Item 1. Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Organization
Grubhub Inc., a Delaware corporation, and its wholly-owned subsidiaries (collectively referred to as the “Company”) provide an online and mobile takeout marketplace for restaurant pick-up and delivery orders. The Company connects diners and restaurants through restaurant technology and easy-to-use platforms. Diners enter their delivery address or use geo-location within the mobile applications and the Company displays the menus and other relevant information for restaurants in its network. Orders may be placed directly online, via mobile applications or over the phone. The Company primarily charges the restaurant a per order commission that is primarily percentage-based.
In many markets, the Company also provides delivery services to restaurants on its platform that do not have their own delivery operations. The Company’s takeout marketplace, and related platforms where the Company provides marketing services to generate orders, are collectively referred to as the “Platform”.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of Grubhub Inc. and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements include all wholly-owned subsidiaries and reflect all normal and recurring adjustments, as well as any other than normal adjustments, that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 28, 2019 (the “2018 Form 10-K”). All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant items subject to such estimates, judgments and assumptions include revenue recognition, website and internal-use software development costs, goodwill, recoverability of intangible assets with finite lives and other long-lived assets, stock-based compensation, and income taxes. Actual results could differ from these estimates.
Changes in Accounting Principle
See “
Recently Issued Accounting Pronouncements
” below for a description of accounting principle changes adopted during the six months ended June 30, 2019 related to leases.
There have been no other material changes to the Company’s significant accounting policies described in the 2018 Form 10-K.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables and held-to-maturity debt securities, which will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands disclosure requirements. ASU 2016-13 is effective for the Company beginning in the first quarter of 2020 and early adoption is permitted. The guidance will be applied using the modified-retrospective approach. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
In February 2016, and in subsequent updates, the FASB issued Accounting Standards Codification Topic 842,
Leases
(“ASC Topic 842”). Under ASC Topic 842, a lessee recognizes a liability to make lease payments and a right-of-use asset for all leases (with the exception of short-term leases) in the statement of financial position at the commencement date. ASC Topic 842 was effective for and adopted by the Company in the first quarter of 2019. The Company adopted ASC Topic 842 using the modified retrospective transition method applied to all existing leases beginning January 1, 2019. Periods prior to adoption were not adjusted and continue to be reported in accordance with historic accounting guidance under ASC Topic 840. The Company elected the optional practical expedient package which, among other things, includes retaining the historical classification of leases. The adoption of ASC Topic 842 resulted in the recognition on the condensed consolidated balance sheets as of January 1, 2019 of right-of-use assets of $81.2
7
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
million and lease liabilities for operating leases of $
97.7
million but did not result in a cumulative-effect adjustment on retained earnings. The operating lease right-of-use asset includes the impact upon adoption of ASC Topic 842 of the derecognition of lease incentives, deferred rent, below-market lease intangibles, cease-use liabilities and prepaid rent balances recognized in prepaid expenses and other current assets and current and noncurrent other accruals on the consolidated balance sheets as of December 31, 2018. The adoption of ASC Topic 842 did not have and is not expected to have a material impact to the Company's consolidated results of operations or cash flows. See Note 7,
Commitments and Contingencies
, for additional details.
3. Acquisitions
There were no acquisitions during the
six months
ended June 30, 2019.
2018 Acquisitions
On
November 7, 2018
, the Company acquired all of the issued and outstanding shares of Tapingo Ltd. (“Tapingo”) for approximately $152.1 million, including $151.7 million of cash paid (net of cash acquired of $1.5 million) and $0.4 million of other non-cash consideration. Tapingo is a leading platform for campus food ordering with direct integration into college meal plans and point of sale systems. The acquisition of Tapingo has enhanced the Company’s diner network on college campuses.
On September 13, 2018, the Company acquired SCVNGR, Inc. d/b/a LevelUp (“LevelUp”) for approximately $369.4 million, including $366.8 million of cash paid (net of cash acquired of $6.0 million) and $2.6 million of other non-cash consideration.
LevelUp is a leading provider of mobile diner engagement and payment solutions for national and regional restaurant brands. The acquisition of LevelUp has simplified the Company’s integrations with restaurants’ systems, increased diner engagement and accelerated product development.
The Company assumed Tapingo and LevelUp employees’ unvested incentive stock option (“ISO”) awards as of the respective closing dates. Approximately $0.4 million and $2.6 million of the fair value of the assumed ISO awards granted to acquired Tapingo and LevelUp employees, respectively, was attributable to the pre-combination services of the awardees and was included in the respective purchase prices. These amounts are reflected within goodwill in the respective purchase price allocations. As of the respective acquisition dates, aggregate post-combination expense of approximately $21.4 million was expected to be recognized related to the combined assumed ISO awards over the remaining post-combination service period.
The results of operations of Tapingo and LevelUp have been included in the Company’s financial statements since November 7, 2018 and September 13, 2018, respectively
.
The excess of the consideration transferred in the acquisitions over the amounts assigned to the fair value of the assets acquired was recorded as goodwill, which represents the value
of LevelUp’s technology team, the ability to simplify integrations with restaurants on the Company’s platform, and the expanded breadth and depth of the Company’s network of diners and campus relationships
. The total goodwill related to the acquisitions of Tapingo and LevelUp of $415.6 million is not deductible for income tax purposes.
The assets acquired and liabilities assumed of Tapingo and LevelUp were recorded at their estimated fair values as of the closing dates of November 7, 2018 and September 13, 2018, respectively. The purchase price allocation for Tapingo is subject to change within the measurement period as the valuation of deferred taxes is subject to management review and approval. See Note 5,
Goodwill and Acquired Intangible Assets
, for a description of changes to the purchase price allocations for Tapingo and LevelUp during the six months ended June 30, 2019.
8
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The following table summarizes the preliminary and final purchase price allocation acquisition-date fair values of the asset and liabilities acquired in connection with the Tapingo and LevelUp acquisitions, respectively:
|
|
Tapingo
|
|
|
LevelUp
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Accounts receivable
|
$
|
3,101
|
|
|
$
|
6,201
|
|
|
$
|
9,302
|
|
|
Prepaid expenses and other current assets
|
|
843
|
|
|
|
1,396
|
|
|
|
2,239
|
|
|
Property and equipment
|
|
—
|
|
|
|
895
|
|
|
|
895
|
|
|
Other assets
|
|
163
|
|
|
|
—
|
|
|
|
163
|
|
|
Restaurant relationships
|
|
11,279
|
|
|
|
10,217
|
|
|
|
21,496
|
|
|
Diner acquisition
|
|
—
|
|
|
|
3,912
|
|
|
|
3,912
|
|
|
Below-market lease intangible
|
|
—
|
|
|
|
2,205
|
|
|
|
2,205
|
|
|
Developed technology
|
|
9,755
|
|
|
|
20,107
|
|
|
|
29,862
|
|
|
Goodwill
|
|
119,417
|
|
|
|
296,198
|
|
|
|
415,615
|
|
|
Net deferred tax asset
|
|
12,073
|
|
|
|
31,545
|
|
|
|
43,618
|
|
|
Accounts payable and accrued expenses
|
|
(4,573
|
)
|
|
|
(3,249
|
)
|
|
|
(7,822
|
)
|
|
Total purchase price net of cash acquired
|
$
|
152,058
|
|
|
$
|
369,427
|
|
|
$
|
521,485
|
|
|
Fair value of assumed ISOs attributable to pre-combination service
|
|
(372
|
)
|
|
|
(2,594
|
)
|
|
|
(2,966
|
)
|
|
Net cash paid
|
$
|
151,686
|
|
|
$
|
366,833
|
|
|
$
|
518,519
|
|
Additional Information
The estimated fair values of the intangible assets acquired were determined based on a combination of the income, cost, and market approaches to measure the fair value of the restaurant relationships, diner acquisition and developed technology as follows:
|
|
Valuation Method
|
|
|
Tapingo
|
|
LevelUp
|
|
Restaurant relationships
|
Multi-period excess earnings
|
|
With or without comparative business valuation
|
|
Diner acquisition
|
n/a
|
|
Cost to recreate
|
|
Developed technology
|
Cost to recreate
|
|
Multi-period excess earnings
|
The fair value of the LevelUp below-market lease was measured based on the present value of the difference between the contractual amounts to be paid pursuant to the lease and an estimate of current fair market lease rates measured over the non-cancelable remaining term of the lease. As of January 1, 2019, the below-market lease intangible asset was derecognized from acquired intangible assets resulting in a corresponding adjustment to the opening balance of operating lease right-of-use assets on the condensed consolidated balance sheets upon adoption of ASC Topic 842.
These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy.
The Company incurred certain expenses directly and indirectly related to acquisitions which were recognized in general and administrative expenses within the condensed consolidated statements of operations of $0.3 million and $1.2 million for the three months ended June 30, 2019 and 2018, respectively, and of $0.8 million and $2.5 million for the six months ended June 30, 2019 and 2018, respectively.
9
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Pro Forma (unaudited)
The following unaudited pro forma information presents a summary of the operating results of the Company for the three and six months ended June 30, 2018 as if the acquisitions of Tapingo and LevelUp had occurred as of January 1 of the year prior to acquisition:
|
|
Three Months Ended June 30, 2018
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
(in thousands, except per share data)
|
|
|
Revenues
|
$
|
251,005
|
|
|
$
|
494,352
|
|
|
Net income
|
|
21,115
|
|
|
|
42,736
|
|
|
Net income per share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.24
|
|
|
$
|
0.48
|
|
|
Diluted
|
$
|
0.23
|
|
|
$
|
0.47
|
|
The pro forma adjustments that reflect the amortization that would have been recognized for intangible assets, elimination of transaction costs incurred, stock-based compensation expense for assumed equity awards and interest expense for transaction financings, as well as the pro forma tax impact of such adjustments for the three and six months ended June 30, 2018 were as follows:
|
|
Three Months Ended June 30, 2018
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
(in thousands)
|
|
|
Depreciation and amortization
|
$
|
1,440
|
|
|
$
|
3,066
|
|
|
Transaction costs
|
|
(1,133
|
)
|
|
|
(2,365
|
)
|
|
Stock-based compensation
|
|
1,750
|
|
|
|
3,622
|
|
|
Interest expense
|
|
484
|
|
|
|
1,009
|
|
|
Income tax benefit
|
|
(752
|
)
|
|
|
(1,578
|
)
|
The unaudited pro forma revenues and net income are not intended to represent or be indicative of the Company’s condensed consolidated results of operations or financial condition that would have been reported had the acquisitions been completed as of the beginning of the
period presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.
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 June 30, 2019 and December 31, 2018 were as follows:
|
|
|
June 30, 2019
|
|
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Estimated Fair Value
|
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
8,810
|
|
|
$
|
—
|
|
|
$
|
(19
|
)
|
|
$
|
8,791
|
|
|
Corporate bonds
|
|
|
449
|
|
|
|
—
|
|
|
|
—
|
|
|
|
449
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
16,892
|
|
|
|
—
|
|
|
|
(96
|
)
|
|
|
16,796
|
|
|
Corporate bonds
|
|
|
1,298
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,298
|
|
|
Total
|
|
$
|
27,449
|
|
|
$
|
—
|
|
|
$
|
(115
|
)
|
|
$
|
27,334
|
|
|
|
|
December 31, 2018
|
|
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Estimated Fair Value
|
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
12,097
|
|
|
$
|
—
|
|
|
$
|
(21
|
)
|
|
$
|
12,076
|
|
|
Corporate bonds
|
|
|
870
|
|
|
|
—
|
|
|
|
—
|
|
|
|
870
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
13,334
|
|
|
|
—
|
|
|
|
(88
|
)
|
|
|
13,246
|
|
|
Corporate bonds
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
Total
|
|
$
|
27,051
|
|
|
$
|
—
|
|
|
$
|
(109
|
)
|
|
$
|
26,942
|
|
10
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
All of the Company’s marketable securities were classified as held-to-maturity investments and have maturities within one year of
June 30, 2019
.
The gross unrealized losses, estimated fair value and length of time the individual marketable securities were in a continuous loss position for those marketable securities in an unrealized loss position as of June 30, 2019 and December 31, 2018 were as follows:
|
|
|
June 30, 2019
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
Estimated Fair Value
|
|
|
Unrealized Loss
|
|
|
Estimated Fair Value
|
|
|
Unrealized
Loss
|
|
|
Estimated Fair Value
|
|
|
Unrealized Loss
|
|
|
|
|
(in thousands)
|
|
|
Commercial paper
|
|
$
|
25,587
|
|
|
$
|
(115
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,587
|
|
|
$
|
(115
|
)
|
|
Total
|
|
$
|
25,587
|
|
|
$
|
(115
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,587
|
|
|
$
|
(115
|
)
|
|
|
|
December 31, 2018
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
Estimated Fair Value
|
|
|
Unrealized Loss
|
|
|
Estimated Fair Value
|
|
|
Unrealized
Loss
|
|
|
Estimated Fair Value
|
|
|
Unrealized Loss
|
|
|
|
|
(in thousands)
|
|
|
Commercial paper
|
|
$
|
25,322
|
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,322
|
|
|
$
|
(109
|
)
|
|
Corporate bonds
|
|
|
750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
750
|
|
|
|
—
|
|
|
Total
|
|
$
|
26,072
|
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,072
|
|
|
$
|
(109
|
)
|
The Company recognized interest income during the three months ended June 30, 2019 and 2018 of $0.7 million and $1.3 million, respectively, and for the six months ended June 30, 2019 and 2018 of $1.4 million and $1.9 million, respectively, within net interest expense on the condensed consolidated statements of operations. During the three and six months ended June 30, 2019 and 2018, the Company did not recognize any other-than-temporary impairment losses related to its marketable securities.
The Company’s marketable securities are classified within Level 2 of the fair value hierarchy (see Note 13,
Fair Value Measurement,
for further details).
5. Goodwill and Acquired Intangible Assets
The components of acquired intangible assets as of June 30, 2019 and December 31, 2018 were as follows:
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
|
|
(in thousands)
|
|
|
Restaurant relationships
|
|
$
|
497,788
|
|
|
$
|
(117,778
|
)
|
|
$
|
380,010
|
|
|
$
|
494,278
|
|
|
$
|
(103,457
|
)
|
|
$
|
390,821
|
|
|
Diner acquisition
|
|
|
48,293
|
|
|
|
(15,080
|
)
|
|
|
33,213
|
|
|
|
47,541
|
|
|
|
(10,306
|
)
|
|
|
37,235
|
|
|
Developed technology
|
|
|
35,826
|
|
|
|
(11,802
|
)
|
|
|
24,024
|
|
|
|
38,385
|
|
|
|
(10,247
|
)
|
|
|
28,138
|
|
|
Other
|
|
|
3,221
|
|
|
|
(2,721
|
)
|
|
|
500
|
|
|
|
3,676
|
|
|
|
(2,615
|
)
|
|
|
1,061
|
|
|
Trademarks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,225
|
|
|
|
(2,225
|
)
|
|
|
—
|
|
|
Below-market lease intangible
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,206
|
|
|
|
(124
|
)
|
|
|
2,082
|
|
|
Total amortizable intangible assets
|
|
|
585,128
|
|
|
|
(147,381
|
)
|
|
|
437,747
|
|
|
|
588,311
|
|
|
|
(128,974
|
)
|
|
|
459,337
|
|
|
Indefinite-lived trademarks
|
|
|
89,676
|
|
|
|
—
|
|
|
|
89,676
|
|
|
|
89,676
|
|
|
|
—
|
|
|
|
89,676
|
|
|
Total acquired intangible assets
|
|
$
|
674,804
|
|
|
$
|
(147,381
|
)
|
|
$
|
527,423
|
|
|
$
|
677,987
|
|
|
$
|
(128,974
|
)
|
|
$
|
549,013
|
|
The Company acquired
$3.5
million
and $0.8 million of restaurant and diner network assets, respectively,
during the six months ended June 30, 2019.
The gross carrying amount and accumulated amortization of the Company’s trademarks, developed technology and other intangible assets as of
June 30, 2019
were adjusted in aggregate by $5.2 million and $5.1 million, respectively, for certain fully amortized assets that were no longer in use. Additionally, upon adoption of ASC Topic 842, t
he acquired below-market lease intangible was derecognized resulting in a corresponding adjustment to the operating lease right-of-use asset within the condensed consolidated balance sheets as of January 1, 2019. Amortization of the acquired below-market lease intangible was recognized as rent expense within the condensed consolidated statements of operations. See Note 7,
Commitments and Contingencies,
for further details.
11
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Amortization expense for acquired intangible assets recognized within depreciation and amortization on the condensed consolidated statements of operations was $11.9 million and $9.6 million for the three months ended June 30, 2019 and 2018, respectively, and $23.8 million and $21.1 million for the six months
ended June 30, 2019 and 2018, respectively.
The change in the carrying amount of goodwill during the six months ended June 30, 2019, which was primarily related to changes in the fair value of net deferred tax assets for the purchase price allocations of the Tapingo and LevelUp acquisitions during the measurement period, was as follows:
|
|
|
Goodwill
|
|
|
Accumulated Impairment Losses
|
|
|
Net Book Value
|
|
|
|
|
(in thousands)
|
|
|
Balance as of December 31, 2018
|
|
$
|
1,019,239
|
|
|
$
|
—
|
|
|
$
|
1,019,239
|
|
|
Acquisitions – measurement period adjustments
|
|
|
(13,762
|
)
|
|
|
—
|
|
|
|
(13,762
|
)
|
|
Balance as of June 30, 2019
|
|
$
|
1,005,477
|
|
|
$
|
—
|
|
|
$
|
1,005,477
|
|
Estimated future amortization expense of acquired intangible assets as of June 30, 2019 was as follows:
|
|
|
(in thousands)
|
|
|
The remainder of 2019
|
|
$
|
26,942
|
|
|
2020
|
|
|
45,645
|
|
|
2021
|
|
|
38,812
|
|
|
2022
|
|
|
36,843
|
|
|
2023
|
|
|
30,348
|
|
|
Thereafter
|
|
|
259,157
|
|
|
Total
|
|
$
|
437,747
|
|
6. Property and Equipment
The components of the Company’s property and equipment as of June 30, 2019 and December 31, 2018 were as follows:
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
(in thousands)
|
|
|
Developed software
|
|
$
|
120,405
|
|
|
$
|
90,302
|
|
|
Computer equipment
|
|
|
62,857
|
|
|
|
50,767
|
|
|
Leasehold improvements
|
|
|
49,210
|
|
|
|
39,550
|
|
|
Furniture and fixtures
|
|
|
14,209
|
|
|
|
10,801
|
|
|
Purchased software and digital assets
|
|
|
8,780
|
|
|
|
4,696
|
|
|
Construction in progress
|
|
|
140
|
|
|
|
1,976
|
|
|
Property and equipment
|
|
|
255,601
|
|
|
|
198,092
|
|
|
Accumulated depreciation and amortization
|
|
|
(106,606
|
)
|
|
|
(78,597
|
)
|
|
Property and equipment, net
|
|
$
|
148,995
|
|
|
$
|
119,495
|
|
The Company recorded depreciation and amortization expense for property and equipment other than developed software of $7.4 million and $5.4 million for the three months ended June 30, 2019 and 2018, respectively, and $13.6 million and $10.5 million for the six months
ended June 30, 2019 and 2018, respectively.
The Company capitalized developed software costs of $15.8 million and $9.1 million for the three months ended June 30, 2019 and 2018, respectively, and $30.3 million and $17.3 million for the six months
ended June 30, 2019 and 2018, respectively. Amortization expense for developed software costs, recognized in depreciation and amortization in the condensed consolidated statements of operations, for the three months ended June 30, 2019 and 2018 was $7.9 million and $4.8 million, respectively, and $14.9 million and $9.2 million for the six months ended June 30, 2019 and 2018, respectively.
12
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
7. Commitments and Contingencies
Leases
As of
June 30, 2019
, the Company had operating lease agreements for its office facilities in various locations throughout the U.S, as well as in the U.K. and Israel, which expire at various dates through May 2030. The terms of the lease agreements provide for fixed rental payments on a graduated basis. For its primary operating leases, the Company can, after the initial lease term, renew its leases under right of first offer terms at fair value at the time of renewal for a period of five years. The Company's lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.
The Company determines if an arrangement is a lease at inception of a contract. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Non-lease components associated with lease components in the Company’s lease contracts are treated as a single lease component. As of
June 30, 2019
, the Company recognized on its condensed consolidated balance sheets operating lease right-of-use assets of $104.1 million that represent the Company's right to use an underlying asset during the lease term and current and noncurrent operating lease liabilities of $6.9 million and $114.7 million, respectively, that represent the Company's obligation to make lease payments. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. To determine the incremental borrowing rate, the Company uses information including the risk-free interest rate for the remaining lease term, the Company’s implied credit rating and interest rates of similar debt instruments of entities with comparable credit ratings. The Company recognizes rent expense on a straight-line basis over the lease term, which is allocated on a headcount basis to operations and support, sales and marketing, technology and general and administrative costs and expenses in the condensed consolidated statements of operations.
The components of lease costs, which consists of rent expense for leased office space, during the three and six months ended
June 30, 2019
were as follows:
|
|
|
Three Months Ended June 30, 2019
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
(in thousands)
|
|
|
Fixed operating lease cost
|
|
$
|
3,945
|
|
|
$
|
7,753
|
|
|
Short-term lease cost
|
|
|
403
|
|
|
|
853
|
|
|
Sublease income
|
|
|
(125
|
)
|
|
|
(172
|
)
|
|
Total lease cost
|
|
$
|
4,223
|
|
|
$
|
8,434
|
|
Supplemental cash flow information related to the Company’s operating leases as well as the weighted-average lease term and discount rate as of
June 30, 2019
were as follows:
|
|
|
Six Months Ended June 30, 2019
|
|
|
Cash paid for operating lease liabilities (in thousands)
|
|
$
|
6,733
|
|
|
Operating lease assets obtained in exchange for new operating lease obligations (in thousands)
|
|
$
|
28,109
|
|
|
Weighted-average remaining lease term (years)
|
|
|
9.3
|
|
|
Weighted-average discount rate
|
|
|
5.0
|
%
|
13
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Future lease payments under the Company’s operating lease agreements as of
June 30, 2019
were as follows:
|
|
|
(in thousands)
|
|
|
The remainder of 2019
|
|
$
|
6,906
|
|
|
2020
|
|
|
10,288
|
|
|
2021
|
|
|
18,515
|
|
|
2022
|
|
|
16,530
|
|
|
2023
|
|
|
16,605
|
|
|
Thereafter
|
|
|
87,496
|
|
|
Total future lease payments
|
|
$
|
156,340
|
|
|
Less interest
|
|
|
(34,741
|
)
|
|
Present value of lease liabilities
|
|
$
|
121,599
|
|
The table above does not reflect the Company’s option to exercise early termination rights or the payment of related early termination fees. Lease incentives reduce lease payments in the period in which they are expected to be received.
As previously reported in the 2018 Form 10-K under ASC Topic 840, future minimum lease payments under the Company’s operating lease agreements that had initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:
|
|
|
(in thousands)
|
|
|
2019
|
|
$
|
13,009
|
|
|
2020
|
|
|
14,874
|
|
|
2021
|
|
|
14,243
|
|
|
2022
|
|
|
12,219
|
|
|
2023
|
|
|
12,220
|
|
|
Thereafter
|
|
|
57,503
|
|
|
Total
|
|
$
|
124,068
|
|
Legal
In August 2011, Ameranth, Inc. (“Ameranth”) filed a patent infringement action against a number of defendants, including Grubhub Holdings Inc., in the U.S. District Court for the Southern District of California, Case No. 3:11-cv-1810. Ameranth subsequently initiated additional actions for infringement of a related patent, including separate actions against Grubhub Holdings Inc., Case No. 3:12-cv-739, and Seamless North America, LLC, Case No. 3:12-cv-737, which were consolidated along with approximately 40 other cases Ameranth filed in the same district.
In September 2018, the district court granted summary judgment (on another defendant’s motion) of unpatentability on the sole remaining patent and vacated the December 3, 2018 jury trial date for the claims against Grubhub Holdings Inc. and Seamless North America, LLC. In October 2018, the district court entered final judgment on all claims in the case in which summary judgment was granted, and then stayed the remaining cases (including the cases against Grubhub and Seamless). Ameranth then appealed this decision to the U.S. Court of Appeals for the Federal Circuit. The Company believes this case lacks merit and that it has strong defenses to all of the infringement claims. The Company intends to defend the suit vigorously. However, the Company is unable to predict the likelihood of success of Ameranth’s infringement claims and is unable to predict the likelihood of success of its counterclaims. The Company has not recorded an accrual related to this lawsuit as of
June 30, 2019
, as it does not believe a material loss is probable. It is a reasonable possibility that a loss may be incurred; however, the possible range of loss is not estimable given the status of the case and the uncertainty as to whether the claims at issue are with or without merit, will be settled out of court, or will be determined in the Company’s favor, whether the Company may be required to expend significant management time and financial resources on the defense of such claims, and whether the Company will be able to recover any losses under its insurance policies.
In addition to the matter described above, from time to time, the Company is involved in various other legal proceedings arising from the normal course of business activities, including labor and employment claims, some of which relate to the alleged misclassification of independent contractors. In September 2015, a claim was brought in the United States District Court for the Northern District of California under the Private Attorneys General Act by an individual plaintiff on behalf of himself and seeking to represent other drivers and the State of California. The claim sought monetary penalties and injunctive relief for alleged violations of the California Labor Code based on the alleged misclassification of drivers as independent contractors.
A decision was issued on February 8, 2018, and the court ruled in favor of the Company, finding that plaintiff was properly classified as an independent contractor. In March 2018, the plaintiff appealed this decision to the U.S. Court of Appeals for the Ninth Circuit.
The Company does
14
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
not believe any of the foregoing claims will have a material impact on its consolidated financial statements. However,
there is no assurance that any claim will not be combined into a collective or class action.
Indemnification
In connection with the merger of Seamless North America, LLC, Seamless Holdings Corporation and Grubhub Holdings Inc. in August 2013, the Company agreed to indemnify Aramark Holdings Corporation for negative income tax consequences associated with the October 2012 spin-off of Seamless Holdings Corporation that were the result of certain actions taken by the Company through October 29, 2014, in certain instances subject to a $15.0 million limitation. Management is not aware of any actions that would impact the indemnification obligation.
8. Debt
The following table summarizes the carrying value of the Company’s debt as of June 30, 2019 and December 31, 2018:
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
(in thousands)
|
|
|
Senior Notes
|
|
$
|
500,000
|
|
|
$
|
—
|
|
|
Term loan
|
|
|
—
|
|
|
|
120,312
|
|
|
Revolving loan
|
|
|
—
|
|
|
|
222,000
|
|
|
Total debt
|
|
$
|
500,000
|
|
|
$
|
342,312
|
|
|
Less current portion
|
|
|
—
|
|
|
|
(6,250
|
)
|
|
Less unamortized deferred debt issuance costs
|
|
|
(7,277
|
)
|
|
|
(514
|
)
|
|
Long-term debt
|
|
$
|
492,723
|
|
|
$
|
335,548
|
|
Senior Notes
On June 10, 2019, the Company’s wholly-owned subsidiary, Grubhub Holdings Inc., issued $500.0 million in aggregate principal amount of 5.500% senior notes due July 1, 2027 (“Senior Notes”) in a private placement exempt from the registration requirements of
the Securities Act of 1933, as amended
. Interest is payable on the Senior Notes semi-annually on January and July of each year, beginning on January 1, 2020. The net proceeds from the sale of the Senior Notes were $494.4 million after deducting the initial purchasers’ discount and offering expenses. The Company used $323.0 million of the proceeds from the Senior Notes offering to prepay and extinguish the term loan facility portion of the Company’s existing credit facility and $17.3 million to pay down the outstanding balance of the revolving loan under the existing credit facility. The remaining proceeds will be used for general corporate purposes.
The Senior Notes were issued pursuant to an indenture, dated June 10, 2019 (the “Indenture”), among Grubhub Holdings Inc., the guarantors party thereto and Wilmington Trust, National Association, as trustee. The Company has the option to redeem all or a portion of the Senior Notes at any time on or after July 1, 2022 by paying 100.0% of the principal amount of the Senior Notes plus a declining premium, plus accrued and unpaid interest to (but excluding) the redemption date. The premium declines from 2.750% during the twelve months on and after July 1, 2022, to 1.833% during the twelve months on and after July 1, 2023, to 0.917% during the twelve months on and after July 1, 2024, to zero on and after July 1, 2025. The Company may also redeem all or any portion of the Senior Notes at any time prior to July 1, 2022, at a price equal to 100.0% of the aggregate principal amount thereof plus a make-whole premium set forth in the Indenture and accrued and unpaid interest, if any. In addition, before July 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the Senior Notes with the net proceeds of certain equity offerings at a redemption price of 105.5% of the principal amount plus accrued and unpaid interest, if any, provided that certain conditions are met. In the event of a Change of Control Triggering Event (as defined in the Indenture), the Company will be required to make an offer to purchase the Senior Notes at a price equal to 101.0% of their principal amount, plus accrued and unpaid interest.
The Senior Notes are guaranteed on a senior unsecured basis by the Company and each of its existing and future wholly owned domestic restricted subsidiaries that guarantees the credit facility or that guarantees certain of our other indebtedness or indebtedness of a guarantor.
The Indenture contains customary covenants that, among other things, restrict the ability of the Company and the ability of certain of its subsidiaries to incur additional debt or issue preferred shares; create liens on certain assets to secure debt; and consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to a number of important exceptions and qualifications and also include customary events of default.
15
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Credit Agreement
On February 6, 2019, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) which provides, among other things
, for aggregate revolving loans up to $225 million and provided for term loans in an aggregate principal amount of $325 million. The $325 million term loan portion of the Credit Agreement was extinguished on June 10, 2019. In addition to the $225 million aggregate revolving loans available under the Credit Agreement as of June 30, 2019, the Company may incur up to $250 million of incremental revolving or term loans pursuant to the terms and conditions of the Credit Agreement. The credit facility under the Credit Agreement will be available to the Company until February 5, 2024.
The Credit Agreement replaced the Company’s prior $350 million credit facility, which was due to expire on October 9, 2022. There have been no changes in the terms of the Credit Agreement as described in Part II, Item 8, Note 16,
Subsequent Events
, to the Company’s 2018 Form 10-K.
Other Information
During the six months ended June 30, 2019, proceeds from the sale of the Senior Notes and cash on hand were used to pay down the principal balance outstanding under the Credit Agreement of $342.3 million. As of June 30, 2019, the Company’s outstanding debt consisted of $500.0 million in Senior Notes. There were no outstanding borrowings under the Credit Agreement as of June 30, 2019.
The fair value of the Company’s Senior Notes approximates their carrying value as of
June 30, 2019 (see Note 13,
Fair Value Measurement
, for additional details)
. The Company was in compliance with the financial covenants of its debt facilities as of
June 30, 2019
. Additional capacity under the Credit Agreement may be used for general corporate purposes, including funding working capital and future acquisitions
.
The Company capitalized $9.0 million of debt issuance costs during the six months ended June 30, 2019 in connection with the issuance of the Senior Notes and the amendment of the Credit Agreement.
As of June 30, 2019, unamortized debt issuance costs of $1.3 million related to the revolving loan facility and $7.3 million related to the Senior Notes were recorded as other assets and as a reduction of long-term debt, respectively, on the condensed consolidated balance sheets. As of December 31, 2018, total unamortized debt issuance costs of $1.9 million were recorded as other assets and as a reduction of long-term debt on the condensed consolidated balance sheets in proportion to the borrowing capacities of the revolving and term loans.
Interest expense includes interest on outstanding borrowings, amortization of debt issuance costs and commitment fees on the undrawn portion available under the credit facility. The Company recognized interest expense of $6.2 million and $1.3 million during the three months ended June 30, 2019 and 2018, respectively, and $9.7 million and $2.9 million during the six months ended June 30, 2019 and 2018, respectively. Interest expense for the three and six months ended June 30, 2019 included $1.8 million and $1.9 million, respectively, for the write-off of unamortized debt issuance costs upon extinguishment of the term loan facility and the amendment of the Credit Agreement.
9. Stock-Based Compensation
The Company has granted non-qualified and incentive stock options, restricted stock units and restricted stock awards under its incentive plans.
The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, including stock options, restricted stock awards and restricted stock units.
In May 2019
, the Company’s stockholders approved an Amendment to the Grubhub Inc. 2015 Long-Term Incentive Plan (the “2015 Plan”) which increased the aggregate number of shares that may be issued under the 2015 Plan by 5,000,000 shares. As of June 30, 2019, there were 6,103,270 shares of common stock authorized and available for issuance pursuant to awards granted under the 2015 Plan.
Stock-based Compensation Expense
The total stock-based compensation expense related to all stock-based awards was $20.0 million and $12.0 million during the three months ended
June 30, 2019
and 2018, respectively, and $36.5 million and $22.2 million during the
six months
ended June 30, 2019 and 2018, respectively
.
As of June 30, 2019, $234.4 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.0 years.
Excess tax benefits reflect the total realized value of the Company’s tax deductions from individual stock option exercise transactions and the vesting of restricted stock units in excess of the deferred tax assets that were previously recorded.
During the three months ended June 30, 2019 and
2018,
the Company
recognized excess tax benefits from stock-based compensation of $1.1 million and $5.7 million, respectively, and $3.4 million and $13.9 million
during the six months ended June 30, 2019 and 2018,
respectively,
within income tax (benefit) expense on the condensed consolidated statements of operations and within cash flows from operating activities on the condensed consolidated statements of cash flows.
16
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The Company capitalized
stock-based compensation expense as website and software development costs
of $4.0 million and $2.0
million during the three months ended June 30, 2019 and 2018, respectively, and
$7.2
million and $3.7 million during the six months
ended June 30, 2019 and 2018, respectively.
Stock Options
The Company granted 333,929
and 347,891 stock options under the Grubhub Inc. 2015 Long-Term Incentive Plan during the six months ended June 30, 2019 and 2018, respectively. The fair value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model. Expected volatility is based on the historical and implied volatilities of the Company’s own common stock
.
The Company uses historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.
The expected term calculation for option awards considers a combination of the Company’s historical and estimated future exercise behavior.
The risk-free rate for the period within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant
.
The assumptions used to determine the fair value of the stock options granted during the six months ended June 30, 2019 and 2018 were as follows:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Weighted-average fair value options granted
|
|
$
|
30.91
|
|
|
$
|
33.52
|
|
|
Average risk-free interest rate
|
|
|
2.42
|
%
|
|
|
2.40
|
%
|
|
Expected stock price volatility
|
|
|
48.3
|
%
|
|
|
45.7
|
%
|
|
Dividend yield
|
|
None
|
|
|
None
|
|
|
Expected stock option life (years)
|
|
|
4.00
|
|
|
|
4.00
|
|
Stock option awards as of December 31, 2018 and June 30, 2019, and changes during the
six months
ended
June 30, 2019
, were as follows
:
|
|
|
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Aggregate Intrinsic Value (thousands)
|
|
|
Weighted-Average
Exercise Term
(years)
|
|
|
Outstanding at December 31, 2018
|
|
|
2,650,839
|
|
|
$
|
33.13
|
|
|
$
|
120,977
|
|
|
|
6.87
|
|
|
Granted
|
|
|
333,929
|
|
|
|
76.98
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(19,822
|
)
|
|
|
84.63
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(135,271
|
)
|
|
|
21.67
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019
|
|
|
2,829,675
|
|
|
|
38.49
|
|
|
|
116,109
|
|
|
|
6.77
|
|
|
Vested and expected to vest at June 30, 2019
|
|
|
2,826,380
|
|
|
|
38.44
|
|
|
|
116,103
|
|
|
|
6.77
|
|
|
Exercisable at June 30, 2019
|
|
|
1,825,098
|
|
|
$
|
27.20
|
|
|
$
|
94,383
|
|
|
|
5.87
|
|
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
was $1.5
million and $7.9 million during the three months ended
June 30, 2019
and 2018, respectively,
and $7.6 million and $22.5 million
during the
six months
ended June 30, 2019 and 2018, respectively.
The Company recorded compensation expense for stock options of $5.1 million and $2.5 million for the three months ended
June 30, 2019
and 2018, respectively, and $9.1 million and $4.9 million for the
six months
ended June 30, 2019 and 2018, respectively. As of June 30, 2019, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $33.2 million and is expected to be recognized over a weighted-average period of 2.5 years.
17
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Restricted Stock Units
Non-vested restricted stock units as of December 31,
2018
and
June 30, 2019
, and changes during the
six months
ended
June 30, 2019
were as follows:
|
|
|
Restricted Stock Units
|
|
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair
Value
|
|
|
Outstanding at December 31, 2018
|
|
|
2,328,857
|
|
|
$
|
67.33
|
|
|
Granted
|
|
|
1,639,136
|
|
|
|
76.07
|
|
|
Forfeited
|
|
|
(306,500
|
)
|
|
|
68.99
|
|
|
Vested
|
|
|
(541,256
|
)
|
|
|
59.76
|
|
|
Cancelled
|
|
|
(52,357
|
)
|
|
|
85.39
|
|
|
Outstanding at June 30, 2019
|
|
|
3,067,880
|
|
|
$
|
73.15
|
|
C
ompensation expense related to restricted stock units was $14.9 million and $9.5 million during the three months ended
June 30, 2019
and 2018, respectively, and
$27.4 million and $17.3 million during the
six months
ended June 30, 2019 and 2018, respectively. The aggregate fair value as of the vest date of restricted stock units that vested during the three months ended
June 30, 2019
and
2018
was $14.3 million and $19.7 million, respectively, and $41.2 million and $50.0 million during the
six months
ended
June 30, 2019
and
2018
, respectively. As of
June 30, 2019
, $201.2 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 3,037,394 non-vested restricted stock units expected to vest with weighted-average grant date fair values of $73.10 is expected to be recognized over a weighted-average period of 3.1 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.
10. Income Taxes
The Company’s effective tax rate was negative 92.6% (benefit) and positive 12.2% during the three months ended
June 30, 2019
and 2018, respectively, and negative 21.9% (benefit) and positive 6.1% during the
six months
ended June 30, 2019 and 2018, respectively. The income tax (benefit) expense included the net impact of excess tax benefits for stock-based compensation of $1.1 million and $5.7 million for the three months ended
June 30, 2019
and 2018, respectively, and $3.4 million and $13.9 million for the
six months
ended June 30, 2019 and 2018, respectively (see Note 9,
Stock-based Compensation
, for additional details).
In July 2019, the examination of Tapingo’s federal income tax return for the tax year ended December 31, 2016 was completed with no material findings. The Company does not expect any additional tax liabilities, penalties or interest as a result of the audit.
11. Stockholders’ Equity
As of June 30, 2019 and December 31,
2018
, the Company was authorized to issue two classes of stock: common stock and preferred stock.
Common Stock
Each holder of common stock has one vote per share of common stock held on all matters that are submitted for stockholder vote. At June 30, 2019 and December 31, 2018, there were 500,000,000 shares of common stock authorized. At June 30, 2019 and December 31, 2018, there were 91,230,916 and 90,756,548 shares issued and outstanding, respectively. The Company did not hold any shares as treasury shares as of June 30, 2019 or December 31, 2018.
On April 25, 2018, the Company issued and sold 2,820,464 shares of the Company’s common stock to Yum Restaurant Services Group, LLC (the “Investor”), a wholly owned subsidiary of Yum! Brands, Inc., for an aggregate purchase price of $200.0 million pursuant to an investment agreement dated February 7, 2018, by and between the Company and the Investor. The Company has used and expects to use the proceeds for general corporate purposes.
On January 22, 2016, the Company’s Board of Directors approved a program that authorizes the repurchase of up to $100 million of the Company’s common stock exclusive of any fees, commissions or other expenses relating to such repurchases through open market purchases or privately negotiated transactions at the prevailing market price at the time of purchase. The repurchase program was announced on January 25, 2016. Repurchased stock may be retired or held as treasury shares. The repurchase authorizations do not obligate the Company to acquire any particular amount of common stock or adopt any particular method of
repurchase
and may be modified, suspended or terminated at any time at management’s discretion. Repurchased and retired shares will result in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for
18
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
basic and diluted net income per share at the time of the transaction. During the
six months
ended
June 30, 2019
, the Company did
no
t repurchase any shares of its common stock.
Preferred Stock
The Company was authorized to issue 25,000,000 shares of preferred stock. There were no issued or outstanding shares of preferred stock as of June 30, 2019 or December 31,
2018
.
12. Earnings Per Share Attributable to Common Stockholders
Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing net income by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents, including stock options and restricted stock units, except in cases where the effect of the common stock equivalent would be antidilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options and vesting of restricted stock units using the treasury stock method.
The sale of the 2,820,464 shares of the Company’s common stock to the Investor on April 25, 2018 resulted in an immediate increase in the outstanding shares used to calculate the weighted-average common shares outstanding for the three and six months ended June 30, 2018 (See Note 11,
Stockholders’ Equity
).
The following table presents the calculation of basic and diluted net income per share attributable to common stockholders for the three and six months ended June 30, 2019 and
2018
:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders (numerator)
|
$
|
1,252
|
|
|
$
|
30,120
|
|
|
$
|
8,142
|
|
|
$
|
60,886
|
|
|
Shares used in computation (denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
91,177
|
|
|
|
89,503
|
|
|
|
91,064
|
|
|
|
88,294
|
|
|
Basic earnings per share
|
$
|
0.01
|
|
|
$
|
0.34
|
|
|
$
|
0.09
|
|
|
$
|
0.69
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders (numerator)
|
$
|
1,252
|
|
|
$
|
30,120
|
|
|
$
|
8,142
|
|
|
$
|
60,886
|
|
|
Shares used in computation (denominator)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
91,177
|
|
|
|
89,503
|
|
|
|
91,064
|
|
|
|
88,294
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
1,188
|
|
|
|
1,620
|
|
|
|
1,248
|
|
|
|
1,620
|
|
|
Restricted stock units
|
|
421
|
|
|
|
1,380
|
|
|
|
540
|
|
|
|
1,383
|
|
|
Weighted-average diluted shares
|
|
92,786
|
|
|
|
92,503
|
|
|
|
92,852
|
|
|
|
91,297
|
|
|
Diluted earnings per share
|
$
|
0.01
|
|
|
$
|
0.33
|
|
|
$
|
0.09
|
|
|
$
|
0.67
|
|
The number of
shares of common stock underlying stock-based awards excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been antidilutive for the three and six months ended June 30, 2019 and
2018
were as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
|
Anti-dilutive shares underlying stock-based awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
854
|
|
|
|
348
|
|
|
|
853
|
|
|
|
348
|
|
|
Restricted stock units
|
|
2,060
|
|
|
|
38
|
|
|
|
633
|
|
|
|
38
|
|
19
GRUBHUB INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
13. Fair Value Measurement
Certain assets and liabilities are required to be recorded at fair value on a recurring basis. Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The accounting guidance for fair value measurements prioritizes valuation methodologies based on the reliability of the inputs in the following three-tier value hierarchy:
|
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2
|
Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
|
The Company applied the following methods and assumptions in estimating its fair value measurements. The Company’s commercial paper, investments in corporate bonds, certain money market funds and Senior Notes 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. The fair value of the Company’s outstanding borrowings under the Credit Agreement as of December 31, 2018 was classified as Level 3 within the fair value hierarchy because it was valued using an income approach, which utilized a discounted cash flow technique that considered the credit profile of the Company. Accounts receivable, restaurant food liability and accounts payable approximate fair value due to their generally short-term maturities.
The following table presents the fair value, for disclosure purposes only, and carrying value of the Company’s assets and liabilities that are recorded at other than fair value as of June 30, 2019 and December 31,
2018
:
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Level 2
|
|
Carrying Value
|
|
|
Level 2
|
|
Level 3
|
|
Carrying Value
|
|
|
|
|
(in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
26
|
|
$
|
26
|
|
|
$
|
61
|
|
$
|
—
|
|
$
|
61
|
|
|
Commercial paper
|
|
|
25,587
|
|
|
25,702
|
|
|
|
25,322
|
|
|
—
|
|
|
25,431
|
|
|
Corporate bonds
|
|
|
1,747
|
|
|
1,747
|
|
|
|
1,620
|
|
|
—
|
|
|
1,620
|
|
|
Total assets
|
|
$
|
27,360
|
|
$
|
27,475
|
|
|
$
|
27,003
|
|
$
|
—
|
|
$
|
27,112
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities
|
|
$
|
500,000
|
|
$
|
500,000
|
|
|
$
|
—
|
|
$
|
342,745
|
|
$
|
342,312
|
|
|
Total liabilities
|
|
$
|
500,000
|
|
$
|
500,000
|
|
|
$
|
—
|
|
$
|
342,745
|
|
$
|
342,312
|
|
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.
20