GRUBHUB INC. Overview
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere in
this Annual Report on Form 10-K. Unless otherwise stated, the discussion below
primarily reflects the historical condition and results of operations for
Grubhub Inc. for the periods presented and the results of acquired businesses
from the relevant acquisition dates. In addition to historical consolidated
financial information, the following discussion contains forward-looking
statements that reflect the Company's plans, estimates, and beliefs. Actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these differences include
those discussed below and elsewhere in this Annual Report on Form 10-K,
particularly in Part I, Item 1A, "Risk Factors". This overview summarizes the
MD&A, which includes the following sections:
• Our Business -for a general description of our business, strategy,
challenges and products and services see Part I, Item 1, "Business" of
this Annual Report on Form 10-K.
• Significant Accounting Policies and Critical Estimates - for further
discussion of accounting policies that require critical judgments and
estimates see Part II, Item 8, Note 2, Summary of Significant Accounting
Policies, of the accompanying notes to our consolidated financial
statements in this Annual Report on Form 10-K.
• Operations Review - an analysis of our consolidated results of operations
for the year ended December 31, 2019 as compared to the prior year,
pro-forma results of operations and non-GAAP financial measures.
• Liquidity and Capital Resources - an analysis of cash flows, contractual
obligations and commitments, the impact of inflation, changes in interest
rates and fluctuations in foreign currency and an overview of financial
position.
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Significant Accounting Policies and Critical Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe our most critical accounting policies and estimates relate to the following: • Revenue recognition • Website and software development costs
• Valuation and recoverability of intangible assets with finite lives and
other long-lived assets
• Stock-based compensation
• Goodwill
• Income Taxes
For a description of our significant accounting policies including critical
judgments and estimates, see Part II, Item 8, Note 2, Summary of Significant
Accounting Policies, of the accompanying notes to our consolidated financial
statements in this Annual Report on Form 10-K.
Operations Review
Executive Overview
In 2019, we continued our strong growth trajectory, generating 30% revenue growth and continued growth across all key business metrics as compared to 2018. Additionally, we have made meaningful progress on our restaurant network and diner loyalty initiatives in 2019. We have expanded our network to more than 300,000 restaurants and launched a number of new loyalty programs for our restaurant partners. Compared to 2018, our revenues increased by$304.9 million , or 30%, to$1.3 billion for the year endedDecember 31, 2019 . The increase was primarily related to the significant growth in Active Diners, which increased from 17.7 million as ofDecember 31, 2018 to 22.6 million at the end ofDecember 31, 2019 , driving an increase in Daily Average Grubs to 492,300 during the year endedDecember 31, 2019 from 435,900 Daily Average Grubs during 2018. We processed$5.9 billion in Gross Food Sales in 2019, a 17% increase from the$5.1 billion in 2018. The growth in Active Diners and Daily Average Grubs was due to increased product and brand awareness largely as a result of marketing efforts and word-of-mouth referrals, better restaurant choices for diners in our markets, technology and product improvements to drive more orders. In addition, revenue increased during the year endedDecember 31, 2019 compared to 2018 due to an increase in our average commission rates, the full year impact of the LevelUp andTapingo acquisitions and a higher average order size. Net income (loss) decreased by$97.0 million to a loss of$18.6 million or$0.20 per diluted share during the year endedDecember 31, 2019 compared to 2018. The decrease was primarily driven by investments to grow our marketplace, including the expansion of the delivery network and increased marketing to generate organic growth. Additionally, compensation expense, payment processing costs and certain other expenses increased as a result of organic growth in the business and order volume. During the year endedDecember 31, 2019 , we issued$500.0 million in aggregate principal amount of 5.500% senior notes dueJuly 1, 2027 ("Senior Notes"). We used$323.0 million of the net proceeds from the Senior Notes to prepay and extinguish the term loan facility portion of our existing credit facility and$17.3 million to pay down the outstanding balance of the revolving loan under our existing credit facility. We entered into an amended and restated credit agreement onFebruary 6, 2019 which provides for aggregate revolving loans up to$225 million , of which there were no outstanding borrowings as ofDecember 31, 2019 . See Part II, Item 8, Note 10, Debt, for additional details.
Key Business Metrics
To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we review key business metrics which include transactions placed on the Platform where the Company provides marketing services to generate orders. The Platform excludes transactions where the Company exclusively provides technology or fulfillment services. The following key business metrics are reviewed:
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. Diner accounts from which an order has been placed on one of our websites or one of our mobile applications are included in ourActive Diner metrics. Active Diners is an important metric for us because the number of diners 28 -------------------------------------------------------------------------------- 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 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 diner-paid fees processed through our Platform. We include all revenue generating orders placed on our Platform in this metric. 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, revenues are recognized on a net basis for 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, % Change
2019 2018 2017 2018 to 2019 2017 to 2018
Active Diners 22,621,000 17,688,000 14,462,000 28 % 22 %
Daily Average Grubs 492,300 435,900 334,000 13 % 31 %
Gross Food Sales (in millions)
17 % 34 %
We experienced growth across all of our key business metrics, Active Diners, Daily Average Grubs and Gross Food Sales, during the periods presented.
2019 compared to 2018
The Company experienced growth across all of its key business metrics during the year endedDecember 31, 2019 as compared to the prior year. Growth in all metrics was primarily attributable to increased product and brand awareness by diners largely as a result of marketing efforts and word-of-mouth referrals, better restaurant choices for diners in our markets and technology and product improvements. For discussion related to 2018 key business metrics compared to 2017, refer to the section titled "Operations Review" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2018 ("2018 Form 10-K"). Basis of Presentation Revenues OnJanuary 1, 2018 , the Company adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as ofJanuary 1, 2018 . Results for reporting periods beginning on or afterJanuary 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance under ASC Topic 605. The adoption of ASC Topic 606 did not have a material impact on the Company's results of operations, financial position or cash flows. We generate revenues primarily when diners place an order on our Platform through our mobile applications, our websites, or through third-party websites that incorporate our API or one of our listed phone numbers. Restaurant partners pay us a commission, typically a percentage of the transaction on orders that are processed through our Platform. Most of the restaurant partners on our Platform can choose their level of commission rate, at or above the base rate. A restaurant can choose to pay a higher rate which affects its prominence and exposure to diners on the Platform. Additionally, restaurant partners that use our delivery services pay an additional commission for the use of those services. We may also charge fees directly to the diner. For most 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 diner's order net of payment processing fees from the payment processor and remit the net proceeds to the restaurant less commissions and other fees. We generally accumulate funds and remit the net proceeds to the restaurant partners on at least a monthly basis. Non-partnered restaurants are paid at the time of the order. We also deduct commissions for other transactions that go through our platform, such as cash transactions for restaurants in our network, from the aggregate proceeds received. 29
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We periodically provide incentive offers to restaurants and diners to use our Platform. These promotions are generally cash credits to be applied against purchases. These incentive offers are recorded as reductions in revenues, generally on the date the corresponding revenue is recorded.
We also derive some revenues from mobile application development professional services and access to the respective order ahead platforms and related tools and services. 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 website.
We do not anticipate that corporate fees, advertising, professional services or fees to access order ahead platforms and tools will generate a significant portion of our revenues in the foreseeable future.
Costs and Expenses
Operations and Support
Operations and support expenses consist of salaries and benefits, stock-based compensation expense and bonuses for salaried employees and payments to independent contractors engaged in customer care, operations and restaurant delivery services. 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, facilities costs allocated on a headcount basis and other expenses related to operating and maintaining an independent delivery network.
Sales and Marketing
Sales and marketing expenses contain advertising expenses including search engine marketing, television, online display, media and other programs. Sales and marketing expenses also consist of salaries, commissions, benefits, stock-based compensation expense and bonuses for restaurant sales, restaurant sales support, corporate and campus program customer sales and marketing employees, payments to contractors 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 payments to 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 acquired intangibles and depreciation of computer equipment, furniture and fixtures, leasehold improvements and capitalized website and software development costs.
Income Tax (Benefit) Expense
Income tax (benefit) expense consists of federal and state income taxes inthe 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, excess tax benefits or deficiencies from stock-based compensation and net operating loss carryforwards. 30
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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,
2019 2018 2017
% of % of % of
Amount revenue Amount revenue Amount revenue
(in thousands, except percentages)
Revenues $ 1,312,151 100 % $ 1,007,257 100 % $ 683,067 100 %
Costs and expenses:
Operations and support 675,471 51 % 454,321 45 % 269,453 39 %
Sales and marketing 310,299 24 % 214,290 21 % 150,730 22 %
Technology (exclusive of
amortization) 115,297 9 % 82,278 8 % 56,263 8 %
General and administrative 101,918 8 % 85,465 8 % 65,023 10 %
Depreciation and amortization 115,449 9 % 85,940 9 % 51,848 8 %
Total costs and expenses(a) 1,318,434 100 % 922,294 92 % 593,317 87 %
Income (loss) from operations (6,283 ) 0 % 84,963 8 % 89,750 13 %
Interest expense - net 20,493 2 % 3,530 0 % 102 0 %
Income (loss) before provision
for income taxes (26,776 ) 0 % 81,433 8 % 89,648 13 %
Income tax (benefit) expense (8,210 ) (1 %) 2,952
0 % (9,335 ) (1 %)
Net income (loss) attributable
to common stockholders $ (18,566 ) 0 % $ 78,481 8 % $ 98,983 14 %
NON-GAAP FINANCIAL MEASURES:
Adjusted EBITDA(b) $ 186,150 14 % $ 233,742 23 % $ 183,886 27 %
(a) Totals of percentage of revenues may not foot due to rounding
(b) For an explanation of Adjusted EBITDA as a measure of the Company'soperating performance and a reconciliation to net earnings, see "Non-GAAP
Financial Measure-Adjusted EBITDA" below.
The following is a discussion of our results of operations for the year ended
December 31, 2019 compared to 2018. For a discussion related to results of
operations for the year ended December 31, 2018 compared to 2017, refer to the
section titled "Results of Operations" in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
2018 Form 10-K.
Revenues
Year Ended December 31, % Change
2019 2018 2017 2018 to 2019 2017 to 2018
(in thousands)
Revenues $ 1,312,151 $ 1,007,257 $ 683,067 30 % 47 %
2019 compared to 2018
Revenues increased by $304.9 million , or 30%, for the year ended December 31,
2019 compared to 2018. The increase was primarily related to significant growth
in Active Diners, which increased from 17.7 million to 22.6 million at the end
of each year, driving an increase in Daily Average Grubs to 492,300 during the
year ended December 31, 2019 from 435,900 Daily Average Grubs during 2018. The
growth in Active Diners and Daily Average Grubs was due primarily to increased
product and brand awareness largely as a result of marketing efforts and
word-of-mouth referrals, better restaurant choices for diners in our markets,
and technology and product improvements to drive more orders. In addition,
revenue increased during the year ended December 31, 2019 compared to 2018 due
to an increase in our average commission rates as a result of a higher
proportion of orders fulfilled through our delivery services as well as
restaurant partners electing increased prominence on the Platform, the inclusion
of results from acquisitions (see Part II, Item 8, Note 4, Acquisitions to our
consolidated financial statements in this Annual Report on Form 10-K), and
higher average order size.
Operations and Support
Year Ended December 31, % Change
2019 2018 2017 2018 to 2019 2017 to 2018
(in thousands, except percentages)
Operations and support $ 675,471 $ 454,321 $ 269,453 49 % 69 %
Percentage of revenues 51 % 45 % 39 %
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2019 compared to 2018
Operations and support expense increased by$221.2 million , or 49%, for the year endedDecember 31, 2019 compared to 2018. This increase was primarily attributable to expenses incurred to support the 17% growth in Gross Food Sales and the related increase in order volume including expenses related to delivering orders, the inclusion of results from recent acquisitions, payment processing costs and customer care and operations personnel costs. Delivery expenses increased disproportionally with revenue growth during the year endedDecember 31, 2019 compared to the prior year due to organic growth of our delivery orders and the expansion of the delivery network in general. Sales and Marketing Year Ended December 31, % Change 2019 2018 2017 2018 to 2019 2017 to 2018 (in thousands, except percentages) Sales and marketing$ 310,299 $ 214,290 $ 150,730 45 % 42 % Percentage of revenues 24 % 21 % 22 % 2019 compared to 2018 Sales and marketing expense increased by$96.0 million , or 45%, for the year endedDecember 31, 2019 compared to 2018. The increase was primarily attributable to an increase of$66.8 million in our advertising campaigns across various media channels, as well as an increase in salaries, commissions and stock-based compensation expense due to the 38% growth in our sales and marketing teams.
Technology (exclusive of amortization)
Year Ended December 31, % Change
2019 2018 2017 2018 to 2019 2017 to 2018
(in thousands, except percentages)
Technology (exclusive of
amortization) $ 115,297 $ 82,278 $ 56,263 40 % 46 %
Percentage of revenues 9 % 8 % 8 %
2019 compared to 2018
Technology expense increased by $33.0 million , or 40%, for the year ended
December 31, 2019 compared to 2018. The increase was primarily attributable to
the 40% growth in our technology team to support the growth and development of
our platform. Technology team expenses, including related salaries and
stock-based compensation expense, increased as a result of organic growth and
the impact of acquisitions.
General and Administrative
Year Ended December 31, % Change
2019 2018 2017 2018 to 2019 2017 to 2018
(in thousands, except percentages)
General and administrative $ 101,918 $ 85,465 $ 65,023 19 % 31 %
Percentage of revenues 8 % 8 % 10 %
2019 compared to 2018
General and administrative expense increased by $16.5 million , or 19%, for the
year ended December 31, 2019 compared to 2018. The increase was primarily
attributable to the inclusion of results of operations from recent acquisitions
as well an increase in a number of miscellaneous expenses required to support
growth in the business. The increase was partially offset by a decrease in
transaction expenses related to acquisitions incurred during the year ended
December 31, 2018 .
Depreciation and Amortization
Year Ended December 31, % Change
2019 2018 2017 2018 to 2019 2017 to 2018
(in thousands, except percentages)
Depreciation and amortization
34 % 66 %
Percentage of revenues 9 % 9 % 8 %
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2019 compared to 2018
Depreciation and amortization expense increased by$29.5 million , or 34%, for the year endedDecember 31, 2019 compared to 2018. The increase was primarily attributable to the increase in capital spending on internally developed software, restaurant facing technology, office equipment and leasehold improvements to support the growth of our business, as well as amortization of intangible assets acquired in recent acquisitions. The increase was partially offset by certain intangible assets that became fully amortized in 2019. Interest Expense - net Year Ended December 31, % Change 2019 2018 2017 2018 to 2019 2017 to 2018 (in thousands, except percentages) Interest expense - net$ 20,493 $ 3,530 $ 102 nm nm Percentage of revenues 2 % 0 % 0 % 2019 compared to 2018 Net interest expense increased by$17.0 million for the year endedDecember 31, 2019 compared to 2018. The increase was attributable to the increase in outstanding borrowings of long-term debt in the current period primarily as a result of the issuance of$500.0 million of the Company's 5.500% Senior Notes. Interest expense for the year endedDecember 31, 2019 also included the aggregate write-off of$1.9 million of unamortized debt issuance costs as a result of the extinguishment of the Company's term loan portion of the credit facility in June of 2019 and amendment of its existing credit agreement in February of 2019.
Income Tax (Benefit) Expense
Year Ended December 31,
2019 2018 2017
(in thousands, except percentages)
Income tax (benefit) expense $ (8,210 ) $ 2,952 $ (9,335 )
Effective income tax rate 31 % 4 % (10 %)
2019 compared to 2018
Income tax expense decreased by $11.2 million to a benefit of $8.2 million for
the year ended December 31, 2019 compared to 2018. The decrease was primarily
due to the loss before provision for income taxes generated in the year ended
December 31, 2019 due to the factors described above, partially offset by a
$16.0 million decrease in discrete excess tax benefits from stock-based
compensation during the year ended December 31, 2019 as compared to 2018. See
Part II, Item 8, Note 12, Income Taxes, to the Company's consolidated financial
statements in the Annual Report on Form 10-K for further details.
Non-GAAP Financial Measure - Adjusted EBITDA
Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. We define Adjusted EBITDA as net income (loss) adjusted to exclude acquisition and restructuring costs, non-recurring legal costs, income taxes, net interest expense, depreciation and amortization and stock-based compensation expense. A reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. The Company's 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. We have included Adjusted EBITDA in this Annual Report on Form 10-K because it is an important measure upon which management assesses the Company's 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 the Company's 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, in evaluating business opportunities and determining incentive compensation for certain employees. In addition, management believes Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in the 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;
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• Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs; and
• other companies, including companies in the same industry, may calculate
Adjusted EBITDA differently, which reduces its usefulness as a comparative
measure.
In evaluating Adjusted EBITDA, you should be aware that in the future the Company will incur expenses similar to some of the adjustments in this presentation. The presentation of Adjusted EBITDA should not be construed as indicating that our future results will be unaffected by these expenses or by any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and other GAAP results.
The following table sets forth Adjusted EBITDA and a reconciliation to net income (loss) for each of the periods presented below:
Year Ended December 31,
2019 2018 2017
(in thousands)
Net income (loss) $ (18,566 ) $ 78,481 $ 98,983
Income taxes (8,210 ) 2,952 (9,335 )
Interest expense - net 20,493 3,530 102
Depreciation and amortization 115,449 85,940 51,848
EBITDA 109,166 170,903
141,598
Acquisition, restructuring and legal costs(a) 4,105 7,578
9,642
Stock-based compensation(b) 72,879 55,261 32,748 Adjusted EBITDA$ 186,150 $ 233,742 $ 183,988 (a) Acquisition and restructuring costs include transaction and integration-related costs, such as legal and accounting costs, associated with acquisition and restructuring initiatives. Legal costs included above are not expected to be recurring (see Part II, Item 8, Note 9, Commitments and Contingencies, to the Company's consolidated financial statements in this Annual Report on Form 10-K for additional details). (b) Stock-based compensation for the years ended December 31, 2019 and 2018 included$1.6 million and$4.8 million , respectively, of expense related to the accelerated vesting of equity awards to certain terminated acquired employees.
Liquidity and Capital Resources
As of
As ofDecember 31, 2019 , cash and cash equivalents of$375.9 million included$9.7 million held in the accounts of ourU.K. subsidiary,Seamless Europe, Ltd. We plan to repatriate the cash from ourU.K. subsidiary to theU.S. in the future and we estimate no additional tax liability as there are no applicable withholding taxes for the repatriation of unremitted earnings of ourU.K. subsidiary (see Part II, Item 8, Note 12, Income Taxes, for additional details). Amounts deposited with third-party financial institutions exceedFederal Deposit Insurance Corporation andSecurities Investor Protection insurance limits, as applicable. These cash, cash equivalents and short-term investments balances could be affected if the underlying financial institutions fail or if there are other adverse conditions in the financial markets. We have not experienced any loss or lack of access to our invested cash, cash equivalents or short-term investments; however, such access could be adversely impacted by conditions in the financial markets in the future. We believe that our existing cash, cash equivalents, short term investments and borrowings available under the credit facility 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 currently expected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K. If we are unable to obtain needed additional funds, we will have to reduce operating costs, which could impair our growth prospects and could otherwise negatively impact our business. 34 -------------------------------------------------------------------------------- For most orders, diners use a credit card to pay for their meal when the order is placed. For these transactions, we collect the total amount of the diner's order net of payment processing fees from the payment processor and remit the net proceeds to the restaurant less commission and other fees. Outstanding credit card receivables are generally settled with the payment processors within two to four business days. We generally accumulate funds and remit the net proceeds to the restaurant partners on at least a monthly basis. Restaurant partners have different contractual arrangements with us regarding payment frequency. They may be paid bi-weekly, weekly, monthly or, in some cases, more frequently when requested by the restaurant. We generally hold accumulated funds prior to remittance to the restaurants in a non-interest bearing operating bank account that is used to fund daily operations, including the liability to the restaurants. However, the Company is not restricted from earning investment income on these funds under its restaurant contract terms and has made short term investments of proceeds in excess of our restaurant liability as described above. Non-partnered restaurants are paid at the time of the order. Seasonal fluctuations in our business may also affect the timing of cash flows. In 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. These changes in diner activity and order volume have a direct impact on operating cash flows. While we expect this seasonal cash flow pattern to continue, changes in our business model could affect the timing or seasonal nature of our cash flows. OnJune 10, 2019 , our wholly-owned subsidiary,Grubhub Holdings Inc. , issued$500.0 million in aggregate principal amount of 5.500% senior notes dueJuly 1, 2027 ("Senior Notes"). Interest is payable on the Senior Notes semi-annually on January and July of each year, beginning onJanuary 1, 2020 . The first interest payment of$15.4 million was made inDecember 2019 . The net proceeds from the sale of the Senior Notes were$494.4 million after deducting the initial purchasers' discount and offering expenses. We used$323.0 million of the proceeds from the Senior Notes offering to prepay and extinguish the term loan facility portion of our existing credit facility and$17.3 million to pay down the outstanding balance of the revolving loan under the existing credit facility. The remaining proceeds will be used for general corporate purposes. The Senior Notes are guaranteed on a senior unsecured basis by the Company and each of our existing and future wholly owned domestic restricted subsidiaries that guarantees the credit facility or that guarantees certain of our other indebtedness or indebtedness of a guarantor. We have the option to redeem all or a portion of the Senior Notes at various redemption or make-whole prices per the terms of indenture pursuant to which the Senior Notes were issued. In addition, we will be obligated to make an offer to repurchase the Senior Notes upon the occurrence of a Change of Control Triggering Event (as defined in the indenture). See Note 10, Debt, for additional details. OnFebruary 6, 2019 , we entered into an amended and restated agreement which provides, among other things, for aggregate revolving loans up to$225 million and provided for term loans in an aggregate principal amount of$325 million (the "Credit Agreement"). The$325 million term loan portion of the Credit Agreement was extinguished onJune 10, 2019 . In addition to the$225 million aggregate undrawn revolving loans under the Credit Agreement as ofDecember 31, 2019 , we may incur up to$250 million of incremental revolving or term loans pursuant to the terms and conditions of the Credit Agreement. The credit facility under the Credit Agreement will be available untilFebruary 5, 2024 . The Credit Agreement amended and restated our prior$350 million credit facility, which was due to expire onOctober 9, 2022 (the "Previous Credit Agreement"). See Part II, Item 8, Note 10, Debt, for additional details. During the year endedDecember 31, 2019 , proceeds from the sale of the Senior Notes and cash on hand were used to pay down the principal balance outstanding under the Credit Agreement of$342.3 million . As ofDecember 31, 2019 , outstanding debt consisted of$500.0 million in Senior Notes and there were no outstanding borrowings under the Credit Agreement. The undrawn portion of the revolving loan under the Credit Agreement of$225.0 million less$5.5 million of outstanding letters of credit issued under the Credit Agreement provided for additional capacity of$219.5 million available to us under the Credit Agreement as ofDecember 31, 2019 that may be used for general corporate purposes, including funding working capital and future acquisitions. The agreements governing our senior debt contain customary covenants that, among other things, may restrict our ability and the ability of certain of our subsidiaries to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, create liens, transfer and sell material assets and merge or consolidate. In addition, our Credit Agreement requires us to satisfy certain financial covenants. These covenants are subject to a number of important exceptions and qualifications and also include customary events of default. Non-compliance with one or more of the covenants and restrictions could result in any amounts outstanding under our debt facilities becoming immediately due and payable. We were in compliance with the financial covenants of our debt facilities as ofDecember 31, 2019 . We expect to remain in compliance for the foreseeable future. OnJanuary 22, 2016 , our Board of Directors approved a program (the "Repurchase Program") that authorizes the repurchase of up to$100 million of our common stock exclusive of any fees, commissions or other expenses relating to such repurchases through open market purchases or privately negotiated transactions at the prevailing market price at the time of purchase. The Repurchase Program was announced onJanuary 25, 2016 . Repurchased stock may be retired or held as treasury shares. The repurchase authorizations do not obligate us to acquire any particular amount of common stock or adopt any particular method of repurchase and may be modified, suspended or terminated at any time at management's discretion. Repurchased and retired shares will result in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and 35
-------------------------------------------------------------------------------- diluted net income per share at the time of the transaction. We did not repurchase any of our common stock during the years endedDecember 31, 2019 , 2018 and 2017. Since inception of the program, we repurchased and retired 724,473 shares of our common stock at a weighted-average share price of$20.37 , or an aggregate of$14.8 million . The following table sets forth certain cash flow information for the periods presented: Year Ended December 31, 2019 2018 2017 (in thousands) Net cash provided by operating activities$ 182,622 $ 225,527 $ 154,144 Net cash used in investing activities (148,417 ) (594,004 ) (336,962 ) Net cash provided by financing activities 129,267 346,685 178,059 The following information discusses our cash flows for the years endedDecember 31, 2019 and 2018. For discussion related to the year endedDecember 31, 2017 , refer to the section titled "Liquidity and Capital Resources" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2018 Form 10-K.
Cash Flows Provided by Operating Activities
For the year endedDecember 31, 2019 , net cash provided by operating activities was$182.6 million compared to$225.5 million in 2018. The decrease in cash flows from operations was driven primarily by a decrease in net income of$97.0 million , partially offset by a$40.7 million increase in non-cash expenses and changes in operating assets and liabilities. The increase in non-cash expenses primarily related to increases in depreciation and amortization of$29.5 million and stock-based compensation of$17.6 million , partially offset by a decrease in deferred taxes of$9.5 million . Additionally, during the years endedDecember 31, 2019 and 2018, significant changes in our operating assets and liabilities, net of effects of business acquisitions, resulted from the following:
• an increase in accrued expenses of
liabilities and accrued sales tax, advertising and other operating costs,
compared to an increase of
2018;
• a decrease in income tax receivable of
received during the year ended
of
• an increase in accounts receivable of
December 31, 2019 compared to an increase of$6.1 million for the year endedDecember 31, 2018 primarily due to the timing of the receipt of processor payments at year-end; and
• an increase in accounts payable of
ended
For the year endedDecember 31, 2018 , net cash provided by operating activities was$225.5 million , driven primarily by net income adjusted for non-cash expenses of$227.0 million . Decreases in operating cash flows from changes in operating assets and liabilities primarily resulted from an increase in prepaid expenses and other assets of$16.3 million primarily related to the deferral of contract acquisition costs and an increase in prepaid advertising and software services, and an increase in accounts receivable of$6.1 million due to the timing of the receipt of processor payments at year-end. These were largely offset by increases in operating cash flows from changes in operating assets and liabilities primarily resulting from an increase in accounts payable of$11.2 million due to the timing of payments and an increase in bills payable to support growth of the business and an increase in accrued expenses of$8.2 million primarily related to an increase in accrued credit card processing fees and payroll costs.
Cash Flows Used in Investing Activities
Our primary investing activities during the periods presented consisted
primarily of acquisitions of businesses and other intangible assets, the
purchase of property and equipment and the development of the
For the year endedDecember 31, 2019 , net cash used in investing activities was$148.4 million compared to$594.0 million in 2018. The decrease in net cash used in investing activities was primarily due to the acquisitions of LevelUp andTapingo of$518.0 million during the year endedDecember 31, 2018 . The decrease was partially offset by an increase in purchases of investments of$28.8 million , an increase in the development of theGrubhub platform of$17.3 million , a decrease in proceeds from the maturity of investments of$15.8 million , and an increase in the purchases of property and equipment of$12.1 million in the current year. For the year endedDecember 31, 2018 , net cash used in investing activities was$594.0 million compared to$337.0 million in 2017. The increase in net cash used in investing activities was primarily due to an increase in acquisitions of businesses of$184.6 million , a decrease in proceeds from maturity of investments of$148.8 million and an increase in purchases of property and 36
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equipment of
Cash Flows Provided by Financing Activities
Our financing activities during the periods presented consisted primarily of proceeds from the issuance of long-term debt, proceeds from the issuance of common stock, repayments of borrowings under the Credit Agreement, and taxes paid related to the net settlement of stock-based compensation awards. For the year endedDecember 31, 2019 , net cash provided by financing activities was$129.3 million compared to$346.7 million for the year endedDecember 31, 2018 . The decrease in net cash provided by financing activities was primarily related to the issuance of common stock of$200.0 million in the prior year, an increase in repayments of long-term debt, net of proceeds, of$10.4 million , a decrease in proceeds from exercises of stock options of$9.7 million and debt issuance costs of$9.1 million in 2019, partially offset by a decrease in taxes paid related to the net settlement of stock-based compensation awards of$11.8 million as compared to the prior year. For the year endedDecember 31, 2018 , net cash provided by financing activities was$346.7 million compared to$178.1 million for the year endedDecember 31, 2017 . The increase in net cash provided by financing activities was primarily related to$200.0 million in proceeds received from the issuance of our common stock toYum Restaurant Services Group, LLC (see Part II, Item 8, Note 13, Stockholders' Equity) and$22.0 million in additional proceeds received from borrowings under the credit facility in 2018. These increases were partially offset by the increase in repayments of borrowings under the credit facility of$28.1 million during the year endedDecember 31, 2018 and an increase of$25.0 million in taxes paid related to the net share settlement of stock-based compensation awards compared to 2017.
Contractual Obligations and Other Commitments
We have offices located inChicago, Illinois ,New York, New York andBoston, Massachusetts , as well as smaller offices throughout theU.S. and in theU.K. andIsrael as a result of both recent acquisitions and organic growth, with various lease terms throughMay 2030 . The office lease for our headquarters inChicago, Illinois expires inMarch 2028 . The terms of the lease agreements 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 finance lease obligations as ofDecember 31, 2019 and all of our material 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 debt and interest payments and future operating lease obligations for office
facilities were as follows as of
As of December 31, 2019
Less than 1 More than 5
year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Years Total
(in thousands)
Debt(a) $ - $ - $ - $ - $ - $ 500,000 $ 500,000
Interest due on debt(a) 13,750 27,500 27,500 27,500 27,500 82,500 206,250
Operating lease obligations(b) 10,185 19,184 17,205 17,295 16,355 72,304 152,528
Total $ 23,935 $ 46,684 $ 44,705 $ 44,795 $ 43,855 $ 654,804 $ 858,778 (a) Debt payments include the maturity of the Senior Notes in
due on debt includes scheduled semi-annual interest payments for the Senior
Notes at a 5.500% interest rate. The initial interest payment due in January
2020 of
10, Debt, for details of the Senior Notes issued on
no outstanding borrowings under the Company's Credit Agreement as of December
31, 2019.
(b) The contractual commitment amounts under operating leases 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. The table above does not reflect our
option to exercise early termination rights or the payment of related early
termination fees.
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We also have accrued management bonuses as ofDecember 31, 2019 , included in accrued payroll on the consolidated balance sheets, which are expected to be paid in the first quarter of 2020. 37
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Acquisitions of Businesses and Other Intangible Assets
The Company paid$10.0 million in cash for the acquisition of certain restaurant and diner network assets during the year endedDecember 31, 2019 . In October of 2018, we completed the acquisition of substantially all of the restaurant and diner network assets of OrderUp for$18.5 million , of which$11.8 million was paid in cash at closing,$6.4 million was paid in 2019 and the remaining$0.3 million was paid in the first quarter of 2020. OnNovember 7, 2018 , we acquiredTapingo and onSeptember 13, 2018 , we acquired LevelUp. We paid an aggregate of$518.5 million in cash to acquire LevelUp andTapingo , net of cash acquired of$7.5 million and non-cash consideration of$3.0 million . See Part II, Item 8, Note 4, Acquisitions, for additional details. OnOctober 10, 2017 , we acquired all of the issued and outstanding equity interests of Eat24. OnAugust 23, 2017 , we acquired substantially all of the assets and certain expressly specified liabilities of Foodler. We paid an aggregate of$332.6 million in cash to acquire Eat24 and Foodler, net of cash acquired of$0.1 million and non-cash consideration of$0.3 million .
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