GRUBHUB INC. Overview
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is provided to enhance the reader's understanding
of the Company's financial condition, changes in its financial condition and
results of operations from the perspective of management and 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, such as the impact of the COVID-19 pandemic ("COVID-19"), 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, 2020 as compared to the prior year and
non-GAAP financial measures.
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• Liquidity and Capital Resources - an analysis of cash flows, contractual
obligations and commitments, changes in interest rates and fluctuations in
foreign currency and an overview of financial position.
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, judgments and assumptions take into account historical and forward-looking factors that the Company believes are reasonable including, but not limited to, the potential impact arising from the COVID-19 pandemic and measures implemented to prevent its spread. 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 2020, we continued our strong growth trajectory, generating 39% revenue growth and continued growth across all key business metrics as compared to 2019. At the same time, we provided significant support to our restaurant partners in response to the COVID-19 pandemic in the form of reduced commissions and fees and marketing and promotional support. Additionally, we made meaningful progress on our restaurant network and diner loyalty initiatives in 2020, including launching our GH+ subscription program and expanding our network to more than 265,000 partnered restaurants. Compared to 2019, our revenues increased by$507.8 million , or 39%, to$1.8 billion for the year endedDecember 31, 2020 . The increase was primarily related to a 26% increase in Daily Average Grubs and a 16% higher average order size. Daily Average Grubs increased to 622,700 during the year endedDecember 31, 2020 from 492,300 during 2019 driven by improved diner retention and frequency as well as significant growth in Active Diners, which increased from 22.6 million to 31.4 million at the end of each year. The growth in Active Diners and Daily Average Grubs was primarily as a result of increased product and brand awareness by diners largely driven by accelerated adoption of online food ordering as a result of COVID-19, marketing efforts and word-of-mouth referrals, better restaurant choices for diners in our markets and technology and product improvements. The higher average order size was primarily driven by changing diner behavior as a result of COVID-19 including family or group orders. The increase in revenues was partially offset by a 120 basis point decrease in our average revenue capture rate of Gross Food Sales. The decrease in our average revenue capture rate was primarily driven by restaurant support programs including temporary COVID-19 related fee caps, funding coupons and lower restaurant and diner facing fees, which reduced revenue. Our net loss increased by$137.3 million to$155.9 million or$1.69 per diluted share during the year endedDecember 31, 2020 compared to 2019. The increase was primarily driven by significant restaurant support and driver safety spending in response to COVID-19 including reduced commissions and fees, marketing and promotional support and bonuses and personal protective equipment for our drivers. Additionally, compensation expense, payment processing costs and certain other expenses increased as a result of organic growth in the business and order volume. The Company also incurred additional legal settlement costs and merger and restructuring expenses in 2020.
Just Eat Takeaway.com Transaction
OnJune 10, 2020 , the Company entered into a definitive agreement with Just Eat Takeaway.com N.V. ("JET") whereby JET is to acquire 100% of the Company's shares in an all-stock transaction (the "Transaction"). JET, headquartered inAmsterdam , is a leading global online food delivery marketplace. The Transaction represents JET's entry into online food delivery inthe United States . Under the terms of the Transaction,Grubhub shareholders will be entitled to receive American depositary shares representing 0.6710 Just Eat Takeaway.com ordinary shares in exchange for each share ofGrubhub common stock, representing implied value of$75.15 for eachGrubhub share based on JET's then-current stock price at the time the Transaction was announced and implying total 28 -------------------------------------------------------------------------------- equity consideration (on a fully diluted basis) of approximately$7.3 billion . The Transaction is expected to be completed in the first half of 2021 and is subject to certain conditions includingGrubhub shareholder approval and certain customary closing conditions. The Transaction has received all required regulatory clearances and JET shareholders have approved the Transaction. For additional information, see Part II, Item 8, Note 3, Merger Agreement.
Impact of COVID-19
Over the past year, the Company has been monitoring the impact of the COVID-19 pandemic on our business, our industry and the broader economy. The pandemic has had a significant, adverse impact on our restaurant partners, largely due to restrictions on in-restaurant dining, which have contributed to changes in diner behavior. While the Company initially experienced somewhat reduced order volume at the onset of the pandemic during the first quarter of 2020, the Company saw significantly improved trends in subsequent quarters as new diners and new restaurants joined the Platform and existing diners increased ordering as a substitute for in-restaurant dining. These factors contributed to significant increases in Active Diners, Daily Average Grubs and Gross Food Sales on a year-over-year basis. However, the sustainability of our restaurant, driver and diner network remains paramount. Therefore, since the onset of the pandemic, the Company has sought out ways to support its restaurants and drivers, including through investments in programs designed to drive more business to our restaurant partners such as promotions, reduced diner fees and product improvements. We also supported our drivers by investing in personal protection kits and higher pay and bonuses. The Company may continue to invest in such programs while the COVID-19 pandemic persists. In addition, governments in certain of the markets where the Company operates introduced temporary emergency orders or legislation limiting the commission that the Company can charge its restaurant partners during the pandemic in order to aid the restaurant sector. We believe that the Company will emerge from these events well positioned for long-term growth and profitability, however, the Company cannot reasonably estimate the duration or severity of the economic impact to diners and restaurants of the restrictions on daily life to curb the spread of COVID-19, or the ultimate impact on the Company's operations and liquidity. The Company will continue to actively monitor the situation and may take further actions as may be required by federal, state or local or authorities, or that we determine are in the best interests of our network of restaurants, drivers, diners and employees. For further discussion, see Part I, Item 1A, Risk Factors, as well as management's discussion under "Key Business Metrics," "Results of Operations," and "Liquidity and Capital Resources" below.
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 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.
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Our key business metrics are as follows for the periods presented:
Year Ended December 31, % Change
2020 2019 2018 2019 to 2020 2018 to 2019
Active Diners 31,417,000 22,621,000 17,688,000 39 % 28 %
Daily Average Grubs 622,700 492,300 435,900 26 % 13 %
Gross Food Sales (in millions)
47 % 17 %
We experienced growth across all of our key business metrics, Active Diners, Daily Average Grubs and Gross Food Sales, during the periods presented.
2020 compared to 2019
The Company experienced growth across all of its key business metrics during the year endedDecember 31, 2020 as compared to the prior year. This growth was primarily as a result of increased product and brand awareness by diners largely driven by accelerated adoption of online food ordering due to COVID-19, marketing efforts and word-of-mouth referrals, better restaurant choices for diners in our markets and technology and product improvements. COVID-19 impacted all of our key business metrics as a result of changing diner behaviors. Gross Food Sales increased disproportionately to Daily Average Grubs due to higher average order size, which was primarily a result of changing diner behavior as a result of COVID-19. Additionally, the Company's investment in programs to support restaurants during the COVID-19 pandemic including funding coupons, lower diner facing fees and increased advertising during the year endedDecember 31, 2020 drove incremental Daily Average Grubs and Gross Food Sales. For discussion related to 2019 key business metrics compared to 2018, 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, 2019 ("2019 Form 10-K"). Basis of Presentation Revenues 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.
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 generate revenue from fees paid by diners for GH+, our subscription
product. GH+ subscribers receive unlimited deliveries with
We 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.
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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.
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,
2020 2019 2018
% of % of % of
Amount revenue Amount revenue Amount revenue
(in thousands, except percentages)
Revenues $ 1,819,982 100 % $ 1,312,151 100 % $ 1,007,257 100 %
Costs and expenses:
Operations and support 1,169,126 64 % 675,471 51 % 454,321 45 %
Sales and marketing 402,503 22 % 310,299 24 % 214,290 21 %
Technology (exclusive of
amortization) 122,949 7 % 115,297 9 % 82,278 8 %
General and administrative 132,553 7 % 101,918 8 % 85,465 8 %
Depreciation and amortization 141,821 8 % 115,449 9 % 85,940 9 %
Total costs and expenses(a) 1,968,952 108 % 1,318,434 100 % 922,294 92 %
Income (loss) from operations (148,970 ) nm (6,283 ) nm 84,963 8 %
Interest expense - net 27,988 2 % 20,493 2 % 3,530 0 %
Income (loss) before
provision for income taxes (176,958 ) nm (26,776 ) nm 81,433 8 %
Income tax (benefit) expense (21,097 ) nm (8,210 ) nm 2,952 0 %
Net income (loss)
attributable to common
stockholders $ (155,861 ) nm $ (18,566 ) nm $ 78,481 8 %
NON-GAAP FINANCIAL MEASURES:
Adjusted EBITDA(b) $ 109,311 6 % $ 186,150 14 % $ 233,742 23 %
(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.
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-------------------------------------------------------------------------------- The following is a discussion of our results of operations for the year endedDecember 31, 2020 compared to 2019. For a discussion related to results of operations for the year endedDecember 31, 2019 compared to 2018, 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 2019 Form 10-K. Revenues Year Ended December 31, % Change 2020 2019 2018 2019 to 2020 2018 to 2019 (in thousands)
Revenues$ 1,819,982 $ 1,312,151 $ 1,007,257 39 % 30 % 2020 compared to 2019 Revenues increased by$507.8 million , or 39%, for the year endedDecember 31, 2020 compared to 2019. The increase was primarily related to a 26% increase in Daily Average Grubs and a 16% higher average order size. Daily Average Grubs increased to 622,700 during the year endedDecember 31, 2020 from 492,300 during 2019 driven by improved diner retention and frequency as well as significant growth in Active Diners, which increased from 22.6 million to 31.4 million at the end of each year. The growth in Active Diners and Daily Average Grubs was primarily as a result of increased product and brand awareness by diners largely driven by accelerated adoption of online food ordering due to COVID-19, marketing efforts and word-of-mouth referrals, better restaurant choices for diners in our markets and technology and product improvements. The higher average order size was primarily driven by changing diner behavior as a result of COVID-19, including family or group orders. The increase in revenues was partially offset by a 120 basis point decrease in our average revenue capture rate of Gross Food Sales. The decrease in our average revenue capture rate was primarily driven by restaurant support programs, including temporary COVID-19 related fee caps, funding coupons and lower restaurant and diner facing fees which reduced revenue. Operations and Support Year Ended December 31, % Change 2020 2019 2018
2019 to 2020 2018 to 2019
(in thousands, except percentages)
Operations and support $ 1,169,126 $ 675,471 $ 454,321 73 % 49 %
Percentage of revenues 64 % 51 % 45 %
2020 compared to 2019
Operations and support expense increased by $493.7 million , or 73%, for the year
ended December 31, 2020 compared to 2019. This increase was primarily
attributable to an 110% increase in expenses related to delivering orders as
well as expenses incurred to support the 47% growth in Gross Food Sales
including payment processing costs, customer care and operations personnel costs
and other Platform infrastructure expenses. Delivery expenses increased
disproportionally with revenue growth during the year ended December 31, 2020
compared to the prior year due the increase in Grubhub -delivered orders in
proportion to total orders as well as incremental expenses for personal
protection equipment kits, higher pay and bonuses for drivers in response to
COVID-19.
Sales and Marketing
Year Ended December 31, % Change
2020 2019 2018 2019 to 2020 2018 to 2019
(in thousands, except percentages)
Sales and marketing $ 402,503 $ 310,299 $ 214,290 30 % 45 %
Percentage of revenues 22 % 24 % 21 %
2020 compared to 2019
Sales and marketing expense increased by $92.2 million , or 30%, for the year
ended December 31, 2020 compared to 2019. The increase was primarily
attributable to an increase of $70.2 million in our advertising campaigns across
various media channels including incremental spend to support restaurants in
response to COVID-19, as well as an increase in salaries, commissions and
stock-based compensation expense due to a 26% growth in our sales and marketing
teams and the expansion of our restaurant network. Sales and marketing expense
as a percentage of revenue decreased from 24% during the year ended December 31,
2019 to 22% during the same period in 2020.
Technology (exclusive of amortization)
Year Ended December 31, % Change
2019 to
2020 2019 2018 2020 2018 to 2019
(in thousands, except percentages)
Technology (exclusive of
amortization) $ 122,949 $ 115,297 $ 82,278 7 % 40 %
Percentage of revenues 7 % 9 % 8 %
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2020 compared to 2019 Technology expense increased by$7.7 million , or 7%, for the year endedDecember 31, 2020 compared to 2019. The increase was primarily attributable to the 8% growth in our technology team to support the growth and development of our platform. Technology team expenses, including related salaries, stock-based compensation expense, and payroll taxes, increased as a result of organic growth. General and Administrative Year Ended December 31, % Change 2020 2019 2018 2019 to 2020 2018 to 2019 (in thousands, except percentages) General and administrative$ 132,553 $ 101,918 $ 85,465 30 % 19 % Percentage of revenues 7 % 8 % 8 % 2020 compared to 2019 General and administrative expense increased by$30.6 million , or 30%, for the year endedDecember 31, 2020 compared to 2019. The increase was primarily attributable to a$12.5 million legal settlement accrual recorded during the year endedDecember 31, 2020 (see Part II, Item 8, Note 10, Commitments and Contingencies, for additional details), as well as a$9.4 million increase in merger and acquisition expenses primarily related to the Transaction, a$6.9 million increase in restructuring costs primarily related to the closure of certain offices and certain miscellaneous expenses to support the growth of the business.
Depreciation and Amortization
Year Ended December 31, % Change
2020 2019 2018 2019 to 2020 2018 to 2019
(in thousands, except percentages)
Depreciation and amortization
23 % 34 %
Percentage of revenues 8 % 9 % 9 %
2020 compared to 2019
Depreciation and amortization expense increased by $26.4 million , or 23%, for
the year ended December 31, 2020 compared to 2019. The increase was primarily
attributable to the increase in capital spending on internally developed
software, restaurant facing technology and digital assets to support the growth
of the business, partially offset by certain acquired intangible assets becoming
fully amortized.
Interest Expense - net
Year Ended December 31, % Change
2020 2019 2018 2019 to 2020 2018 to 2019
(in thousands, except percentages)
Interest expense-net $ 27,988 $ 20,493 $ 3,530 37 % nm
Percentage of revenues 2 % 2 % 0 %
2020 compared to 2019
Net interest expense increased by $7.5 million for the year ended December 31,
2020 compared to 2019. The increase was primarily attributable to the increase
in the average outstanding borrowings of long-term debt during 2020, primarily
as a result of the issuance of $500.0 million of the Company's 5.500% Senior
Notes in June 2019 and $175.0 million in outstanding revolving loans drawn on
the credit facility in March 2020 and repaid in May 2020 . Additionally, interest
income decreased in the current year as a result of lower interest rates in
2020. The increase was partially offset by the aggregate write-off of $1.9
million of unamortized debt issuance costs during the year ended December 31,
2019 as a result of the extinguishment of the Company's term loan portion of the
credit facility in June 2019 and amendment of its existing credit agreement in
February 2019 .
Income Tax (Benefit) Expense
Year Ended December 31,
2020 2019 2018
(in thousands, except percentages)
Income tax (benefit) expense $ (21,097 ) $ (8,210 ) $ 2,952
Effective income tax rate 12 % 31 % 4 %
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2020 compared to 2019
Income tax benefit increased by$12.9 million to a benefit of$21.1 million for the year endedDecember 31, 2020 compared to 2019. The increase in income tax benefit was primarily due to the increase in loss before provision for income taxes due to the factors described above, a$9.7 million benefit related to net operating losses that can now be carried back as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") enacted inMarch 2020 and a$5.6 million benefit related to foreign tax restructuring. The current year benefit was partially offset by a$46.0 million increase in our valuation allowance recognized during the year endedDecember 31, 2020 . See Part II, Item 8, Note 13, Income Taxes, for additional details. The Company anticipates the potential for increased periodic volatility in future effective tax rates as a result of discrete excess tax benefits (deficiencies) from stock-based compensation.
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 (loss), 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 (loss) 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;
• 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 (loss) 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,
2020 2019 2018
(in thousands)
Net income (loss) $ (155,861 ) $ (18,566 ) $ 78,481
Income taxes (21,097 ) (8,210 ) 2,952
Interest expense, net 27,988 20,493 3,530
Depreciation and amortization 141,821 115,449 85,940
EBITDA (7,149 ) 109,166 170,903
Merger, acquisition, restructuring and certain
legal costs(a) 31,975 4,105 7,578
Stock-based compensation(b) 84,485 72,879 55,261
Adjusted EBITDA $ 109,311 $ 186,150 $ 233,742
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(a) Merger, acquisition and restructuring costs include
transaction and integration-related costs associated with
acquisition and restructuring initiatives. The Company
recorded a $12.5 million in legal settlement costs during the
year ended December 31, 2020 (see Part II, Item 8, Note 10,
Commitments and Contingencies, to the Company's consolidated
financial statements in this Annual Report on Form 10-K for
additional details). Legal costs included above are not
expected to be recurring.
(b) Stock-based compensation for the years ended December 31,
2020 , 2019 and 2018 included $2.1 million , $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, 2020 , cash and cash equivalents of$360.2 million included$9.8 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 13, 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. In addition, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and could negatively affect our liquidity in the future. 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. 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 one 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. However, COVID-19 temporarily, we believe, mitigated the impact of seasonality on our business in 2020, as the dynamics that typically drive seasonal increases in ordering, including more time at home and less in-restaurant dining, were persistent throughout the year. 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 . During the year endedDecember 31, 2020 , the Company paid$27.5 million in interest on its Senior Notes. Future interest payments due on the Senior 35
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Notes through
OnFebruary 6, 2019 , we entered into an amended and restated agreement (the "Credit Agreement") which provides, among other things, for aggregate revolving loans up to$225 million . In addition to the revolving loans available under the Credit Agreement, we may also 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 . OnMay 8, 2020 , we entered into Amendment No. 1 to our Credit Agreement (the "Amendment"). See Part II, Item 8, Note 11, Debt, for additional details including a summary of the Amendment. As ofDecember 31, 2020 , outstanding debt consisted of$500.0 million in Senior Notes. InMarch 2020 , the Company borrowed$175.0 million of revolving loans under the Credit Agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 outbreak. The Company subsequently repaid the borrowings of$175.0 million in revolving loans onMay 5, 2020 . Following the revolving loan repayment, the undrawn portion of the revolving loan under the Credit Agreement of$225.0 million less$6.0 million of outstanding letters of credit issued under the Credit Agreement provided for additional capacity of$219.0 million available to us under the Credit Agreement as ofDecember 31, 2020 that may be used for general corporate purposes. 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, 2020 . 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, however, pursuant to the terms of the Merger Agreement, and subject to certain limited exceptions, we may not repurchase our common stock. 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 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, 2020 , 2019 and 2018 pursuant to the Repurchase Program, and do not expect to repurchase any of our common stock prior to the consummation of the Transaction or earlier termination of the Merger Agreement. 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 . We have offices located inChicago, Illinois ,New York, New York andBoston, Massachusetts , as well as smaller offices throughout theU.S. and inIsrael 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 material finance lease obligations as ofDecember 31, 2020 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. The contractual commitments of our operating leases are associated with agreements that are enforceable and legally binding. As ofDecember 31, 2020 , the total cash payments due under our operating lease obligations over a weighted average remaining lease term of 8.1 years was$148.6 million , which does not include obligations under contracts that we can cancel without a significant penalty or our option to exercise early termination rights or the payment of related early termination fees. Minimum lease payments of$19.8 million are due within twelve months. See Part II, Item 8, Note 10, Commitments and Contingencies, for additional details. We also accrued management bonuses as ofDecember 31, 2020 , included in accrued payroll on the consolidated balance sheets, which were paid in the first quarter of 2021. The following table sets forth certain cash flow information for the periods presented: Year Ended December 31, 2020 2019 2018 (in thousands) Net cash provided by operating activities$ 134,994 $ 182,622 $ 225,527 Net cash used in investing activities (124,747 )
(148,417 ) (594,004 ) Net cash provided by (used in) financing activities (27,271 ) 129,267 346,685
36
-------------------------------------------------------------------------------- The following information discusses our cash flows for the years endedDecember 31, 2020 and 2019. For discussion related to the year endedDecember 31, 2018 , 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 2019 Form 10-K.
Cash Flows Provided by Operating Activities
For the year endedDecember 31, 2020 , net cash provided by operating activities was$135.0 million compared to$182.6 million in 2019. The decrease in cash flows from operations was driven by a$101.1 million decrease in net income excluding non-cash expenses, partially offset by changes in operating assets and liabilities. During the years endedDecember 31, 2020 and 2019, significant changes in our operating assets and liabilities resulted from the following: • an increase in accrued expenses of$91.6 million during the year endedDecember 31, 2020 , primarily related to increases in diner gift card liabilities, accrued advertising costs and taxes payable compared to an increase of$25.2 million during the year endedDecember 31, 2019 ;
• an increase in income tax receivable of
ended
losses, including a
resulting from the CARES Act enacted in
of
• a decrease in accounts receivable of $6.9 million during the year ended
December 31, 2020 compared to an increase of $11.6 million for the year
ended December 31, 2019 primarily due to the timing of the receipt ofprocessor payments to the Company at year-end and a decrease in corporate
receivables as a result of the impact of COVID-19 on corporate ordering;
and
• an increase in prepaid expenses and other assets of
the year ended
sales commissions and prepaid advertising and software services compared
to an increase of
For the year endedDecember 31, 2019 , net cash provided by operating activities was$182.6 million , driven primarily by net income adjusted for non-cash expenses of$170.6 million as well as changes in operating assets and liabilities. Increases in operating cash flows from changes in operating assets and liabilities primarily resulted from an increase in accrued expenses of$25.2 million primarily related to increases in diner gift card liabilities and accrued sales tax, advertising and other operating costs and a decrease in income tax receivable of$6.0 million due to refunds received during the year endedDecember 31, 2019 . These were partially offset by decreases in operating cash flows from changes in operating assets and liabilities primarily resulting from a$13.9 million increase in prepaid expenses and other assets primarily due to an increase in deferred sales commissions and an$11.6 million increase in accounts receivable due to the timing of the receipt of processor payments at year-end.
Cash Flows Used in Investing Activities
Our primary investing activities during the periods presented consisted
primarily of the purchase of property and equipment and the development of the
For the year endedDecember 31, 2020 , net cash used in investing activities was$124.7 million compared to$148.4 million in 2019. The decrease in net cash used in investing activities was primarily due to the$31.1 million increase in proceeds from the maturity of investments, net of purchases, as well as a$9.5 million decrease in acquisitions of other intangible assets. This change was partially offset by an$8.7 million increase in the development of theGrubhub platform and an increase in the purchases of property and equipment of$7.8 million . 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 ofLevelUp 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 2019.
Cash Flows Provided by (Used in) Financing Activities
Our financing activities during the periods presented consisted primarily of the issuance of long-term debt, repayments of borrowings under the Credit Agreement, taxes paid related to the net settlement of stock-based compensation awards and, the issuance of common stock. For the year endedDecember 31, 2020 , net cash used in financing activities was$27.3 million compared to net cash provided by financing activities of$129.3 million for the year endedDecember 31, 2019 . The decrease in net cash provided by financing activities was primarily related to a decrease in the issuance of long-term debt, net of payments, of$157.7 million and an increase in taxes paid related to the net settlement of stock-based compensation awards of$10.9 million , partially offset by a$9.0 million decrease in payments for debt issuance costs. 37 -------------------------------------------------------------------------------- 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 2018, 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 2018.
Acquisitions of Businesses and Other Intangible Assets
There were no acquisitions of businesses during the years ended
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 acquiredLevelUp . We paid an aggregate of$518.5 million in cash to acquireLevelUp andTapingo , net of cash acquired of$7.5 million and non-cash consideration of$3.0 million . See Part II, Item 8, Note 5, Acquisitions, for additional details.
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