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As filed with the Securities and Exchange Commission on September 2, 2014.

No. 333-198324

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

GRUBHUB INC.

(Exact name of registrant as specified in its charter)

Delaware		7389		46-2908664
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

111 W. Washington Street, Suite 2100

Chicago, Illinois 60602

(877) 585-7878

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Margo Drucker, Esq.

SVP, General Counsel and Secretary

GrubHub Inc.

111 W. Washington Street, Suite 2100

Chicago, Illinois 60602

(877) 585-7878

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies of all communications, including communications sent to agent for service, should be sent to:

Joshua N. Korff, Esq. Ross M. Leff, Esq. Kirkland & Ellis LLP 601 Lexington Avenue New York, NY 10022 (212) 446-4800		David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 (212) 735-3574

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  ¨

Large accelerated filer		¨				Accelerated filer		¨
Non-accelerated filer		x		(Do not check if a smaller reporting company)		Smaller reporting company		¨

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered		Amount to be Registered(2)		Proposed Maximum Aggregate Offering Price(1)(2)		Amount of Registration Fee(3)
Common Stock, $0.0001 par value per share		11,538,427		$500,883,117		$64,514

(1)

Estimated solely for the purpose of calculating the registration fee based on the average of the high and low prices for the registrant’s common stock on the New York Stock Exchange on August 21, 2014 pursuant to Rule 457(c) under the Securities Act of 1933, as amended.

(2)

Includes the offering price of any additional shares of common stock that the underwriters have the option to purchase.

(3)

This amount was previously paid.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED SEPTEMBER 2, 2014

 

10,033,415 Shares

 

 

Common Stock

 

We are offering 1,250,000 shares of common stock to be sold in this offering. The selling stockholders identified in this prospectus, which include certain members of our board of directors and management, are offering 8,783,415 shares of our common stock. We will not receive any of the proceeds from the sale of shares being sold by the selling stockholders. See “Principal and Selling Stockholders.”

 

The selling stockholders have granted the underwriters an option to purchase up to 1,505,012 additional shares of our common stock.

 

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “GRUB.” On August 29, 2014, the closing price of our common stock as reported on the NYSE was $38.44.

 

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings.

 

Investing in our common stock involves risks. See the section titled “Risk Factors” beginning on page 12.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

		Per Share				Total
Public Offering Price		$				$
Underwriting Discount		$				$
Proceeds to GrubHub Inc. (before expenses)		$				$
Proceeds to Selling Stockholders (before expenses)		$				$

 

The underwriters expect to deliver the shares to purchasers on or about                     , 2014 through the book-entry facilities of The Depository Trust Company.

 

Citigroup		Morgan Stanley		BofA Merrill Lynch

Allen & Company LLC

BMO Capital Markets		Canaccord Genuity		JMP Securities		Raymond James		William Blair

 

The date of this prospectus is                     , 2014.

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We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. We, the selling stockholders and the underwriters have not authorized anyone to provide you with different information, and we, the selling stockholders and the underwriters take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

 

 

 

TABLE OF CONTENTS

 

		Page
SUMMARY			1
RISK FACTORS			12
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			31
BASIS OF PRESENTATION			33
INDUSTRY AND MARKET DATA			35
USE OF PROCEEDS			36
PRICE RANGE OF COMMON STOCK			37
DIVIDEND POLICY			38
CAPITALIZATION			39
UNAUDITED PRO FORMA FINANCIAL INFORMATION			40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA			44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			48
BUSINESS			73
MANAGEMENT			83
EXECUTIVE COMPENSATION			91
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			100
PRINCIPAL AND SELLING STOCKHOLDERS			102
DESCRIPTION OF CAPITAL STOCK			107
SHARES ELIGIBLE FOR FUTURE SALE			111
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS			113
UNDERWRITING			117
LEGAL MATTERS			123
EXPERTS			123
WHERE YOU CAN FIND MORE INFORMATION			123
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

 

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RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our common stock. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be harmed. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment in us.

 

Risks Related to Our Business

 

We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

 

We have a limited operating history in an evolving industry that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to:

 

•

accurately forecast our revenues and plan our operating expenses;

 

•

increase the number of and retain existing restaurants and diners using our platform;

 

•

successfully compete with the traditional telephone, pen-and-paper takeout ordering process, along with other companies that are currently in, or may in the future enter, the business of allowing diners to order takeout food online;

 

•

successfully expand our business in existing markets and enter new markets;

 

•

adapt to rapidly evolving trends in the ways consumers and businesses interact with technology;

 

•

avoid interruptions or disruptions in our service;

 

•

develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased usage, as well as the deployment of new features and products;

 

•

hire, integrate and retain talented sales, customer service, technology and other personnel; and

 

•

effectively manage rapid growth in our personnel and operations.

 

If the demand for ordering food online and through mobile applications does not develop as we expect, or if we fail to address the needs of restaurants or diners, our business will be harmed. We may not be able to successfully address these risks and difficulties, which could harm our business and results of operations.

 

If we fail to manage the integration of the Merger effectively, our results of operations and business could be harmed.

 

Since the Merger, we have implemented and continue to implement a process of integration to merge the two businesses. The possible risks associated with such integration include the following:

 

•

changes to unify our pricing models could affect our relationship with existing restaurants in our network;

 

•

we may experience difficulty with and may not succeed in rebranding a combined company;

 

•

we are in the process of closing our Sandy, Utah office in order to consolidate our customer care, operations and technology teams in Chicago, and we may not be able to retain employees in that office for the necessary transition period before we are able to transition our technology platform completely;

 

•

we may not assimilate the personnel, culture and operations of the two businesses in the combined company, including back-office functions and systems, such as accounting, human resources and others;

 

•

we may not be able to integrate smoothly the combined technologies or products with the current technologies and products, and customers may experience interruptions in their use of our platform as a result; and

 

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cost savings and/or marketing efficiencies may not meet our expectations.

 

This integration may be difficult and unpredictable. It may be that resources invested in the Merger and integration efforts would have been or could be better utilized developing technology and products for our proprietary technology platform or on other strategic development initiatives. Additionally, our ongoing business could be disrupted, including management being distracted from other objectives, opportunities and risks. Successful integration also requires coordination of different functional teams. There can be no assurance that we will be successful in our business integration efforts or that we will realize the expected benefits.

 

If we fail to retain our existing restaurants and diners or to acquire new restaurants and diners in a cost-effective manner, our revenue may decrease and our business may be harmed.

 

We believe that growth of our business and revenue is dependent upon our ability to continue to grow our two-sided network in existing geographic markets by retaining our existing restaurants and diners and adding new restaurants and diners. The increase in restaurants attracts more diners to our platform and the increase in diners attracts more restaurants. This two-sided network takes time to build and may grow more slowly than we expect or than it has grown in the past. In addition, as we have become larger through organic growth, the growth rates for Active Diners, Daily Average Grubs and Gross Food Sales have at times slowed, and may similarly slow in the future, even if we continue to add restaurants and diners on an absolute basis. Although we expect that our growth rates will continue to slow during certain periods as our business increases in size, if we fail to retain either our existing restaurants (especially our most popular restaurants) or diners, the value of our two-sided network will be diminished. In addition, although we believe that many of our new restaurants and diners originate from word-of-mouth and other non-paid referrals from existing restaurants and diners, we also expect to continue to spend to acquire additional restaurants and diners. We cannot assure you that the revenue from the restaurants and diners we acquire will ultimately exceed the cost of acquisition.

 

While a key part of our business strategy is to add restaurants and diners in our existing geographic markets, to a lesser degree, we may also expand our operations into new geographic markets. In doing so, we may incur losses or otherwise fail to enter new markets successfully. Our expansion into new markets may place us in unfamiliar competitive environments and involve various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years or at all.

 

Growth of our business will depend on a strong brand and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our base of restaurants and diners and our ability to increase their level of engagement.

 

We believe that a strong brand is necessary to continue to attract and retain diners and, in turn, the restaurants in our network. We need to maintain, protect and enhance our brand in order to expand our base of diners and increase their engagement with our websites and mobile applications. This will depend largely on our ability to continue to provide differentiated products, and we may not be able to do so effectively. While we may choose to engage in a broader marketing campaign to further promote our brand, this effort may not be successful or cost effective. If we are unable to maintain or enhance restaurant and diner awareness in a cost-effective manner, our brand, business, results of operations and financial condition could be harmed. Furthermore, negative publicity about our Company, including delivery problems, issues with our technology and complaints about our personnel or customer service, could diminish confidence in, and the use of, our products, which could harm our results of operations and business.

 

We rely on restaurants in our network for many aspects of our business, and any failure by them to maintain their service levels could harm our business.

 

We rely upon restaurants in our network, principally small and local independent businesses, to provide quality food to our diners on a timely basis. If these restaurants experience difficulty servicing diner demand, producing quality food, providing timely delivery and good service or meeting our other requirements or standards, our reputation and brand could be damaged. In addition, if restaurants in our network were to cease

 

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operations, temporarily or permanently, face financial distress or other business disruption, or if our relationships with restaurants in our network deteriorate, we may not be able to provide diners with restaurant choices. This risk is more pronounced in markets where we have fewer restaurants. In addition, if we are unsuccessful in choosing or finding popular restaurants, if we fail to negotiate satisfactory pricing terms with them or if we ineffectively manage these relationships, it could harm our business and results of operations.

 

We experience significant seasonal fluctuations in our financial results, which could cause our stock price to fluctuate.

 

Our business is highly dependent on diner behavior patterns that we have observed over time. In our metropolitan markets, we generally experience a relative increase in diner activity from September to April and a relative decrease in diner activity from May to August. In addition, we benefit from increased order volume in our campus markets when school is in session and experience a decrease in order volume when school is not in session, during summer breaks and other vacation periods. Diner activity can also be impacted by colder or more inclement weather, which typically increases order volume, and warmer or sunny weather, which typically decreases order volume. Seasonality will likely cause fluctuations in our financial results on a quarterly basis. In addition, other seasonality trends may develop and the existing seasonality and diner behavior that we experience may change or become more extreme.

 

We may not continue to grow at historical rates or maintain profitability in the future.

 

While our revenue has grown in recent periods, this growth rate may not be sustainable and we may not realize sufficient revenue to maintain profitability. We may incur significant losses in the future for a number of reasons, including insufficient growth in the number of restaurants and diners on our platform, increasing competition, as well as other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown factors. We expect to continue to make investments in the development and expansion of our business, which may not result in increased revenue or growth. In addition, as a public company, we incur and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these increased expenditures, we will have to generate and sustain increased revenue to maintain profitability. Accordingly, we may not be able to maintain profitability and we may incur significant losses in the future, and this could cause the price of our common stock to decline.

 

If we fail to manage our growth effectively, our brand, results of operations and business could be harmed.

 

We have experienced rapid growth in our headcount and operations, both through organic growth as well as due to the Merger. This growth places substantial demands on management and our operational infrastructure. Many of our employees have been with us for fewer than 18 months. We have and intend to continue to make substantial investments in our technology, customer service, sales and marketing infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our Company culture. We may not be able to manage growth effectively. If we do not manage the growth of our business and operations effectively, the quality of our platform and efficiency of our operations could suffer, which could harm our brand, business and results of operations.

 

The impact of economic conditions, including the resulting effect on consumer spending, may harm our business and results of operations.

 

Our performance is subject to economic conditions and their impact on levels of consumer spending. Some of the factors having an impact on discretionary consumer spending include general economic conditions, unemployment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, energy prices, interest rates, consumer confidence and other macroeconomic factors. Consumer purchases of discretionary items generally decline during recessionary periods and other periods in which disposable income

 

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is adversely affected. Small businesses that do not have substantial resources, like virtually all of the restaurants in our network, tend to be more adversely affected by poor economic conditions than large businesses. Also, because spending for food purchases from restaurants is generally considered to be discretionary, any decline in consumer spending may have a disproportionate effect on our business relative to those businesses that sell products or services considered to be necessities. If spending at many of the restaurants in our network declines, or if a significant number of these restaurants go out of business, diners may be less likely to use our service, which could harm our business and results of operations. In addition, significant adverse economic conditions could harm the businesses of our corporate customers, resulting in decreased use of our platform. Moreover, the majority of restaurants in our network are located in major metropolitan areas like New York City, Chicago and the San Francisco Bay Area. To the extent any one of these geographic areas experience any of the above described conditions to a greater extent than other geographic areas, the harm to our business and results of operations could be exacerbated.

 

We make the restaurant and diner experience our highest priority. Our dedication to making decisions based primarily on the best interests of restaurants and diners may cause us to forego short-term opportunities, which could impact our profitability.

 

We base many of our decisions upon the best interests of the restaurants and diners who use our platform. We believe that this approach has been essential to our success in increasing our growth rate and the frequency with which restaurants and diners use our platform and has served our long-term interests and those of our stockholders. We believe that it is our responsibility to make our diners happy. In the past, we have foregone, and we may in the future forego, certain expansion or revenue opportunities that we do not believe are in the best interests of our restaurants and diners, even if such decisions negatively impact our business or results of operations in the short term. Our focus on making decisions based primarily on the interests of the restaurants and diners who use our platform may not result in the long-term benefits that we expect, and our business and results of operations may be harmed.

 

If use of the Internet via websites, mobile devices and other platforms, particularly with respect to online food ordering, does not continue to increase as rapidly as we anticipate, our business and growth prospects will be harmed.

 

Our business and growth prospects are substantially dependent upon the continued and increasing use of the Internet as an effective medium of transactions by diners. Internet use may not continue to develop at historical rates, and diners may not continue to use the Internet and other online services to order their food at current or increased growth rates or at all. In addition, the Internet and mobile applications may not continue to be accepted as a viable platform or resource for a number of reasons, including:

 

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actual or perceived lack of security of information or privacy protection;

 

•

possible disruptions, computer viruses or other damage to Internet servers, users’ computers or mobile applications;

 

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excessive governmental regulation; and

 

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unacceptable delays due to actual or perceived limitations of wireless networks.

 

We face potential liability, expenses for legal claims and harm to our business based on the nature of our business and the content on our platform.

 

We face potential liability, expenses for legal claims and harm to our business relating to the nature of the takeout food business, including potential claims related to food offerings, delivery and quality. For example, third parties could assert legal claims against us in connection with personal injuries related to food poisoning or tampering or accidents caused by the delivery drivers of restaurants in our network. Alternatively, we could be subject to legal claims relating to the sale of alcoholic beverages by our restaurants to underage diners.

 

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Reports, whether true or not, of food-borne illnesses (such as E. Coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have severely injured the reputations of participants in the food business and could do so in the future as well. The potential for acts of terrorism on our nation’s food supply also exists and, if such an event occurs, it could harm our business and results of operations. In addition, reports of food-borne illnesses or food tampering, even those occurring solely at restaurants that are not in our network, could, as a result of negative publicity about the restaurant industry, harm our business and results of operations.

 

In addition, we face potential liability and expense for claims relating to the information that we publish on our websites and mobile applications, including claims for trademark and copyright infringement, defamation, libel and negligence, among others. For example, we could be subject to claims related to the content published on allmenus.com and MenuPages.com (“MenuPages”), which contain approximately 275,000 menus, based on the fact that we do not obtain prior permission from restaurants to include their menus.

 

We have incurred and expect to continue to incur legal claims. Potentially, the frequency of such claims could increase in proportion to the number of restaurants and diners that use our platform and as we grow. These claims could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merits of the claims. In some instances, we may elect or be compelled to remove content or may be forced to pay substantial damages if we are unsuccessful in our efforts to defend against these claims. If we elect or are compelled to remove valuable content from our websites or mobile applications, our platform may become less useful to restaurants and diners and our traffic may decline, which could harm our business and results of operations.

 

We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our platform is accessible, which would harm our reputation, business and results of operations.

 

It is critical to our success that restaurants and diners within our geographic markets be able to access our platform at all times. We have previously experienced service disruptions, and in the future, we may experience service disruptions, outages or other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of diners accessing our platform simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve the availability of our platform, especially during peak usage times and as our products become more complex and our diner traffic increases. If our platform is unavailable when diners attempt to access it or it does not load as quickly as they expect, diners may seek other services, and may not return to our platform as often in the future, or at all. This would harm our ability to attract restaurants and diners and decrease the frequency with which they use our platform. We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, respond adequately to service disruptions, upgrade our systems as needed or continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and results of operations would be harmed.

 

Our failure to protect personal information provided by our diners against inappropriate disclosure, including security breaches, could violate applicable law and contracts with our service providers and could result in liability to us, damage to our reputation and brand and harm to our business.

 

We rely on third-party payment processors and encryption and authentication technology licensed from third parties that is designed to effect secure transmission of personal information provided by our diners. We may need to expend significant resources to protect against impermissible disclosure, including security breaches, or to address problems caused by such disclosure. If we, or our third-party providers, are unable to maintain the security of our diners’ personal information, our reputation and brand could be harmed and we may be exposed to litigation and possible liability.

 

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Because we process and transmit payment card information, we are subject to the Payment Card Industry (“PCI”) and Data Security Standard (the “Standard”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. We are required by payment card network rules to comply with the Standard, and our failure to do so may result in fines or restrictions on our ability to accept payment cards. Under certain circumstances specified in the payment card network rules, we may be required to submit to periodic audits, self-assessments or other assessments of our compliance with the Standard. Such activities may reveal that we have failed to comply with the Standard. If an audit, self-assessment or other test determines that we need to take steps to remediate any deficiencies, such remediation efforts may distract our management team and require us to undertake costly and time consuming remediation efforts. In addition, even if we comply with the Standard, there is no assurance that we will be protected from a security breach.

 

We are subject to payment-related risks, and if payment processors are unwilling or unable to provide us with payment processing service or impose onerous requirements on us in order to access their services, or if they increase the fees they charge us for these services, our business and results of operations could be harmed.

 

We accept payments using a variety of methods, including credit and debit cards. For certain payment methods, including credit and debit cards, we pay bank interchange and other fees. These fees may increase over time and raise our operating costs and lower our profitability. We rely on third parties to provide payment processing services, including the processing of credit and debit cards. Our business may be disrupted for an extended period of time if any of these companies becomes unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and/or lose our ability to accept credit and debit card payments from diners or facilitate other types of online payments, and our business and results of operations could be harmed.

 

We rely on third parties, including our payment processor and data center hosts, and if these or other third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business and results of operations could be harmed.

 

Our success will depend upon our relationships with third parties, including our payment processor and data center hosts. We rely on a third-party payment processor and encryption and authentication technology licensed from third parties that is designed to effect secure transmission of personal information provided by our diners. We also rely on third-party data center hosts to provide a reliable network backbone with the speed, data capacity, security and hardware necessary for reliable Internet access and services. If our payment processor, or a data center host, or another third party, does not perform adequately, terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we may have difficulty finding an alternate provider on similar terms and in an acceptable timeframe, our costs may increase and our business and results of operations could be harmed.

 

In addition, we rely on off-the-shelf hardware and software platforms developed by third parties to build and customize our OrderHub and Boost tablet and mobile applications. If third parties fail to continue to produce or maintain these hardware and software platforms, our OrderHub and Boost tablet and mobile applications may become less accessible to restaurants and diners, and our business and results of operations could be harmed.

 

If our security measures are compromised, or if our platform is subject to attacks that degrade or deny the ability of restaurants and diners to access our content, restaurants and diners may curtail or stop use of our platform.

 

Like all online services, our platform is vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service, misappropriation of data through website scraping or other attacks

 

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and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential information. Like most Internet companies, we have experienced interruptions in our service in the past due to software and hardware issues as well as denial-of-service and other cyber-attacks and, in the future, may experience compromises to our security that result in performance or availability problems, the complete shutdown of our websites or the loss or unauthorized disclosure of confidential information. In the event of a prolonged service interruption or significant breach of our security measures, our restaurants and diners may lose trust and confidence in us and decrease their use of our platform or stop using our platform entirely. We may be unable to implement adequate preventative measures against or proactively address techniques used to obtain unauthorized access, disable or degrade service or sabotage systems because such techniques change frequently, often remain undetected until launched against a target and may originate from remote areas around the world that are less regulated. Any or all of these issues could harm our ability to attract new restaurants and diners or deter current restaurants and diners from returning, reduce the frequency with which restaurants and diners use our platform or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby harming our business and results of operations.

 

We compete primarily with the traditional offline ordering process and adherence to this traditional ordering method and pressure from existing and new companies that offer online ordering could harm our business and results of operations.

 

We primarily compete with the traditional offline ordering process used by the vast majority of restaurants and diners involving the telephone and paper menus that restaurants distribute to diners, as well as advertising that restaurants place in local publications to attract diners. Changing traditional ordering habits is difficult and if restaurants and diners do not embrace the transition to online food ordering as we expect, our business and results of operations could be harmed.

 

In addition to the traditional takeout ordering process, we compete with other online food ordering businesses, chain restaurants that have their own online ordering platforms, point of sale companies and restaurant delivery services. Our current and future competitors may enjoy competitive advantages, such as greater name recognition, longer operating histories, greater market share in certain markets and larger existing user bases in certain markets and substantially greater financial, technical and other resources than we have. Greater financial resources and product development capabilities may allow these competitors to respond more quickly to new or emerging technologies and changes in restaurant and diner requirements that may render our products less attractive or obsolete. These competitors could introduce new products with competitive price and performance characteristics or undertake more aggressive marketing campaigns than ours. Large Internet companies with substantial resources, users and brand power could also decide to enter our market and compete with us. Furthermore, independent restaurants could determine that it is more cost effective to develop their own platform to permit online takeout orders rather than use our service.

 

As part of the Merger, we completed an agreement with the New York Attorney General’s Office that required us to waive the exclusivity provisions in existing agreements with restaurants located in Manhattan and to refrain from entering into any new exclusive agreements in Manhattan until February 2015. Complying with the terms of this agreement could increase the ability of our competitors to compete in Manhattan and therefore could have an impact on our market position in Manhattan. If this agreement gives our competitors an advantage, our revenue may decrease and our business and results of operations may be harmed.

 

If we lose existing restaurants or diners in our network, fail to attract new restaurants or diners or are forced to reduce our commission percentage or make pricing concessions as a result of increased competition, our business and results of operations could be harmed.

 

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If we do not continue to innovate and provide useful products or if our introduced products do not perform or are not adopted by restaurants in accordance with our expectations, we may not remain competitive and our business and results of operations could suffer.

 

Our success depends in part on our ability to continue to innovate. To remain competitive, we must continuously enhance and improve the functionality and features of our platform, including our websites and mobile applications. The Internet and the online commerce industry are rapidly changing and becoming more competitive. If competitors introduce new products embodying new technologies, or if new industry standards and practices emerge, our existing websites, technology and mobile applications may become obsolete. Our future success could depend on our ability to:

 

•

enhance our existing products and develop new products;

 

•

persuade restaurants to adopt our new technologies and products in a timely manner; and

 

•

respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

 

Developing our platform, which includes our mobile applications, websites and other technologies entails significant technical and business risks. We may use new technologies ineffectively, or we may fail to adapt to emerging industry standards. If we face material delays in introducing new or enhanced products or if our recently introduced products do not perform in accordance with our expectations, the restaurants and diners in our network may forego the use of our products in favor of those of our competitors.

 

Internet search engines drive traffic to our platform and our new diner growth could decline and our business and results of operations would be harmed if we fail to appear prominently in search results.

 

Our success depends in part on our ability to attract diners through unpaid Internet search results on search engines like Google, Yahoo! and Bing. The number of diners we attract to our platform from search engines is due in large part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not under our direct control and may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our websites may not be prominent enough to drive traffic to our websites, and we may not know how or otherwise be in a position to influence the results. In some instances, search engine companies may change these rankings in a way that promotes their own competing products or services or the products or services of one or more of our competitors. Search engines may also adopt a more aggressive auction-pricing system for keywords that would cause us to incur higher advertising costs or reduce our market visibility to prospective diners. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of diners directed to our platform could harm our business and results of operations.

 

We expect a number of factors to cause our results of operations to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

 

Our results of operations could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:

 

•

our ability to attract new restaurants and diners and retain existing restaurants and diners in our network in a cost-effective manner;

 

•

our ability to accurately forecast revenue and appropriately plan our expenses;

 

•

the effects of changes in search engine placement and prominence;

 

•

the effects of increased competition on our business;

 

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•

our ability to successfully expand in existing markets and successfully enter new markets;

 

•

the impact of worldwide economic conditions, including the resulting effect on diner spending on takeout;

 

•

the seasonality of our business, including the effect of academic calendars on college campuses and seasonal patterns in restaurant dining;

 

•

the impact of weather on our business;

 

•

our ability to protect our intellectual property;

 

•

our ability to maintain an adequate rate of growth and effectively manage that growth;

 

•

our ability to maintain and increase traffic to our platform;

 

•

our ability to keep pace with technology changes in the takeout industry;

 

•

the success of our sales and marketing efforts;

 

•

costs associated with defending claims, including intellectual property infringement claims and related judgments or settlements;

 

•

changes in governmental or other regulation affecting our business;

 

•

interruptions in service and any related impact on our business, reputation or brand;

 

•

the attraction and retention of qualified employees and key personnel;

 

•

our ability to choose and effectively manage third-party service providers;

 

•

changes in diner behavior with respect to takeout, especially in New York City, Chicago and the San Francisco Bay Area;

 

•

the effects of natural or man-made catastrophic events;

 

•

the effectiveness of our internal controls;

 

•

the impact of payment processor costs and procedures;

 

•

changes in the online payment transfer rate; and

 

•

changes in our tax rates or exposure to additional tax liabilities.

 

The loss of key senior management personnel could harm our business and future prospects.

 

We depend on our senior management and other key personnel. We may not be able to retain the services of any of our senior management or other key personnel. Although we have employment agreements with our key senior management personnel, their employment is at-will and they could leave at any time. The loss of any of our executive officers or other key employees could harm our business and future prospects.

 

We depend on talented personnel to grow and operate our business, and if we are unable to hire, retain, manage and motivate our personnel, or if our new personnel do not perform as we anticipate, we may not be able to grow effectively.

 

Our future success will depend upon our ability to continue to identify, hire, develop, motivate and retain talented personnel. We may not be able to retain the services of any of our employees or other members of senior management in the future. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team fails to work together effectively and to execute our plans and strategies, our business and results of operations could be harmed.

 

Our growth strategy also depends on our ability to expand our organization by attracting and hiring high-quality personnel. Identifying, attracting, recruiting, training, integrating, managing and motivating talented

 

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individuals will require significant time, expense and attention. Competition for talent is intense, particularly in technology driven industries such as ours. If we are not able to effectively recruit and retain our talent, our business and our ability to achieve our strategic objectives would be harmed.

 

Unfavorable media coverage could harm our business and results of operations.

 

We are the subject of media coverage from time to time. Unfavorable publicity regarding our business model, content, personnel, customer service, technology, product changes, product quality or privacy practices could harm our reputation. Such negative publicity could also harm the size of our network and engagement and loyalty of our restaurants and diners, which could adversely impact our business and results of operations.

 

Our business, and that of our third-party providers and third-party data center, is subject to the risks of severe weather, earthquakes, fires, floods, hurricanes and other natural catastrophic events and to interruption by man-made problems such as computer viruses or terrorism.

 

Our business, particularly in areas of significant concentration like New York, Chicago and San Francisco, is subject to damage or interruption from severe weather, earthquakes, fires, floods, tornadoes, hurricanes, power losses, telecommunications failures, terrorist attacks, acts of war and similar events. For example, severe weather in Chicago, the location of our corporate headquarters and most of our customer service staff, could inhibit the ability of our customer service staff to get to work, which could result in service problems and complaints from restaurants or diners. As we rely heavily on our servers, computer and communications systems, as well as those of our third-party providers and third-party data centers, and the Internet to conduct our business and provide high quality customer service, disruptions could harm our ability to run our business, which could harm our results of operations and financial condition. For example, in October 2012, Superstorm Sandy caused blackouts throughout significant portions of New York City, which resulted in restaurants and diners being unable to access our platform for several days. These events could also negatively impact diner activity or the ability of restaurants to continue to operate.

 

Increases in food, labor, energy and other costs could adversely affect results of operations.

 

An increase in restaurant operating costs could cause restaurants in our network to raise prices or cease operations. Factors such as inflation, increased food costs, increased labor and employee benefit costs, increased rent costs and increased energy costs may increase restaurant operating costs. Many of the factors affecting restaurant costs are beyond the control of the restaurants in our network. In many cases, these restaurants may not be able to pass along these increased costs to diners and, as a result, may cease operations, which could harm our profitability and results of operations. Additionally, if these restaurants raise prices, order volume may decline, which could harm our profitability and results of operations.

 

Future acquisitions could disrupt our business and harm our business and results of operations.

 

As part of our business strategy, we will continue to selectively explore acquisition opportunities of companies and technologies to strengthen our platform. The identification of suitable acquisition candidates can be difficult, time consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:

 

•

regulatory hurdles;

 

•

anticipated benefits may not materialize;

 

•

diversion of management time and focus from operating our business to addressing acquisition integration challenges;

 

•

transition of the acquired company’s users to our websites and mobile applications;

 

•

retention of employees from the acquired company;

 

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•

cultural challenges associated with integrating employees from the acquired company into our organization;

 

•

integration of the acquired company’s accounting, management information, human resources and other administrative systems;

 

•

the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;

 

•

coordination of product development and sales and marketing functions;

 

•

liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and

 

•

litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.

 

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could harm our business and results of operations.

 

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes could substantially harm our business and results of operations.

 

We are subject to general business regulations and laws as well as federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations.

 

Our business is subject to a variety of U.S. laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business or results of operations.

 

We are subject to a variety of laws in the United States, including laws regarding data retention, online credit card payments, privacy, data security, distribution of user-generated content, consumer protection and tax, which are frequently evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted or the content provided by users. In addition, regulatory authorities in the United States and the European Union are considering a number of legislative and regulatory proposals concerning data protection and other matters that may be applicable to our business. It is also likely that if our business grows and evolves and our products are used in a greater number of geographies, we will become subject to laws and regulations in additional jurisdictions. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject.

 

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If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or features, which would negatively affect our business. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred to prevent or mitigate this potential liability could also harm our business and results of operations.

 

Failure to adequately protect our intellectual property could harm our business and results of operations.

 

Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology and confidential information by requiring our employees and consultants who develop intellectual property on our behalf to enter into confidentiality and assignment of inventions agreements and non-competition agreements, and third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property or technology. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our website features, software and functionality or obtain and use information that we consider proprietary.

 

We have registered, among numerous other trademarks, “GrubHub,” “happy eating,” “Seamless,” “OrderHub” and “Your food is here.” as trademarks in the United States. Competitors have and may continue to adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks that are similar to our trademarks. Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary in the future to enforce our intellectual property rights and to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources, which could harm our business and results of operations.

 

We may be unable to continue to use the domain names that we use in our business, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks.

 

We have registered domain names for our websites that we use in our business, most importantly seamless.com, grubhub.com, MenuPages.com and allmenus.com. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our products under a new domain name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of resources, which could in turn harm our business and results of operations.

 

Intellectual property infringement assertions by third parties could result in significant costs and harm our business, results of operations and reputation.

 

We operate in an industry with extensive intellectual property litigation. Other parties have asserted, and in the future may assert, that we have infringed their intellectual property rights. Such litigation may involve patent

 

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holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence. We could be required to pay substantial damages or cease using intellectual property or technology that is deemed infringing.

 

For example, we are currently a defendant to a patent infringement suit filed by Ameranth, Inc. in which we are alleged to infringe on patents relating to online ordering software. See the section titled “Business—Legal Proceedings” for a further discussion of this litigation. This litigation could cause us to incur significant expenses and costs. In addition, the outcome of any litigation is inherently unpredictable and, as a result of this litigation, we may be required to pay damages, an injunction may be entered against us, or a license or other right to continue to deliver an unmodified version of the service may not be made available to us at all or may require us to pay ongoing royalties and comply with unfavorable terms. Any of these outcomes could harm our business. Even if we were to prevail, this litigation could be costly and time-consuming, could divert the attention of our management and key personnel from our business operations, and may discourage restaurants and diners from using our products.

 

Furthermore, we cannot predict whether other assertions of third-party intellectual property rights or claims arising from such assertions will substantially harm our business and results of operations. The defense of these claims and any future infringement claims, whether they are with or without merit or are determined in our favor, may result in costly litigation and diversion of technical and management personnel. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed a party’s patent or copyright rights; cease making, licensing or using products that are alleged to incorporate the intellectual property of others; expend additional development resources to redesign our products; and enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. In any event, we may need to license intellectual property which would require us to pay royalties or make one-time payments. Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them could harm our business, results of operations and reputation.

 

Some of our products contain open source software, which may pose particular risks to our proprietary software and products.

 

We use open source software in our products and will use open source software in the future. From time to time, we may face claims from third parties claiming ownership of, or demanding release of, the open source software and/or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license or cease offering the implicated products unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could harm our business and results of operations.

 

We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

 

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could

 

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suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired, and our business may be harmed.

 

Our business and results of operations may be harmed if we are deemed responsible for the collection and remittance of state sales taxes for our restaurants.

 

If we are deemed an agent for the restaurants in our network under state tax law, we may be deemed responsible for collecting and remitting sales taxes directly to certain states. It is possible that one or more states could seek to impose sales, use or other tax collection obligations on us with regard to such food sales. These taxes may be applicable to past sales. A successful assertion that we should be collecting additional sales, use or other taxes or remitting such taxes directly to states could result in substantial tax liabilities for past sales and additional administrative expenses, which would harm our business and results of operations.

 

As a public company, we incur significant costs to comply with the laws and regulations affecting public companies which could harm our business and results of operations.

 

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the listing requirements of the NYSE, and other applicable securities rules and regulations. These rules and regulations have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time consuming and costly, particularly after we cease to be an “emerging growth company” as defined in the JOBS Act. For example, these rules and regulations could make it more difficult and more costly for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. Our management and other personnel devote a substantial amount of time to these compliance initiatives. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.

 

Our management team, including our CEO, has limited experience in managing publicly traded companies. Our management team and other personnel devote a substantial amount of time to new compliance initiatives and we may not successfully or efficiently manage our transition to a public company. To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which would require us to incur additional expenses and harm our results of operations.

 

Risks Related to Ownership of Our Common Stock and this Offering

 

A significant portion of our common stock is held by our existing executive officers, directors and their affiliates, whose interests may differ from yours.

 

Upon completion of this offering, our current executive officers, directors and holders of 5% or more of our outstanding common stock will beneficially own, in the aggregate, approximately 38% of our outstanding shares of common stock. Some of these persons or entities may have interests that are different from yours. For

 

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example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests or which adversely impact the value of your investment. These stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control in us or changes in management and could also make the approval of certain transactions difficult or impossible without the support of these stockholders, which in turn could reduce the price of our common stock.

 

The price of our common stock has been and may continue to be volatile, and you could lose all or part of your investment.

 

Prior to our IPO in April 2014, there had been no public market for our common stock. Shares of our common stock were sold in our IPO in April 2014 at a price of $26.00 per share, and our common stock has subsequently traded as high as $45.80. An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock. The trading price of our common stock has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, factors that could cause fluctuations in the trading price of our common stock include the following:

 

•

price and volume fluctuations in the overall stock market from time to time;

 

•

volatility in the market prices and trading volumes of technology stocks, particularly Internet stocks;

 

•

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

•

sales of shares of our common stock by us or our stockholders;

 

•

failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company or our failure to meet these estimates or the expectations of investors;

 

•

the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;

 

•

announcements by us or our competitors of new products;

 

•

the public’s reaction to our press releases, other public announcements and filings with the Securities and Exchange Commission (the “SEC”);

 

•

rumors and market speculation involving us or other companies in our industry;

 

•

actual or anticipated changes in our results of operations or fluctuations in our results of operations;

 

•

actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

 

•

litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

•

developments or disputes concerning our intellectual property or other proprietary rights;

 

•

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

•

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

•

changes in accounting standards, policies, guidelines, interpretations or principles;

 

•

any significant change in our management; and

 

•

general economic conditions and slow or negative growth of our markets.

 

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Price and volume fluctuations may be even more pronounced in the trading market for our stock for a period of time following this offering. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources and harm our business and results of operations.

 

Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale or subject to rights requiring us to register them for public sale.

 

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our common stock. Based on shares outstanding as of August 25, 2014, upon the completion of this offering, we will have 80,081,644 shares of our common stock outstanding, assuming no exercise of outstanding options or warrants other than those options or warrants exercised by the selling stockholders for the purpose of selling shares in this offering. Of these shares, the shares of common stock sold in our IPO and the shares of common stock sold in this offering will be freely tradable in the United States, except for any shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act. The holders of 26,161,853 shares of our outstanding common stock have entered into lock-up agreements in connection with this offering under which they have agreed not to dispose of or hedge any of their shares of common stock, subject to specified exceptions, without the prior written consent of Citibank Global Markets Inc., for a period of 90 days after the date of this prospectus. In addition, in connection with our IPO, the holders of 69,869,330 shares of outstanding common stock agreed, subject to certain exceptions, not to dispose of or hedge any of their shares of common stock during the 180-day period following our IPO, which period is scheduled to expire on September 30, 2014, unless earlier waived by Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC. After the expiration of the 90-day restricted period (in connection with this offering), and the 180-day restricted period (in connection with the IPO), these shares may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from United States registration, including, in the case of shares held by affiliates or control persons, compliance with the volume and other restrictions of Rule 144 and Rule 701 of the Securities Act.

 

In addition, as of August 25, 2014, stockholders owning an aggregate of 67,022,269 shares have rights, subject to certain conditions, under contracts providing for registration rights to require us to register shares of our common stock owned by them for public sale in the United States. In addition, as of August 25, 2014, options to purchase a total of 8,124,370 shares of common stock pursuant to our 2013 Omnibus Incentive Plan were outstanding, of which options to purchase 3,747,555 shares were exercisable. On July 18, 2014, we filed a registration statement on Form S-8 to register the approximately 10,351,283 shares of common stock subject to options outstanding or reserved for future issuance under our 2013 Omnibus Incentive Plan. Pursuant to that registration statement, subject to Rule 144 limitations applicable to affiliates, the satisfaction of applicable exercise periods and, in certain cases, lock-up agreements with the representatives of the underwriters referred to above, the shares of common stock issued upon exercise of outstanding options will be available for immediate resale in the United States in the open market.

 

Sales of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock. For more information on the registration rights, see “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.

 

We are an “emerging growth company” and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.”

 

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We could remain an “emerging growth company” for up to five years following the completion of our IPO (which occurred on April 4, 2014) or until (i) we achieve total annual gross revenues in excess of $1 billion during a fiscal year, (ii) become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, as a result of achieving a public float of at least $700 million as of the end of a second fiscal quarter or (iii) we issue more than $1 billion in nonconvertible debt during the preceding three year period. The exemptions include not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our registration statement, periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

While we will be required to disclose changes made in our internal control and procedures on a quarterly basis, if we choose not to comply with the auditor attestation requirements of Section 404, our auditors will not be required to attest to the effectiveness of our internal control over financial reporting until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company.” We could be an “emerging growth company” for up to five years. As a result, investors may become less comfortable with the effectiveness of our internal control and the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase.

 

If we choose to provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, investors would have access to less information and analysis about our executive compensation, which may make it difficult for investors to evaluate our executive compensation practices. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions and provide reduced disclosure. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

After we are no longer an “emerging growth company,” we will be obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may harm investor confidence in our company and, as a result, the value of our common stock.

 

After we are no longer an “emerging growth company,” we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of our IPO. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

 

We are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, investors could lose confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

 

Our independent registered public accounting firm has advised us that it identified a material weakness in the internal control over financial reporting of Seamless Holdings, now known as GrubHub Inc., for the years ended December 31, 2011 and 2012. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

 

Our independent registered public accounting firm has not conducted an audit of Seamless Holdings’ (which is now known as GrubHub Inc.) internal control over financial reporting. However, in connection with its audit

 

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of Seamless Holdings’ consolidated financial statements as of and for the years ended December 31, 2011 and 2012 included elsewhere in this prospectus, our independent registered public accounting firm discovered a material weakness relating to the documentation of journal entry review of Seamless Holdings. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, Seamless Holdings had not regularly documented its review of journal entries.

 

Since discovery of this material weakness, we have taken steps to fully understand the material weakness and to remediate it. We have implemented a formal review of all manual journal entries, including documentation, as part of our monthly close process. Additionally, in connection with the Merger, we retained the chief financial officer and controller that served in those roles for the GrubHub Platform. By utilizing their existing accounting and finance expertise, we have built a more experienced accounting and finance organization. While we have remediated this material weakness for the period ended December 31, 2013, we may identify additional related or unrelated material weaknesses or significant deficiencies in the future. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

 

In addition, implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to implement new processes and modify our existing processes and take significant time to complete. Moreover, any such changes do not guarantee that we will be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. Furthermore, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price.

 

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

 

Our certificate of incorporation and bylaws contain and Delaware law contains provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

 

•

creating a classified board of directors whose members serve staggered three-year terms;

 

•

authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

 

•

limiting the liability of, and providing indemnification to, our directors and officers;

 

•

limiting the ability of our stockholders to call and bring business before special meetings;

 

•

requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

 

•

controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and

 

•

providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.

 

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

 

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As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

 

Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

 

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return or enhance the price of our common stock.

 

The net proceeds from the sale of our shares of common stock by us in this offering will be used for general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, we do not have any agreements or commitments for any acquisitions at this time. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be invested with a view towards long-term benefits for our stockholders and this may not increase our results of operations or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

 

If securities or industry analysts issue an adverse or misleading opinion regarding our common stock or do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced, to some extent, by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not control these analysts or the content and opinions included in their reports. If any of the analysts who cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who covers us were to cease coverage of our Company or fail to publish reports on us regularly or if analysts elect not to provide research coverage of our common stock, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

We do not expect to declare any dividends in the foreseeable future.

 

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

In addition to historical information about the Company, we also make statements in this prospectus containing “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements involve substantial risks, known or unknown, and uncertainties that may cause actual results to differ materially from future results or outcomes expressed or implied by such forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “anticipates,” “believes,” “contemplates,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “target” or “will” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. We cannot guarantee that any forward-looking statement will be realized. The following important factors, in addition to those discussed elsewhere in this prospectus, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in such forward-looking statements:

 

•

our future financial performance, including our revenue, costs and expenses, our ability to generate positive cash flow and our ability to achieve and maintain profitability;

 

•

the sufficiency of our cash and cash equivalents to meet our liquidity needs;

 

•

our ability to effectively manage our integration after the Merger;

 

•

our ability to attract and retain restaurants in a cost-effective manner to use our platform;

 

•

our ability to increase the number of and retain existing diners using our websites and mobile applications and their level of engagement;

 

•

our ability to properly use and protect customer information and data;

 

•

our ability to strengthen our two-sided network;

 

•

the growth in the usage of our mobile applications and our ability to continue to successfully monetize this usage;

 

•

our ability to innovate and provide a superior experience to restaurants and diners;

 

•

our ability to successfully expand in our existing markets and into new markets;

 

•

our ability to effectively manage our growth and future expenses;

 

•

our ability to maintain, protect and enhance our intellectual property;

 

•

the impact of worldwide economic conditions, including the resulting effect on diner spending on takeout;

 

•

the impact of weather, natural or man-made catastrophic events on our business;

 

•

interruptions in service and any related impact on our business, reputation or brand;

 

•

the seasonality of our business, including the effect of academic calendars and college campuses and seasonal patterns in restaurant dining;

 

•

the effects of increased competition on our business;

 

•

costs associated with defending claims, including intellectual property, infringement claims and related judgments and settlements;

 

•

our ability to comply with new legislation and governmental regulations applicable to our business; and

 

•

the attraction and retention of qualified employees and key personnel.

 

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

 

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Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

 

We caution you that the factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

 

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BASIS OF PRESENTATION

 

Unless otherwise stated or the context requires otherwise, (i) when we refer to the “Seamless Platform,” we refer to the operations for Seamless North America, LLC as of and for the year ended December 31, 2011 and from January 1, 2012 through October 28, 2012, the date when Aramark Corporation (“Aramark”) completed the spin-off of its interest in the Seamless business, and for Seamless Holdings Corporation, an entity formed for the purpose of completing the spin-off and whose assets primarily consist of Aramark’s former interest in the Seamless business and its subsidiaries (“Seamless Holdings”), beginning on October 29, 2012, (ii) when we refer to the “GrubHub Platform,” we refer to the operations of GrubHub Holdings Inc., formerly known as GrubHub, Inc. (“GrubHub Holdings”), and its subsidiaries and (iii) all share and per share data in this prospectus reflects the 1-for-2 reverse stock split of our issued and outstanding common stock and preferred stock (the “Reverse Stock Split”), which was effected on April 2, 2014. On August 8, 2013 (the “Merger Date”), we completed a merger of the GrubHub Platform and the Seamless Platform (the “Merger”). Through the Merger, we formed GrubHub Inc., formerly known as GrubHub Seamless Inc., which includes both the GrubHub Platform and the Seamless Platform.

 

Financial Information

 

Unless otherwise stated or the context requires otherwise, the historical financial information included throughout this prospectus reflects the historical financial condition and results of operations for the Seamless Platform as of and for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2013. The results of operations for the year ended December 31, 2013 include the results of operations for the Seamless Platform alone from January 1, 2013 through the Merger Date and for both the GrubHub Platform and the Seamless Platform, as reflected in the financial statements of GrubHub Inc., after the Merger Date through December 31, 2013. The results of operations for the six months ended June 30, 2014 include the results of operations for GrubHub Inc., which includes both the GrubHub Platform and the Seamless Platform. The balance sheet data as of June 30, 2014 reflects the financial condition of GrubHub Inc.

 

Operating Metrics

 

Throughout this prospectus, we discuss key business metrics, including Active Diners, Daily Average Grubs and Gross Food Sales. Unless otherwise stated or the context requires otherwise, each of these metrics include results for the Seamless Platform alone prior to the Merger Date and for both the GrubHub Platform and the Seamless Platform, as GrubHub Inc., after the Merger Date. Our key business metrics are defined as follows:

 

•

Active Diners.    We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date. Unless otherwise stated or the context requires otherwise, when we disclose the number of Active Diners as of December 31, 2013 and June 30, 2014, this includes the number of diner accounts from which an order has been placed in the twelve months prior to such dates through either the GrubHub Platform or the Seamless Platform. Some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account. As a result, it is possible that our Active Diner metric may count certain diners more than once during any given period.

 

•

Daily Average Grubs.    We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period. Unless otherwise stated or the context requires otherwise, when we disclose the Daily Average Grubs during the year ended December 31, 2013, this includes the sum of the number of revenue generating orders placed on the Seamless Platform between January 1, 2013 and August 8, 2013 and the number of revenue generating orders placed on both the GrubHub Platform and the Seamless Platform between August 9, 2013 and December 31, 2013, divided by the number of days in that period. Daily Average Grubs during the six months ended June 30, 2014, includes the number of revenue generating orders placed on the Seamless Platform and the GrubHub Platform, divided by the number of days in that period.

 

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•

Gross Food Sales.    We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Because we act as an agent of the merchant in the transaction, we recognize as revenues only our commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction. Unless otherwise stated or the context requires otherwise, when we disclose Gross Food Sales during the twelve months ended December 31, 2013 and the six months ended June 30, 2014, we include the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through the Seamless Platform from January 1, 2013 to August 8, 2013 and the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through both the GrubHub Platform and the Seamless Platform after August 9, 2013.

 

References to Daily Average Grubs and Gross Food Sales as “combined” reflect the combined results for the GrubHub Platform and the Seamless Platform beginning on the first day of the period for which the operating metric is presented.

 

References herein to “diners” are to diners on our platform.

 

References to the number of restaurants on our platform include all restaurants that have an open contract with us (and exclude duplicate entries for restaurants on both the GrubHub Platform and the Seamless Platform), regardless of the restaurant’s level of activity on our platform.

 

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INDUSTRY AND MARKET DATA

 

This prospectus also contains statistical data, estimates and forecasts that are based on independent industry publications, such as those published by Euromonitor, or other publicly available information, as well as other information based on our internal sources. The industry data presented in this prospectus related to the size of the U.S. independent restaurant market is based on data from the 2013 Euromonitor International report and our analysis of such data. References to independent restaurants included in this prospectus exclude chains with greater than ten outlets and street stalls, kiosks and self-service cafeterias. None of the independent industry publications referred to in this prospectus were prepared on our or on our affiliates’ behalf or at our expense. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, Euromonitor International’s figures are based on official statistics, trade associations, trade press, company research, trade interviews and trade services, and as such have not been independently verified by Euromonitor International in each case.

 

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USE OF PROCEEDS

 

We expect to receive net proceeds from this offering of approximately $45.4 million, based upon an assumed public offering price of $38.44 per share, which is equal to the last reported sale price of our common stock on the NYSE on August 29, 2014, excluding any proceeds received by us in connection with the exercise of options or warrants to purchase shares of our common stock by the selling stockholders in connection with this offering and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders, including certain members of our board of directors and management. See “Principal and Selling Stockholders.”

 

We currently intend to use the net proceeds that we receive in connection with this offering, including any proceeds received in connection with the exercise of options or warrants to purchase shares of our common stock by the selling stockholders in connection with this offering, for general corporate purposes, which may include investments and acquisitions. We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

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PRICE RANGE OF COMMON STOCK

 

Our common stock began trading on the NYSE under the symbol “GRUB” on April 4, 2014. Before then, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low sales prices of our common stock as reported by the NYSE:

 

		High				Low
Second Quarter (beginning April 4, 2014)		$	40.80			$	29.86
Third Quarter (through August 29, 2014)		$	45.80			$	30.62

 

On August 29, 2014, the closing price as reported on the NYSE of our common stock was $38.44 per share. As of August 29, 2014, we had approximately 438 holders of record of our common stock. The number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities in security position listings maintained by depositories.

 

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DIVIDEND POLICY

 

We made dividend payments to our common and preferred stockholders in 2011, 2012, 2013 and 2014, but we currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2014 as follows:

 

1.

on an actual basis; and

 

2.

on an as adjusted basis, giving effect to the sale and issuance by us of 1,250,000 shares of common stock in this offering, at an assumed public offering price of $38.44 per share, which is the last reported sale price of our common stock on the NYSE on August 29, 2014, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding any proceeds received by us from the exercise of options or warrants to purchase our common stock by the selling stockholders in connection with this offering.

 

You should read this table together with our financial statements and related notes, and the sections titled “Use of Proceeds” and “Selected Historical Consolidated Financial and Other Data” that are included elsewhere in this prospectus.

 

		As of June 30, 2014
		Actual				As Adjusted
(in thousands, except share and per share data)
Cash and cash equivalents		$	207,096			$	252,529
Stockholders’ equity:
Common stock, par value $0.0001 per share: 500,000,000 shares authorized, 78,831,161 shares issued and outstanding, actual, 80,081,161 shares issued and outstanding, as adjusted			8				8
Accumulated other comprehensive income			316				316
Additional paid-in capital			617,375				662,808
Retained earnings			63,605				63,605
Total stockholders’ equity		$	681,304			$	726,737

 

The outstanding share information set forth in the table above is as of June 30, 2014 and excludes the following:

 

•

8,119,867 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of June 30, 2014, with a weighted average exercise price of $6.44 per share; and

 

•

1,439,129 shares of common stock reserved for future issuance under our 2013 Omnibus Incentive Plan as of June 30, 2014, and any future increase in shares reserved for issuance under such plan.

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

During the year ended December 31, 2013, we made the following acquisitions:

 

•

on August 8, 2013, GrubHub Inc. acquired all of the equity interests of each of Seamless North America, LLC, Seamless Holdings and GrubHub Holdings, pursuant to the Reorganization and Contribution Agreement, dated as of May 19, 2013, by and among the Company, Seamless North America, LLC, Seamless Holdings, GrubHub Holdings and the other parties thereto.

 

For purposes of the Unaudited Pro Forma Condensed Statement of Operations for the year ended December 31, 2013 and the six months ended June 30, 2013, we assumed that the Merger occurred on January 1, 2013. As a result, the Unaudited Pro Forma Condensed Statement of Operations was derived from:

 

•

the audited historical statement of operations of Seamless Holdings (Acquirer) for the year ended December 31, 2013 and the six months ended June 30, 2013; and

 

•

the unaudited historical statement of operations of GrubHub Holdings (Acquiree) for the period January 1, 2013 to August 8, 2013 and the six months ended June 30, 2013.

 

The Unaudited Pro Forma Condensed Statement of Operations is presented for illustration purposes only and does not necessarily indicate the results of operations that would have been achieved if the Merger had occurred at the beginning of period presented, nor is it indicative of future results of operations.

 

The Unaudited Pro Forma Condensed Statement of Operations should be read in conjunction with the Company’s historical financial statements and accompanying notes included in this prospectus.

 

GrubHub Inc. Basic and Diluted earnings per share:

 

Basic: The weighted average number of shares outstanding used to calculate basic earnings per share in the Unaudited Pro Forma Condensed Statement of Operations, after giving effect to the Reverse Stock Split, does not account for the automatic conversion of preferred stock into shares of common stock that occurred immediately prior to the closing of the IPO.

 

Diluted: Diluted net income per share attributable to common stockholders is computed by dividing net income by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalent would be antidilutive, after giving effect to the Reverse Stock Split. Potential common stock equivalents consist of common stock issuable upon exercise of stock options using the treasury stock method and common stock issuable upon conversion of our preferred stock.

 

Pro Forma Basic and Diluted earnings per share:

 

Basic: The weighted average number of shares outstanding used to calculate the pro forma basic earnings per share in the Unaudited Pro Forma Condensed Statement of Operations reflects the common stock issued at the time of the Merger as if the common stock had been issued as of the beginning of the year of acquisition after giving effect to the Reverse Stock Split, which was effected on April 2, 2014.

 

Diluted: Diluted net income per share attributable to common stockholders is computed by dividing net income by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalent would be antidilutive, after giving effect to the Reverse Stock Split. Potential common stock equivalents consist of common stock issuable upon exercise of stock options using the treasury stock method and common stock issuable upon conversion of our preferred stock.

 

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GrubHub Inc.

Unaudited Pro Forma Condensed Statement of Operations

For the Year Ended December 31, 2013

(in thousands, except per share data)

 

		GrubHub Inc.				GrubHub Holdings from January 1, 2013 to August 8, 2013				Acquisition Adjustments (A)				Acquisition Adjustments (B)				Acquisition Adjustments (C)				Acquisition Adjustments (D)				Pro Forma
Revenues		$	137,143			$	32,943			$	—			$	—			$	—			$	—			$	170,086
Sales and marketing			37,347				10,948				—				540				—				—				48,835
Operations and support			34,173				11,466				—				491				—				—				46,130
Technology (exclusive of amortization)			15,357				3,794				—				306				—				—				19,457
General and administrative			21,907				10,495				—				1,660				(9,131	)			—				24,931
Depreciation and amortization			13,470				1,536				6,475				—				—				—				21,481
Total operating expenses			122,254				38,239				6,475				2,997				(9,131	)			—				160,834
Income (loss) before provision for income taxes			14,889				(5,296	)			(6,475	)			(2,997	)			9,131				—				9,252
Provision (benefit) for income taxes			8,142				—				—				—				—				(3,050	)			5,092
Net income (loss)		$	6,747			$	(5,296	)		$	(6,475	)		$	(2,997	)		$	9,131			$	3,050			$	4,160
Preferred stock tax distributions			(1,073	)																							(1,073	)
Net income attributable to common stockholders		$	5,674																							$	3,087
Net income per share attributable to common stockholders:
Basic		$	0.14																							$	0.06
Diluted		$	0.12																							$	0.06
Weighted average number of shares outstanding:
Basic			40,681																								54,774
Diluted			56,645																								75,634

 

 

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GrubHub Inc.

Unaudited Pro Forma Condensed Statement of Operations

For the Six Months Ended June 30, 2013

(in thousands, except per share data)

 

		GrubHub Inc.				GrubHub Holdings for the Six Months Ended June 30, 2013				Acquisition Adjustments (A)				Acquisition Adjustments (B)				Acquisition Adjustments (C)				Acquisition Adjustments (D)				Pro Forma
Revenues		$	52,658			$	27,369			$	—			$	—			$	—			$	—			$	80,027
Sales and marketing			16,164				9,350				—				437				—				—				25,951
Operations and support			11,975				9,535				—				394				—				—				21,904
Technology (exclusive of amortization)			5,344				3,164				—				246				—				—				8,754
General and administrative			8,712				8,763				—				1,347				(7,430	)			—				11,392
Depreciation and amortization			3,673				1,302				5,334				—				—				—				10,309
Total operating expenses			45,868				32,114				5,334				2,424				(7,430	)			—				78,310
Income (loss) before provision for income taxes			6,790				(4,745	)			(5,334	)			(2,424	)			7,430				—				1,717
Provision (benefit) for income taxes			3,711				—				—				—				—				(2,767	)			944
Net income (loss)		$	3,079			$	(4,745	)		$	(5,334	)		$	(2,424	)		$	7,430			$	2,767			$	773
Preferred stock tax distributions			(648	)																							(648	)
Net income attributable to common stockholders		$	2,431																							$	125
Net income per share attributable to common stockholders:
Basic		$	0.08																							$	0.00
Diluted		$	0.07																							$	0.01
Weighted average number of shares outstanding:
Basic			31,368																								54,687
Diluted			43,356																								74,773

 

 

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GrubHub Inc.

Notes to Unaudited Pro Forma Condensed Statement of Operations

(in thousands, except share data)

 

(A)    Amortization

 

The pro forma adjustments reflects the additional amortization that would have been recognized on the intangible assets had the acquisitions occurred on January 1, 2013.

 

		Useful life				GrubHub Holdings Amortization
						January 1, 2013 to  August 8, 2013				Six Months Ended June 30, 2013
Developed technology			3 years			$	1,038			$	857
Customer list			16.4 years				6,171				5,105
Total pro forma impact							7,209				5,962
Less amounts already recorded							(734	)			(628	)
Adjustment necessary						$	6,475			$	5,334

 

(B)    Replacement stock option awards

 

In connection with the Merger, we were required to replace the GrubHub Platform share based payment awards. The fair value of the replacement options for services performed after the Merger was recognized as compensation cost. The pro forma adjustments reflect an adjustment of $2,997 and $2,424 for the year ended December 31, 2013 and the six months ended June 30, 2013, respectively, had the Merger occurred on January 1, 2013.

 

(C)    Transaction costs

 

The pro forma adjustment reflects the elimination of the transaction costs incurred in connection with the Merger of $9,131 and $7,430 for the year ended December 31, 2013 and the six months ended June 30, 2013, respectively, including $4,667 and $3,343 of transaction costs at GrubHub Inc. for the year ended December 31, 2013 and the six months ended June 30, 2013, respectively, and $4,464 and $4,087 of transaction costs at GrubHub Holdings year ended December 31, 2013 and the six months ended June 30, 2013, respectively.

 

(D)    Income taxes

 

The $3,050 and $2,767 pro forma adjustments reflect the estimated income tax benefit that would have been recognized for the year ended December 31, 2013 and the six months ended June 30, 2013, respectively, had the acquisition occurred on January 1, 2013. The pro forma tax benefit was determined by using the Company’s historical effective tax rate.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

 

The following selected historical consolidated financial and other data is derived from our consolidated financial statements included elsewhere in this prospectus. The consolidated financial statements included elsewhere in this prospectus reflect the results of operations and financial condition of (i) the Seamless Platform as of and for the years ended December 31, 2011 and 2012 (ii) the Seamless Platform from January 1, 2013 through the Merger Date and for both the Seamless Platform and the GrubHub Platform after the Merger Date and (iii) GrubHub Inc. as of December 31, 2013 and June 30, 2014. The share and per share amounts for all periods reflect the completion of the Reverse Stock Split, which was effected on April 2, 2014. The audited consolidated financial statements reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for the fair presentation of the financial statements. You should read the selected financial data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

		Year Ended December 31,												Six Months Ended June 30,
(in thousands, except per share data)		2011				2012				2013(1)				2013(1)				2014(2)
														(unaudited)
Statement of Operations Data:
Revenues		$	60,611			$	82,299			$	137,143			$	52,658			$	118,619
Costs and expenses:
Sales and marketing			17,198				26,892				37,347				16,164				32,285
Operations and support			13,961				18,165				34,173				11,975				29,841
Technology (exclusive of amortization)			5,651				10,172				15,357				5,344				11,413
General and administrative			9,777				12,249				21,907				8,712				16,944
Depreciation and amortization			4,033				6,089				13,470				3,673				11,130
Total costs and expenses			50,620				73,567				122,254				45,868				101,613
Income before provision for income taxes			9,991				8,732				14,889				6,790				17,006
Provision (Benefit) for income taxes			(5,220	)			813				8,142				3,711				9,961
Net income			15,211				7,919				6,747				3,079				7,045
Preferred stock tax distributions			(334	)			(402	)			(1,073	)			(648	)			(320	)
Net income attributable to common stockholders		$	14,877			$	7,517			$	5,674			$	2,431			$	6,725
Net income per share attributable to common stockholders:
Basic		$	0.48			$	0.24			$	0.14			$	0.08			$	0.10
Diluted		$	0.36			$	0.19			$	0.12			$	0.07			$	0.09
Weighted average shares used to compute net income per share attributable to common stockholders:
Basic			31,320				31,320				40,681				31,368				66,626
Diluted			42,505				42,666				56,645				43,356				79,854
Pro forma net income per share attributable to common stockholders (unaudited)(3):
Basic						$	0.14			$	0.12			$	0.06
Diluted						$	0.14			$	0.12			$	0.07
Weighted average shares used to compute pro forma net income per share attributable to common stockholders (unaudited)(3):
Basic							42,505				55,071				42,554
Diluted							42,666				56,645				43,356
Other Financial Information:
Adjusted EBITDA(4)		$	14,827			$	17,185			$	38,134			$	15,044			$	33,315
Cash Flows Data:
Net cash provided by operating activities		$	32,094			$	29,578			$	40,819			$	19,415			$	30,285
Net cash provided by (used in) investing activities			(36,949	)			10,303				6,245				(4,604	)			(3,490	)
Net cash provided by (used in) financing activities			7,321				(2,218	)			(1,842	)			(1,806	)			93,575
Preferred stock tax distributions			(16,690	)			(1,588	)			(1,893	)			(651	)			(320	)

 

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(1)

Includes results for Seamless Platform through the Merger, and of GrubHub Inc., for the remainder of the period presented.

(2)

Includes the results of GrubHub Inc.

(3)

Pro forma net income per share attributable to common stockholders has been calculated assuming the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, as though the conversion had occurred as of the beginning of 2011 or the original date of issue, if later.

(4)

See the section titled “Non-GAAP Financial Measures” below for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

 

		As of December 31,												As of June 30, 2014
		2011				2012				2013				Actual
(in thousands)														(unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	3,383			$	41,161			$	86,542			$	207,096
Property and equipment, net			11,233				13,341				17,096				16,529
Working capital			(11,905	)			3,837				29,568				149,130
Total assets			184,940				206,255				762,812				885,898
Convertible Preferred Stock			1				1				2				—
Total stockholders’ equity			131,971				137,888				557,375				681,304

 

Key Business Metrics

 

To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we review the following key business metrics:

 

		Year Ended December 31,												Six Months Ended June 30,
		2011				2012				2013				2013				2014
		(unaudited)
Active Diners(1)			689,000				986,000				3,421,000				1,171,000				4,192,000
Daily Average Grubs(2)			45,700				62,000				107,900				83,200				177,800
Gross Food Sales (in millions)(3)		$	412.2			$	568.8			$	1,014.9			$	381.4			$	855.6

 

(1)

We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date.

(2)

We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period.

(3)

We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Because we act as an agent of the merchant in the transaction, we recognize as revenues only our commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

Non-GAAP Financial Measures

 

Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. We define Adjusted EBITDA as net income adjusted to exclude merger and restructuring costs, incomes taxes, depreciation and amortization and stock-based compensation expense. Below, we have provided a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other

 

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measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.

 

We include Adjusted EBITDA in this prospectus because it is an important measure upon which our management assesses our operating performance. We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of acquisitions and restructuring, the impact of depreciation and amortization expense on our fixed assets and the impact of stock-based compensation expense. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes and in evaluating acquisition opportunities. In addition, we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.

 

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

•

Adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;

 

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;

 

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and

 

•

other companies, including companies in our industry, may calculate Adjusted EBITDA measures differently, which reduces their usefulness as comparative measures.

 

In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP results.

 

The following table presents a reconciliation of Adjusted EBITDA to our net income, the most comparable GAAP measure, for each of the periods indicated:

 

		Year Ended December 31,												Six Months Ended June 30,
		2011				2012				2013(1)				2013				2014(2)
(in thousands)		(unaudited)
Reconciliation of Adjusted EBITDA:
Net income		$	15,211			$	7,919			$	6,747			$	3,079			$	7,045
Income taxes(3)			(5,220	)			813				8,142				3,711				9,961
Depreciation and amortization			4,033				6,089				13,470				3,673				11,130
EBITDA			14,024				14,821				28,359				10,463				28,136
Merger and restructuring costs(4)			—				—				4,842				3,343				492
Stock-based compensation			803				2,364				4,933				1,238				4,687
Adjusted EBITDA		$	14,827			$	17,185			$	38,134			$	15,044			$	33,315

 

(1)

Includes results for Seamless Platform through August 8, 2013, when we completed the Merger, and of GrubHub Inc., the combined company, for the remainder of the period presented.

 

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(2)

Includes the results of operation for GrubHub Inc. for the six months ended June 30, 2014.

(3)

The increase in income tax expense was primarily attributable to a reversal of deferred tax liability of $8.1 million in 2011 associated with the June 2011 sale of preferred stock to SLW Investors, LLC offset by 2011 income tax paid of $2.2 million, which represents the income tax expense from January 1, 2011 through May 31, 2011. For the period January 1, 2012 through October 27, 2012, the Company was a pass-through entity for income tax purposes. Immediately following the Merger Date, 100% of our taxable income is subject to income tax.

(4)

Merger and restructuring costs include transaction and integration-related costs, such as legal and accounting costs, associated with the Merger and restructuring initiatives.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the sections titled “Unaudited Pro Forma Financial Information” and “Selected Historical Consolidated Financial and Other Data,” and the financial statements and related notes thereto included elsewhere in this prospectus. Unless otherwise stated, the discussion below primarily reflects the historical condition and results of operations for (i) the Seamless Platform as of and for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2013, (ii) the Seamless Platform from January 1, 2013 through the Merger Date and for both the GrubHub Platform and the Seamless Platform after the Merger Date and (iii) GrubHub Inc. as of December 31, 2013 and June 30, 2014. Additionally, unless otherwise stated, all results from the GrubHub Platform refer to the period after the Merger Date. The share and per share amounts for all periods reflect the completion of the Reverse Stock Split, which was effected on April 2, 2014. For purposes of the following discussion of the financial condition and results of operations only, the terms, “GrubHub,” “we,” “us,” “our,” “our platform” and the “Company” refer to the Seamless Platform prior to the Merger Date and the GrubHub Platform and Seamless Platform combined following the Merger Date.

 

This discussion contains forward-looking statements that primarily relate to GrubHub Inc., the combined company of the GrubHub Platform and the Seamless Platform, and involve risks and uncertainties. Our actual results could differ materially from those discussed below, which primarily reflect the results of the Seamless Platform. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.

 

Overview

 

GrubHub is the leading online and mobile platform for restaurant pick-up and delivery orders, which we refer to as takeout. We processed more than 177,800 combined Daily Average Grubs on our platform during the six months ended June 30, 2014 and had approximately $855.6 million of combined Gross Food Sales on our platforms during the six months ended June 30, 2014. We connect local restaurants with hungry diners in more than 700 cities across the United States and are focused on transforming the takeout experience. For restaurants, GrubHub generates higher margin takeout orders at full menu prices. Our platform empowers diners with a “direct line” into the kitchen, avoiding the inefficiencies, inaccuracies and frustrations associated with paper menus and phone orders. We have a powerful two-sided network that creates additional value for both restaurants and diners as it grows.

 

Our target market is primarily independent restaurants. These independent restaurants, which account for 61% of all U.S. restaurants (according to Euromonitor), remain local, highly fragmented and are mostly owner-operated family businesses. According to Euromonitor, Americans spent $204 billion at these approximately 350,000 independent restaurants in 2012. Of that amount, we believe that Americans spent approximately $67 billion on takeout at these independent restaurants.

 

For restaurants, takeout enables them to grow their business without adding seating capacity or wait staff. Advertising for takeout, typically done through the distribution of menus to local households or advertisements in local publications, is often inefficient and requires upfront payment with no certainty of success. In contrast, we provide the restaurants on our platform with an efficient way to generate more takeout orders. We enable restaurants to access local diners at the moment when those diners are hungry and ready to purchase takeout. In addition, we do not charge the restaurants in our network any upfront or subscription fees, we do not require any discounts from their full price menus and we only get paid for the orders we generate for them, providing restaurants with a low-risk, high-return solution. We charge restaurants a per-order commission that is primarily percentage-based.

 

As our two-sided network of restaurants and diners has grown, many of our restaurants have chosen to pay higher rates to receive better exposure to more diners on our platform, and this has resulted in higher overall commission rates for us.

 

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For diners, the traditional takeout ordering process is often a frustrating experience—from using paper menus to communicating an order by phone to a busy restaurant employee. In contrast, ordering on GrubHub is enjoyable and a dramatic improvement over the “menu drawer.” We provide the 4.2 million Active Diners on our platform (as of June 30, 2014) with an easy-to-use, intuitive and personalized platform that helps them search for and discover local restaurants and then accurately and efficiently place an order from any Internet-connected device. We also provide diners with information and transparency about their orders and status and solve problems that may arise. In addition, we make re-ordering convenient by storing previous orders, preferences and payment information, helping us promote diner frequency and drive strong repeat business.

 

The proliferation of mobile devices over the past few years has significantly increased the value of our platform. With powerful, easy-to-use mobile applications for iPhone, iPad and Android, we enable diners to access GrubHub whenever and wherever they want takeout. All of the discovery and ordering capabilities that are available on our consumer websites are also available through our mobile applications. We monetize the orders placed through our mobile applications using the same rate as orders placed through our websites. Our mobile applications make ordering from GrubHub more accessible and personal, driving increased use of our platform by restaurants and diners. Orders placed on mobile devices increased from approximately 20% of our consumer orders in the quarter ended December 31, 2011 to approximately 48% of our consumer orders in the quarter ended June 30, 2014.

 

Our business has grown rapidly. During the six months ended June 30, 2014, we generated revenue of $118.6 million, representing a 125% increase from the same period in 2013. Our revenue growth has been driven primarily by the inclusion of results from the GrubHub Platform and increasing adoption of our platform by restaurants and diners, with 4.2 million Active Diners as of June 30, 2014. During the six months ended June 30, 2013, there were approximately 1.8 million Active Diners and 46,400 Daily Average Grubs on the GrubHub Platform that would have been included had the Merger been completed as of January 1, 2013. For the six months ended June 30, 2014, our net income was $7.0 million and our Adjusted EBITDA was $33.3 million. See “Summary—Summary Historical Consolidated Financial and Other Data” for a discussion and reconciliation of Adjusted EBITDA to net income.

 

Since the inception of the GrubHub Platform in 2004, the two-sided network has grown by achieving key milestones, including:

 

•

in 2005, the GrubHub Platform started taking orders from diners in the Chicago metropolitan market;

 

•

in 2010 and 2011, the GrubHub Platform expanded by adding over 20 metropolitan markets;

 

•

in 2010, the GrubHub Platform launched its first fully functional iPhone application and, in June 2011, it launched its first fully functional Android application; and

 

•

in September 2011, the GrubHub Platform acquired Dotmenu, Inc. (“DotMenu”), which operated campusfood.com and allmenus.com; campusfood.com provided the GrubHub Platform with an online presence in over 70 additional college markets and allmenus.com provided it with an online menu directory that contained approximately 250,000 menus and gave it a valuable source of leads for both restaurants and diners.

 

The Seamless Platform was founded in 1999 as a corporate online ordering solution for employee meals, billing and invoicing automation. The Seamless Platform has grown by achieving, among others, the following key milestones:

 

•

in 1999, the Seamless Platform started taking orders from its corporate ordering program in New York City;

 

•

in 2003, the Seamless Platform expanded by adding two additional markets: Chicago and Washington, D.C.;

 

•

in 2005, the Seamless Platform started taking orders from consumers;

 

•

in 2006, the Seamless Platform was acquired by Aramark;

 

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•

in 2010, the Seamless Platform launched its first iPhone application and, in January 2011, it launched its first Android application;

 

•

in June 2011, Spectrum Equity (“Spectrum”) made a minority investment in the Seamless Platform, which resulted in the Seamless Platform placing a greater focus on its consumer business;

 

•

in February 2012, the Seamless Platform launched its first iPad application; and

 

•

in October 2012, Aramark completed its spin-off of the Seamless Platform as an independent company.

 

We completed the Merger of the GrubHub Platform and the Seamless Platform on the Merger Date. The Merger has enabled us to expand our two-sided network, connecting customers in the geographies we serve with more restaurants. Through the combination of the GrubHub Platform and the Seamless Platform, we are able to eliminate duplicative marketing expenses and restaurant sales and take advantage of a complementary geographic footprint.

 

We generate revenues primarily when diners place an order on our platform. Restaurants pay us a commission, typically a percentage of the transaction on orders that are processed through our platform. Most of our restaurants can choose their level of commission rate, at or above our base rate, to affect their relative priority in our sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order than restaurants paying lower commission rates. The Merger caused our overall average commission rate to decrease by less than one percent of Gross Food Sales. For most of our orders, diners use a credit card to pay us for their meal when the order is placed. For these transactions, we collect the total amount of the order from the diner and remit the net proceeds to the restaurant less our commission. We generally accumulate funds and remit the net proceeds to the restaurants on at least a monthly basis. We also deduct our commissions for other transactions that go through our platform, such as cash transactions for restaurants in our network, from the aggregate proceeds we receive.

 

We face several key challenges in continuing to grow our business and maintaining profitability. These challenges include that:

 

•

our ability to realize the benefits of the Merger depends on the successful integration of the two platforms;

 

•

our long-term growth depends on our ability to continue to expand our network of restaurants and diners in a cost-effective manner; and

 

•

while our primary competition remains the traditional offline takeout ordering method, new and existing online competitors could emerge or gain traction in our primary markets. These competitors may have greater resources than we do and could impact our growth rates and ability to maintain profitability.

 

Factors Affecting Our Performance

 

•

The Size of Our Two-Sided Network.    Our growth has come, and we expect it to continue to come, from our ability to successfully expand our two-sided network, which occurs through the growth of the number of restaurants and diners on our platform. We believe that increases in the number of restaurants will make our platform more attractive to diners and increases in the number of diners will make our platform more attractive to restaurants. Furthermore, the number of popular restaurants in each of our local markets is an important factor in making our platform more attractive to diners.

 

•

Seasonality.    Our business follows diner behavior patterns that we have observed over time. In our metropolitan markets, we generally experience a relative increase in diner activity from September to April and a relative decrease in diner activity from May to August. In addition, we benefit from increased order volumes in our campus markets when school is in session and experience a decrease in order volumes when school is not in session during summer breaks and other vacation periods.

 

•

Weather.    Diner activity can also be impacted by colder or more inclement weather, which typically increases order volumes, and warmer or sunny weather, which typically decreases order volumes.

 

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•

Merger.    On the Merger Date, we successfully completed the Merger of the GrubHub Platform and the Seamless Platform.

 

Key Business Metrics

 

To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we review the following key business metrics:

 

•

Active Diners.    We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date. Diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in our Active Diner metrics. Active Diners is an important metric for us because the number of diners using our platform is a key revenue driver and a valuable measure of the size of our engaged diner community. Some of our diners could have more than one account if they were to set up multiple accounts using a different e-mail address for each account. As a result, it is possible that our Active Diners metric may count certain diners more than once during any given period.

 

•

Daily Average Grubs.    We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period. Daily Average Grubs is an important metric for us because the number of orders processed on our platform is a key revenue driver and, in conjunction with the number of Active Diners, a valuable measure of diner activity on our platform for a given period.

 

•

Gross Food Sales.    We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Gross Food Sales is an important metric for us because the total volume of food sales transacted through our platform is a key revenue driver. Because we act as an agent of the merchant in the transaction, we recognize as revenues only our commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

Our key business metrics are as follows for the periods presented:

 

		Year Ended December 31,												Year Ended December 31,												Six Months Ended June 30,
		2011				2012				% Change				2012				2013				% Change				2013				2014				% Change
Active Diners			689,000				986,000				43	%			986,000				3,421,000				247	%			1,171,000				4,192,000				258	%
Daily Average Grubs			45,700				62,000				36	%			62,000				107,900				74	%			83,200				177,800				114	%
Gross Food Sales (in millions)		$	412.2			$	568.8				38	%		$	568.8			$	1,014.9				78	%		$	381.4			$	855.6				124	%

 

The growth of each of these metrics also reflects the impact of the Merger. For example, at the time of the acquisition, the GrubHub Platform added 1.7 million incremental active diners that had placed an order through the GrubHub Platform in the preceding twelve months. Our Active Diners metric for the year ended December 31, 2013 and the six months ended June 30, 2014 includes diners who placed orders on either the GrubHub Platform or the Seamless Platform during the twelve months prior to such dates. In addition, for the year ended December 31, 2013, as a result of the Merger, we estimate that the GrubHub Platform added approximately 21,800 Daily Average Grubs and $216.1 million in Gross Food Sales to the year ended December 31, 2013 totals of 107,900 and $1,014.9 million, respectively.

 

We experienced significant growth across all of our key business metrics, Active Diners, Daily Average Grubs and Gross Food Sales, in the years ended December 31, 2011, 2012 and 2013 and the six months ended June 30, 2013 and 2014. Growth in all metrics was attributable to a combination of organic growth and the impact of the Merger.

 

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Our organic growth was due primarily to increased product and brand awareness by diners, better restaurant choices for diners in our markets and the growth of our mobile applications, which allow diners to order takeout through our platform using their mobile devices.

 

Once we achieve a certain number of restaurants in a particular geographic area, including the key restaurants in the market, diners are afforded a broad and diverse range of choices, and the subsequent incremental growth or loss of restaurants in that geography may not have a direct impact on our revenue. While we believe it is generally important to increase the number of restaurants in our network to drive growth in our business, there are a number of additional factors that determine how robust our network is in a particular market, including the quality of the individual restaurants, the diversity of choice, individual market presence and the concentration of restaurants.

 

In 2012 and 2013 and during the six months ended June 30, 2014, we spent relatively fewer resources on adding restaurants in new markets and instead focused on continuing to build our restaurant coverage in all of our existing markets. We believe the restaurants we added in 2012 and 2013 and during the six months ended June 30, 2014 were generally similar to those on the network in the prior periods in terms of quality, diversity and market concentration. As we grow our network in the future, we will continue to focus on these factors, rather than singularly focusing on the number of restaurants we add.

 

Basis of Presentation

 

Revenues

 

We generate revenues primarily when diners place an order on our platform through our websites, our mobile applications, third-party websites that incorporate our API or one of our listed phone numbers. Restaurants pay us a commission, typically a percentage of the transaction, on orders that are processed through our platform. Most of our restaurants can choose their level of commission rate, at or above our base rates, to affect their relative priority in our sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order than restaurants paying lower commission rates. Some restaurants on our platform pay a monthly system fee for better branding and more robust placement. Because we are acting as an agent of the merchant in the transaction, we recognize as revenues only our commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

We periodically provide incentive offers to restaurants and diners to use our platform. These promotions are generally cash credits to be applied against purchases. We record these incentive offers as reductions in revenues, generally on the date we record the corresponding revenue.

 

We generate a small amount of revenues directly from companies that participate in our corporate ordering program and by selling advertising on our allmenus.com and MenuPages websites to third parties. We do not anticipate that corporate fees or advertising will generate a significant portion of our revenues in the foreseeable future.

 

Cost and Expenses

 

Sales and Marketing

 

Sales and marketing expenses consist of salaries, commissions, benefits, stock-based compensation expense and bonuses for restaurant sales, restaurant sales support and marketing employees and contractors. Sales and marketing expenses also contain our advertising expenses including search engine marketing, television, online display, media and other programs and facilities costs allocated on a headcount basis.

 

Operations and Support

 

Operations and support expenses consist of salaries and benefits, stock-based compensation expense and bonuses for salaried employees and contractors engaged in customer service and operations at our Company.

 

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Operations and support expenses also include payment processing costs for diner orders, costs of uploading and maintaining restaurant menu content, communications costs related to orders and facilities costs allocated on a headcount basis.

 

Technology (exclusive of amortization)

 

Technology (exclusive of amortization) expenses consist of salaries and benefits, stock-based compensation expense and bonuses for salaried employees and contractors engaged in the design, development, maintenance and testing of our platform including our websites, mobile applications and other products. Technology expenses also include facilities costs allocated on a headcount basis but do not include amortization of capitalized website and software development costs.

 

General and Administrative

 

General and administrative expenses consist of salaries, benefits, stock-based compensation expense and bonuses for executive, finance, accounting, legal, human resources and administrative support. General and administrative expenses also include legal, accounting, other third-party professional services, other miscellaneous expenses and facilities costs allocated on a headcount basis.

 

Depreciation and Amortization

 

Depreciation and amortization expenses primarily consist of amortization of purchased intangibles from the Merger and depreciation of computer equipment, software development, leasehold improvements and capitalized website and software development costs.

 

Provision (Benefit) for Income Taxes

 

Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions, deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the realization of net operating loss carryforwards.

 

Results of Operations

 

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenues:

 

		Year Ended December 31,												Six Months Ended June 30,
(in thousands)		2011				2012				2013				2013				2014
														(unaudited)
Statement of Operations Information:
Revenues		$	60,611			$	82,299			$	137,143			$	52,658			$	118,619
Costs and expenses:
Sales and marketing			17,198				26,892				37,347				16,164				32,285
Operations and support			13,961				18,165				34,173				11,975				29,841
Technology (exclusive of amortization)			5,651				10,172				15,357				5,344				11,413
General and administrative			9,777				12,249				21,907				8,712				16,944
Depreciation and amortization			4,033				6,089				13,470				3,673				11,130
Total costs and expenses			50,620				73,567				122,254				45,868				101,613
Income before provision for income taxes			9,991				8,732				14,889				6,790				17,006
Provision (benefit) for income taxes			(5,220	)			813				8,142				3,711				9,961
Net income			15,211				7,919				6,747				3,079				7,045
Preferred stock tax distributions			(334	)			(402	)			(1,073	)			(648	)			(320	)
Net income attributable to common stockholders		$	14,877			$	7,517			$	5,674			$	2,431			$	6,725

 

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		Year Ended December 31,												Six Months Ended June 30,
		2011				2012				2013				2013				2014
		(unaudited)
Percentage of Revenues:
Revenues			100	%			100	%			100	%			100	%			100	%
Costs and expenses:
Sales and marketing			28				33				27				31				27
Operations and support			23				22				25				23				25
Technology (exclusive of amortization)			9				12				11				10				10
General and administrative			16				15				16				17				14
Depreciation and amortization			7				7				10				7				9
Total costs and expenses(1)			84				89				89				87				86
Income before provision for income taxes			16				11				11				13				14
Provision (benefit) for income taxes			(9	)			1				6				7				8
Net income			25	%			10	%			5	%			6	%			6	%

 

(1)

Totals may not foot due to rounding.

 

Six Months Ended June 30, 2013 and 2014

 

Revenues

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
Revenues		$	52,658			$	118,619				125	%

 

Revenues increased by $66.0 million, or 125%, for the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily related to the inclusion of results from the GrubHub Platform and growth in Active Diners, which increased from 1.2 million to 4.2 million at the end of each period, driving an increase in Daily Average Grubs to 177,800 during the six months ended June 30, 2014 from 83,200 Daily Average Grubs during the same period in 2013. During the six months ended June 30, 2013, there were approximately 1.8 million Active Diners and 46,400 Daily Average Grubs on the GrubHub Platform that would have been included had the Merger been completed as of January 1, 2013. The growth in Active Diners and Daily Average Grubs unrelated to the Merger was due primarily to marketing efforts, investments in our platform to drive more orders and organic growth from word-of-mouth referrals. The implementation, in the quarter ended June 30, 2014, of a new feature on the Seamless Platform that allows restaurants to influence how high they appear in the search results based on their commission rate also contributed to the increase in revenue during the six months ended June 30, 2014 compared to the same period in 2013.

 

Sales and Marketing

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
Sales and marketing		$	16,164			$	32,285				100	%
Percentage of revenues			31	%			27	%

 

Sales and marketing expense increased by $16.1 million, or 100%, for the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily attributable to the inclusion of results from the GrubHub Platform following the Merger Date, expansion of our advertising efforts and growth in our sales and

 

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marketing teams. For the six months ended June 30, 2014 versus the same period in 2013, advertising spending increased by $10.2 million primarily as a result of the inclusion of advertising spending for the GrubHub Platform as well as an increase in the our marketing and advertising efforts. During the same period, the number of sales personnel increased by 152% and the number of marketing personnel increased by 98%, primarily as a result of the addition of sales and marketing personnel from the GrubHub Platform.

 

Operations and Support

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
Operations and support		$	11,975			$	29,841				149	%
Percentage of revenues			23	%			25	%

 

Operations and support expense increased by $17.9 million, or 149%, for the six months ended June 30, 2014 compared to the same period in 2013. This increase was primarily attributable to the inclusion of results from the GrubHub Platform following the date of the Merger, an increase in payment processing costs related to orders and growth in our customer service teams. In addition to the amounts in the table above, during the six months ended June 30, 2013, operations and support expense for the GrubHub Platform was $9.5 million, which would have been included here had the Merger been completed as of January 1, 2013. Payment processing costs increased $7.9 million, or 110%, for the six months ended June 30, 2014 compared to the same period in the prior year due to the 124% growth in Gross Food Sales. During the same period, the number of customer service personnel increased by 317%, primarily as a result of the addition of operations and support personnel from the GrubHub Platform as well as growth to support the increase in orders.

 

Technology (exclusive of amortization)

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
Technology (exclusive of amortization)		$	5,344			$	11,413				114	%
Percentage of revenues			10	%			10	%

 

Technology expense increased by $6.1 million, or 114%, for the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily attributable to the inclusion of technology expense from the GrubHub Platform following the Merger Date and growth in our technology team. During the six months ended June 30, 2014, the number of technology personnel increased by 124% compared to the same period in the prior year, primarily due to the addition of technology personnel from the GrubHub Platform as well as growth to support the development of our platform, including its websites, mobile applications and other products.

 

General and Administrative

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
General and administrative		$	8,712			$	16,944				94	%
Percentage of revenues			17	%			14	%

 

General and administrative expense increased by $8.2 million, or 94%, for the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily attributable to the inclusion of general and administrative expenses from the GrubHub Platform following the Merger Date, costs associated with being

 

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a public company, higher stock-based compensation expense and an increase in other miscellaneous expenses required to support growth in the business, partially offset by lower legal and professional fees relative to expenses incurred in 2013 related to the Merger.

 

Depreciation and Amortization

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
Depreciation and amortization		$	3,673			$	11,130				203	%
Percentage of revenues			7	%			9	%

 

Depreciation and amortization expense increased by $7.5 million, or 203%, for the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily attributable to the amortization of intangible assets acquired in the Merger of $6.0 million for the six months ended June 30, 2014, and increased investment in infrastructure to support our growing business.

 

Provision for Income Taxes

 

		Six Months Ended June 30,								% Change
		2013				2014
(in thousands, except percentages)		(unaudited)
Provision for income taxes		$	3,711			$	9,961				168	%
Percentage of revenues			7	%			8	%

 

Income tax expense increased by $6.3 million for the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily attributable to the increase in income before provision for income taxes due to the factors described above. In addition, we recognized a $2.0 million increase in our deferred tax liabilities during the six months ended June 30, 2014 due to a change in state tax law. Changes in tax laws in other jurisdictions could result in similar adjustments. We have provided income tax expense for the periods presented based on the expected annual effective tax rate.

 

Years Ended December 31, 2011, 2012 and 2013

 

Revenues

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
Revenues		$	60,611			$	82,299				36	%		$	82,299			$	137,143				67	%

 

2012 compared to 2013

 

Revenues increased by $54.8 million, or 67%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily related to the growth in Active Diners, which increased from 1.0 million to 3.4 million at the end of each period, and the inclusion of results from the GrubHub Platform, driving an increase in Daily Average Grubs to 107,900 during the year ended December 31, 2013 from 62,000 Daily Average Grubs during the same period in 2012. $26.3 million of the increase in revenues and 1.9 million of the increase in Active Diners were due to the inclusion of results from the GrubHub Platform following the Merger Date. We believe the growth in Active Diners and Daily Average Grubs unrelated to the Merger was due to our marketing efforts, investments in our platform to drive more orders and organic growth from word-of-mouth referrals.

 

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2011 compared to 2012

 

Revenues increased by $21.7 million, or 36%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily related to the growth in Active Diners, which increased from approximately 689,000 to approximately 986,000 at the end of each year, driving an increase in Daily Average Grubs from approximately 45,700 during 2011 to approximately 62,000 during 2012. These increases were primarily attributable to organic growth and advertising initiatives.

 

Sales and Marketing

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
Sales and marketing		$	17,198			$	26,892				56	%		$	26,892			$	37,347				39	%
Percentage of revenues			28	%			33	%							33	%			27%

 

2012 compared to 2013

 

Sales and marketing expenses increased by $10.5 million, or 39%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily attributable to the inclusion of results from the GrubHub Platform following the Merger Date and growth in our sales and marketing teams. From the year ended December 31, 2012 to the year ended December 31, 2013, advertising spending increased a total of $4.9 million, of which $5.8 million was from the inclusion of advertising spending from the GrubHub Platform offset by a $0.9 million decrease in advertising spent on the Seamless Platform. During the same period, the number of sales personnel increased by 176%, with 94% of the total increase coming from the addition of sales personnel from the GrubHub Platform, and the number of marketing personnel increased by 110%, with 87% of the total increase coming from the addition of marketing personnel from the GrubHub Platform.

 

2011 compared to 2012

 

Sales and marketing expenses increased by $9.7 million, or 56%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to sizeable increases in our marketing team and advertising spending as well as growth in our sales team. During the year ended December 31, 2012, we increased the number of marketing personnel by 24% and total spending on marketing personnel and advertising activities increased from $13.7 million to $22.2 million, or 62%, to drive brand awareness, grow Active Diners and increase order frequency. During 2012, we also increased the size of our sales force by 28% to enhance the quality of the restaurants in our network.

 

Operations and Support

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
Operations and support		$	13,961			$	18,165				30	%		$	18,165			$	34,173				88	%
Percentage of revenues			23	%			22	%							22	%			25	%

 

2012 compared to 2013

 

Operations and support expenses increased by $16.0 million, or 88%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was primarily attributable to the growth in payment processing costs, headcount and related expense and the inclusion of results from the GrubHub Platform following the Merger Date. Payment processing costs increased $9.0 million, or 93%, for the year ended

 

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December 31, 2013 to support the 78% growth in Gross Food Sales. Approximately 38% of the growth in Gross Food Sales was a result of the inclusion of results from the GrubHub Platform following the Merger Date. During the year ended December 31, 2013, headcount and related expenses increased $3.8 million due to the inclusion of operations and support personnel from the GrubHub Platform and $1.3 million as a result of the 29% growth in operations and support personnel on the Seamless Platform.

 

2011 compared to 2012

 

Operations and support expenses increased by $4.2 million, or 30%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to growth in payment processing costs and headcount and related expenses in customer service. During 2012, payment processing costs increased from $6.6 million to $9.7 million, or 45%, due to the 38% increase in Gross Food Sales during the period. During the same period, communications costs increased due to the 36% growth in Daily Average Grubs, and costs to update our restaurant menu database increased due to the growth in our restaurant base. We also increased the number of customer service personnel by 9% to support the growth in Daily Average Grubs and expected future growth of our business.

 

Technology (exclusive of amortization)

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
Technology (exclusive of amortization)		$	5,651			$	10,172				80	%		$	10,172			$	15,357				51	%
Percentage of revenues			9	%			12	%							12	%			11	%

 

2012 compared to 2013

 

Technology expenses increased by $5.2 million, or 51%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily attributable to the inclusion of technology expenses from the GrubHub Platform following the Merger Date of $3.3 million and an increase in headcount and related expenses of $1.9 million as we invested in technology personnel to expand our product offering, and technology-related infrastructure.

 

2011 compared to 2012

 

Technology expenses increased by $4.5 million, or 80%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to an increase in headcount, consulting and related expenses as we invested in technology personnel throughout 2011 to expand our product offering and technology-related infrastructure. The majority of new technology employees were hired in the third quarter of 2011 or later. This hiring disproportionately increased technology expenses in 2012.

 

General and Administrative

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
General and administrative		$	9,777			$	12,249				25	%		$	12,249			$	21,907				79	%
Percentage of revenues			16	%			15	%							15	%			16	%

 

2012 compared to 2013

 

General and administrative expenses increased by $9.7 million, or 79%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily attributable to the inclusion of general and administrative expenses from the GrubHub Platform following the Merger Date of $5.3 million and legal and professional fees of $4.7 million related to the Merger.

 

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2011 compared to 2012

 

General and administrative expenses increased by $2.5 million, or 25%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to an increase in headcount and related expenses and general overhead expenses, including professional fees, to support the growth and expected future growth in our business. During the year ended December 31, 2012, the number of general and administrative employees increased by 13%.

 

Depreciation and Amortization

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
Depreciation and amortization		$	4,033			$	6,089				51	%		$	6,089			$	13,470				121	%
Percentage of revenues			7	%			7	%							7	%			10	%

 

2012 compared to 2013

 

Depreciation and amortization expenses increased by $7.4 million, or 121%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily attributable to amortization of intangible assets resulting from the Merger, which was $4.7 million for the year ended December 31, 2013, and increased investment in infrastructure to support our growing business.

 

2011 compared to 2012

 

Depreciation and amortization increased by $2.1 million, or 51%, during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to amortization of intangible assets resulting from the MenuPages Acquisition (as defined below) and increased investment in infrastructure to support our growing business.

 

Provision (Benefit) for Income Taxes

 

		Year Ended December 31,								% Change				Year Ended December 31,								% Change
		2011				2012								2012				2013
(in thousands, except percentages)
Provision for income taxes		$	(5,220	)		$	813					*		$	813			$	8,142					*
Percentage of revenues			(9	%)			1	%							1	%			6	%

 

*

Not meaningful

 

2012 compared to 2013

 

Income tax expense increased by $7.3 million for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was attributable to the creation of Seamless Holdings, which was taxed as a C-Corporation effective October 28, 2012 for federal and state income tax purposes. Prior to October 28, 2012, the sole legal entity was a limited liability company, which was considered a flow-through entity for both federal and the majority of state income taxes.

 

2011 compared to 2012

 

Income tax expense increased by $6.0 million during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to a reversal of deferred tax liability in the amount of $8.1 million in 2011 associated with the June 2011 sale of preferred stock to SLW Investors, LLC offset by 2011 income tax paid of $2.2 million, which represented the income tax expense from January 1, 2011 through May 31, 2011. For the period from January 1, 2012 through October 27, 2012, the Company was a pass-through entity for income tax purposes.

 

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Quarterly Results of Operations

 

The following table sets forth our unaudited quarterly statements of operations data for each of the ten quarters presented below. The results for the quarters ended September 30, 2013 and December 31, 2013 include the results of the GrubHub Platform after the Merger Date through December 31, 2013. The results for the quarters ended March 31, 2014 and June 30, 2014 include the results of GrubHub Inc., the combined company. In the opinion of management, the data has been prepared on the same basis as the audited financial statements included in this prospectus, and reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations of any future period, particularly as a result of the Merger. You should read this data together with our financial statements and the related notes included elsewhere in this prospectus.

 

		Three Months Ended
		March 31, 2012				June 30, 2012				September 30, 2012				December 31, 2012				March 31, 2013				June 30, 2013				September 30, 2013				December 31, 2013				March 31, 2014				June 30, 2014
(in thousands, except per share data)		(unaudited)
Revenues		$	19,808			$	20,119			$	20,593			$	21,779			$	25,801			$	26,857			$	35,461			$	49,024			$	58,613			$	60,006
Costs and expenses:
Sales and marketing			6,470				6,599				5,645				8,178				10,100				6,064				8,829				12,354				16,117				16,168
Operations and support			4,341				4,436				4,354				5,034				5,977				5,998				9,303				12,895				15,107				14,734
Technology (exclusive of amortization)			2,012				2,703				2,708				2,749				2,647				2,697				4,459				5,554				5,347				6,066
General and administrative			3,244				2,701				3,066				3,238				2,903				5,809				5,884				7,311				8,324				8,620
Depreciation and amortization			1,429				1,512				1,586				1,562				1,796				1,877				3,821				5,976				5,515				5,615
Total costs and expenses			17,496				17,951				17,359				20,761				23,423				22,445				32,296				44,090				50,410				51,203
Income before provision for income taxes			2,312				2,168				3,234				1,018				2,378				4,412				3,165				4,934				8,203				8,803
Provision (Benefit) for income taxes			167				206				140				300				1,122				2,589				1,111				3,320				3,850				6,111
Net income			2,145				1,962				3,094				718				1,256				1,823				2,054				1,614				4,353				2,692
Preferred stock tax distributions			—				(402	)			—				—				—				(648	)			(425	)			—				—				(320	)
Net income attributable to common stockholders		$	2,145			$	1,560			$	3,094			$	718			$	1,256			$	1,175			$	1,629			$	1,614			$	4,353			$	2,372
Net income per share attributable to common stockholders:
Basic		$	0.07			$	0.05			$	0.10			$	0.02			$	0.04			$	0.04			$	0.04			$	0.03			$	0.08			$	0.03
Diluted		$	0.05			$	0.05			$	0.07			$	0.02			$	0.03			$	0.04			$	0.03			$	0.02			$	0.06			$	0.03

 

Our key business metrics are as follows for the periods presented:

 

		Three Months Ended
		March 31, 2012				June 30, 2012				September 30, 2012				December 31, 2012				March 31, 2013				June 30, 2013				September 30, 2013				December 31, 2013				March 31, 2014				June 30, 2014
		(unaudited)
Active Diners(1)			783,000				851,000				912,000				986,000				1,087,000				1,171,000				3,050,000				3,421,000				3,851,000				4,192,000
Daily Average Grubs(2)			60,400				60,300				60,500				66,900				82,700				83,600				111,500				152,900				181,200				174,500
Gross Food Sales (in millions)(3)		$	136.8			$	137.3			$	138.1			$	156.6			$	188.3			$	193.1			$	263.5			$	370.0			$	433.0			$	422.6

 

(1)

We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date.

(2)

We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period.

(3)

We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Because we act as an agent of the merchant in the transaction, we recognize as revenues only our commission from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

Revenues and most key business metrics increased sequentially in the quarters presented. Due to seasonality, which generally drives an increase in diner activity from September to April and a relative decrease in diner activity from May to August, revenue growth was more significant in the fourth and first quarters than it was in the second and third quarters. There was a particularly steep increase in both revenues and expenses in the third and fourth quarters of 2013 because of the inclusion of results from the GrubHub Platform following the Merger.

 

Revenues in the fourth quarter of 2012 were negatively affected by an estimated $0.5 million to $1.0 million as a result of the impact of Superstorm Sandy on New York City area businesses and consumers. Sales and marketing costs were higher in the

 

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fourth quarter of 2012 and first quarter of 2013 due to a significant marketing campaign during these periods. General and administrative costs were higher in the second quarter of 2013 due to $2.9 million in costs related to the Merger.

 

Adjusted EBITDA

 

The following table sets forth our Adjusted EBITDA and a reconciliation to net income for each of the ten quarters presented below. Please refer to “Non-GAAP Financial Measures” in the section titled “Selected Historical Consolidated Financial and Other Data” for more information.

 

		Three Months Ended
(in thousands)		March 31, 2012				June 30, 2012				September 30, 2012				December 31, 2012				March 31, 2013				June 30, 2013				September 30, 2013				December 31, 2013				March 31, 2014				June 30, 2014
		(unaudited)
Net income		$	2,145			$	1,962			$	3,094			$	718			$	1,256			$	1,823			$	2,054			$	1,614			$	4,353			$	2,692
Income taxes			167				206				140				300				1,122				2,589				1,111				3,320				3,850				6,111
Depreciation and amortization			1,429				1,512				1,586				1,562				1,796				1,877				3,821				5,976				5,515				5,615
EBITDA			3,741				3,680				4,820				2,580				4,174				6,289				6,986				10,910				13,718				14,418
Merger and restructuring costs(1)			—				—				—				—				403				2,940				1,324				175				285				207
Stock-based compensation			679				529				552				604				621				617				1,786				1,909				2,403				2,284
Adjusted EBITDA		$	4,420			$	4,209			$	5,372			$	3,184			$	5,198			$	9,846			$	10,096			$	12,994			$	16,406			$	16,909

 

(1)

Merger and restructuring costs include transaction and integration-related costs, such as legal and accounting costs, associated with the Merger and restructuring initiatives.

 

Liquidity and Capital Resources

 

As of June 30, 2014, the Company had cash and cash equivalents of $207.1 million consisting of cash and money market funds. The Company’s primary source of liquidity is cash flows from operations as well as proceeds from the IPO and stock option exercises.

 

In April of 2014, we completed our IPO in which we issued and sold 4,000,000 shares of common stock at a public offering price of $26.00 per share. We 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. The net offering proceeds were invested in non-interest bearing accounts, short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

We believe that our existing cash and cash equivalents will be sufficient to meet our working capital requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors” in this prospectus. If we are unable to obtain needed additional funds, we will have to reduce our operating costs, which would impair our growth prospects and could otherwise negatively impact our business.

 

The following table sets forth certain cash flow information for the periods presented:

 

		Year Ended December 31,												Six Months Ended June 30,
		2011				2012				2013				2013				2014
(in thousands)														(unaudited)
Net cash provided by operating activities		$	32,094			$	29,578			$	40,819			$	19,415			$	30,285
Net cash provided by (used in) investing activities			(36,949	)			10,303				6,245				(4,604	)			(3,490	)
Net cash provided by (used in) financing activities			7,321				(2,218	)			(1,842	)			(1,806	)			93,575

 

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Cash Flows Provided By Operating Activities

 

For the six months ended June 30, 2014, net cash provided by operating activities was $30.3 million compared to $19.4 million for the same period in 2013. The increase in cash flow from operations was driven primarily by changes in deferred taxes of $8.3 million, an increase in non-cash expenses of $7.5 million related to depreciation and amortization, an increase in net income of $4.0 million and an increase of $3.4 million related to stock-based compensation. In addition, during the six months ended June 30, 2014 and 2013, significant changes in our operating assets and liabilities resulted from the following:

 

•

an increase in accounts receivables of $8.7 million due to an increase in amounts owed to us by our payment processors for prepaid orders placed through the platform along with amounts owed by customers of our corporate ordering program for the six months ended June 30, 2014 compared to an increase of $7.1 million for the six months ended June 30, 2013;

 

•

an increase in restaurant food liability of $6.2 million due to the timing of orders and related payments at quarter-end for the six months ended June 30, 2014 compared to an increase of $11.2 million for the six months ended June 30, 2013; and

 

•

an increase in accrued expenses of $4.2 million primarily related to an increase in accrued payroll, accrued advertising costs, and other miscellaneous expenses during the six months ended June 30, 2014 compared to an increase of $5.6 million during the six months ended June 30, 2013.

 

For the year ended December 31, 2013, net cash provided by operating activities was $40.8 million, driven primarily by net income of $6.7 million, non-cash expenses of $13.5 million related to depreciation and amortization and $4.9 million related to stock-based compensation. In addition, during the year ended December 31, 2013, significant changes in our operating assets and liabilities resulted from an increase in our accounts receivables of $8.3 million due to an increase in amounts owed from our payment processors for prepaid orders placed through our platform along with amounts owed from customers of our corporate ordering program and an increase in restaurant food liability of $26.5 million due to an increase in overall Gross Food Sales processed through our platform.

 

For the year ended December 31, 2012, cash provided by operating activities was $29.6 million, primarily resulting from our net income of $7.9 million, non-cash expenses of $6.1 million related to depreciation and amortization and $2.4 million related to stock-based compensation. In addition, significant changes in our operating assets and liabilities resulted from an increase in restaurant food liability of $12.9 million due to an increase in overall Gross Food Sales processed through our platform.

 

For the year ended December 31, 2011, cash provided by operating activities was $32.1 million, primarily resulting from our net income of $15.2 million, an increase in restaurant food liability of $8.5 million, and an increase in amounts due to a related party of $5.2 million, along with non-cash expense of $4.0 million related to depreciation and amortization.

 

Cash Flows Provided By / (Used In) Investing Activities

 

Our primary investing activities during the periods presented included cash paid for acquired companies, the purchase of property and equipment to support our growth in headcount, websites and internal-use software development and the issuance of notes receivable.

 

For the six months ended June 30, 2014, net cash used in investing activities was $3.5 million resulting from purchases of property and equipment of $2.4 million and capitalized website development costs of $1.1 million.

 

For the year ended December 31, 2013, net cash provided by investing activities was $6.2 million. This was the result of $13.3 million of cash acquired upon the Merger, partially offset by the purchase of property and equipment and capitalized website development costs of $7.0 million.

 

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For the year ended December 31, 2012, net cash provided by investing activities was $10.3 million. This was primarily the result of the issuance of a $42.4 million note receivable, partially offset by the subsequent repayment of $26.4 million of the note. In addition, we used $5.7 million for the purchase of property and equipment and capitalized website development.

 

For the year ended December 31, 2011, we used $36.9 million of net cash in investing activities. This was the result of $12.2 million paid for the MenuPages Acquisition, the $16.0 million repayment on an outstanding note receivable and $8.8 million for the purchase of property and equipment and capitalized website and software development costs.

 

Cash Flows Provided By / (Used In) Financing Activities

 

Our financing activities during the periods presented consisted primarily of net proceeds from the issuance of common stock in the IPO as well as proceeds from stock option exercises, amounts paid for preferred stock tax distributions, taxes paid related to net settlements of stock options, repurchases of common stock and the issuance of note receivables to related parties and subsequent cash collection.

 

For the six months ended June 30, 2014, net cash provided by financing activities was $93.6 million primarily resulting from net proceeds from the issuance of common stock for the IPO of $94.9 million.

 

For the year ended December 31, 2013, cash used in financing activities was $1.8 million, which primarily resulted from a $1.9 million dividend payment to stockholders.

 

For the year ended December 31, 2012, cash used in financing activities was $2.2 million, which primarily consisted of a $6.0 million contribution by Aramark to us, offset by a decrease in checks issued in excess of book balances of $3.9 million.

 

For the year ended December 31, 2011, cash provided by financing activities was $7.3 million, which primarily resulted from a $22.5 million contribution by Aramark to us, an increase in checks issued in excess of book balances of $1.6 million, and was offset by $16.7 million paid in distributions to stockholders.

 

Contractual Obligations and Other Commitments

 

We have offices located in Chicago, Illinois, New York, New York and Sandy, Utah. Our office lease for our headquarters expires in 2017. The terms of this lease agreement provide for rental payments that increase on an annual basis. We recognize rent expense on a straight-line basis over the lease period. We do not have any debt or material capital lease obligations, and all of our property, equipment and software have been purchased with cash. We have no material long-term purchase obligations outstanding with any vendors or third parties.

 

Our future minimum payments under non-cancelable operating leases for equipment and office facilities were as follows as of December 31, 2013:

 

		Payments Due by Period
(in thousands)		Less than 1 Year				1 to 3 Years				3 to 5 Years				Total
Operating lease obligations		$	3,737			$	7,247			$	4,689			$	15,673

 

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

 

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Acquisitions

 

The Merger

 

On August 8, 2013, the Company acquired all of the equity interests of each of Seamless North America, LLC, Seamless Holdings and GrubHub Holdings pursuant to that certain Reorganization and Contribution Agreement, dated as of May 19, 2013, by and among the Company, Seamless North America, LLC, Seamless Holdings, GrubHub Holdings and the other parties thereto.

 

The fair value of the equity issued in connection with the Merger was approximately $421.5 million. The value of the equity was determined using the estimated fair value of GrubHub Holdings’ stock on the Merger Date based on a valuation of GrubHub Holdings, conducted by management. Included as part of the $421.5 million is approximately $11.0 million which represents the fair value of the replacement awards that were attributed to the pre-combination service period for GrubHub Holdings option holders. $12.5