2013 |
|
$ |
176 |
|
Restructuring expense |
|
|
1,313 |
|
Cash payments |
|
|
(741 |
) |
Restructuring accrual balance at December 31, 2014 |
|
$ |
748 |
|
|
The assumptions used to determine the fair value of the stock options granted during the years ended December 31, 2014, 2013 and 2012 were as follows:
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
Weighted-average fair value options granted |
|
$ |
13.87 |
|
|
$ |
3.97 |
|
|
$ |
1.46 |
|
Average risk-free interest rate |
|
|
1.97 |
% |
|
|
1.41 |
% |
|
|
0.87 |
% |
Expected stock price volatilities(a) |
|
|
50.3 |
% |
|
|
50.7 |
% |
|
|
54.8 |
% |
Dividend yield |
|
None |
|
|
None |
|
|
None |
|
|||
Expected stock option life (years) |
|
|
6.26 |
|
|
|
5.20 |
|
|
|
6.11 |
|
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, 2014 and 2013, and changes during the year ended December 31, 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 |
|
|
2,019,413 |
|
|
|
18.35 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(953,472 |
) |
|
|
6.68 |
|
|
|
|
|
|
|
|
|
Exercised(a) |
|
|
(2,554,699 |
) |
|
|
3.73 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 |
|
|
6,180,795 |
|
|
|
8.49 |
|
|
|
172,661 |
|
|
|
7.87 |
|
Vested and expected to vest at December 31, 2014 |
|
|
4,738,666 |
|
|
|
7.56 |
|
|
|
138,012 |
|
|
|
7.73 |
|
Exercisable at December 31, 2014 |
|
|
2,506,615 |
|
|
$ |
4.02 |
|
|
$ |
80,962 |
|
|
|
7.22 |
|
·Included 138,048 shares of restricted common stock owned by officers of the Company that contained forfeiture provisions. ___________________________________________
|
Non-vested restricted stock unit awards as of December 31, 2014 and 2013, and changes during the year ended December 31, 2014 were as follows:
|
|
Shares |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Outstanding at December 31, 2013 |
|
|
— |
|
|
$ |
— |
|
Granted |
|
|
2,899 |
|
|
|
31.90 |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Outstanding at December 31, 2014 |
|
|
2,899 |
|
|
$ |
31.90 |
|
|
For the years ended December 31, 2014, 2013 and 2012, the income tax provision was comprised of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
(in thousands) |
|
|||||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
8,073 |
|
|
$ |
2,912 |
|
|
$ |
316 |
|
State |
|
|
7,610 |
|
|
|
3,056 |
|
|
|
132 |
|
Foreign |
|
|
426 |
|
|
|
468 |
|
|
|
365 |
|
Total current |
|
|
16,109 |
|
|
|
6,436 |
|
|
|
813 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
1,056 |
|
|
|
1,300 |
|
|
|
— |
|
State |
|
|
3,556 |
|
|
|
406 |
|
|
|
— |
|
Total deferred |
|
|
4,612 |
|
|
|
1,706 |
|
|
|
— |
|
Total income tax expense |
|
$ |
20,721 |
|
|
$ |
8,142 |
|
|
$ |
813 |
|
Income before provision for income taxes for the years ended December 31, 2014, 2013 and 2012, was as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
(in thousands) |
|
|||||||||
Domestic source |
|
$ |
43,069 |
|
|
$ |
12,986 |
|
|
$ |
7,153 |
|
Foreign source |
|
|
1,915 |
|
|
|
1,903 |
|
|
|
1,579 |
|
Income before provision for income taxes |
|
$ |
44,984 |
|
|
$ |
14,889 |
|
|
$ |
8,732 |
|
The following is a reconciliation of income taxes computed at the U.S. federal statutory rate to the income taxes reported in the consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|||
|
|
(in thousands) |
|
|||||||||
Income tax expense at statutory rate |
|
$ |
15,747 |
|
|
$ |
5,211 |
|
|
$ |
3,056 |
|
State income taxes |
|
|
8,038 |
|
|
|
2,522 |
|
|
|
251 |
|
Deferred tax impact of reorganization |
|
|
(2,382 |
) |
|
|
— |
|
|
|
— |
|
Nondeductible transaction costs |
|
|
— |
|
|
|
1,148 |
|
|
|
— |
|
Tax benefit of partnership status |
|
|
— |
|
|
|
(726 |
) |
|
|
(2,211 |
) |
Valuation allowance reversal |
|
|
— |
|
|
|
(502 |
) |
|
|
— |
|
Foreign rate differential |
|
|
(253 |
) |
|
|
(220 |
) |
|
|
(188 |
) |
All other |
|
|
(429 |
) |
|
|
709 |
|
|
|
(95 |
) |
Total income tax expense |
|
$ |
20,721 |
|
|
$ |
8,142 |
|
|
$ |
813 |
|
The tax effects of temporary differences giving rise to deferred income tax assets and liabilities as of December 31, 2014 and 2013 were as follows:
|
|
As of December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Loss and credit carryforwards |
|
$ |
7,212 |
|
|
$ |
16,606 |
|
Accrued expenses |
|
|
2,221 |
|
|
|
620 |
|
Stock-based compensation |
|
|
7,752 |
|
|
|
5,200 |
|
Total deferred tax assets |
|
|
17,185 |
|
|
|
22,426 |
|
Valuation allowance |
|
|
(910 |
) |
|
|
(902 |
) |
Net deferred tax assets |
|
|
16,275 |
|
|
|
21,524 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(2,721 |
) |
|
|
(1,145 |
) |
Intangible assets |
|
|
(104,973 |
) |
|
|
(105,435 |
) |
Investment in partnership |
|
|
— |
|
|
|
(1,751 |
) |
Total deferred tax liabilities |
|
|
(107,694 |
) |
|
|
(108,331 |
) |
Net deferred tax liability |
|
$ |
(91,419 |
) |
|
$ |
(86,807 |
) |
Classification of net deferred tax assets (liabilities) on the consolidated balance sheets as of December 31, 2014 and 2013 was as follows:
|
|
As of December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in thousands) |
|
|||||
Current assets |
|
$ |
825 |
|
|
$ |
3,688 |
|
Non-current liabilities |
|
|
(92,244 |
) |
|
|
(90,495 |
) |
Total deferred tax liability |
|
$ |
(91,419 |
) |
|
$ |
(86,807 |
) |
The Company had the following tax loss and credit carryforwards as of December 31, 2014 and 2013:
|
|
2014 |
|
|
2013 |
|
|
Beginning Year of Expiration |
||
|
|
(in thousands) |
||||||||
U.S. federal loss carryforwards |
|
$ |
7,706 |
|
|
$ |
34,297 |
|
|
2027 |
U.S. state and local loss carryforwards |
|
|
9,856 |
|
|
|
36,201 |
|
|
2027 |
U.S. contribution carryforwards |
|
|
166 |
|
|
|
85 |
|
|
2015 |
Illinois Edge Credits(a) |
|
|
2,938 |
|
|
|
1,654 |
|
|
2017 |
New York unincorporated business tax credits(a) |
|
|
875 |
|
|
|
— |
|
|
2021 |
U.S. research and development credits |
|
|
— |
|
|
|
53 |
|
|
2031 |
U.S. Alternative Minimum Tax Credit carryover |
|
|
— |
|
|
|
240 |
|
|
No expiration |
(a) |
Amounts are before the federal benefit of state tax |
The following table summarizes the Company’s unrecognized tax benefit activity during the years ended December 31, 2014 and 2013, excluding the related accrual for interest:
|
|
As of December 31, |
|
|||||
|
|
2014 |
|
|
2013 |
|
||
|
|
(in thousands) |
|
|||||
Balance at beginning of year |
|
$ |
1,097 |
|
|
$ |
— |
|
Reductions for tax positions of prior years |
|
|
(491 |
) |
|
|
— |
|
Additions for tax positions of prior years |
|
|
50 |
|
|
|
166 |
|
Additions for tax positions of the current year |
|
|
2,532 |
|
|
|
931 |
|
Balance at end of year |
|
$ |
3,188 |
|
|
$ |
1,097 |
|
|
The following table presents the balances of assets measured at fair value on a recurring basis as of December 31, 2014 and 2013:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Money market funds |
|
$ |
— |
|
|
$ |
1,386 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Commercial paper |
|
|
— |
|
|
|
38,055 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Corporate bonds |
|
|
— |
|
|
|
75,080 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,415 |
|
Total |
|
$ |
— |
|
|
$ |
114,521 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18,415 |
|
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) |
|
|
|
|
|
|
Range |
|
||
|
|
December 31, 2013 |
|
|
Valuation technique |
|
Unobservable 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|