UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-36269

	Care.com, Inc.
(Exact name of registrant as specified in its charter)

Delaware	20-578-5879
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
77 Fourth Avenue, Fifth Floor Waltham, MA	02451
(Address of principal executive offices)	(Zip Code)

(781) 642-5900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, par value $0.001	CRCM	The New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [x]    No  [ ]

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  [x ]    No  [ ]

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

Large accelerated filer	[ ]		Accelerated filer	[x]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[ ]
			Emerging growth company	[x]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]

As of November 1, 2019, there were 33,128,379 shares of the registrant's common stock, $0.001 par value, outstanding.

CARE.COM, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 29, 2018	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and September 29, 2018	5
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2019 and September 29, 2018	6
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the Three Months Ended September 30, 2019 and September 29, 2018, the Three Months Ended June 29, 2019 and June 30, 2018 and the Three Months Ended March 30, 2019 and March 31, 2018	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and September 29, 2018	11
	Notes to Condensed Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 6.	Exhibits	68
Signatures		70

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The following cautionary statements are being made pursuant to the PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions thereof. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “could,” “expects,” “may,” “likely,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “probable,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things: our results of operations, financial condition, liquidity and prospects; our revenue, expenses, adjusted EBITDA and other financial metrics; the industries in which we and our partners operate; industry, geographic and demographic trends; our market and leadership position; performance and growth factors; demand for services; seasonality; our competitive strengths and differentiators; our growth strategies and opportunities for expansion, investment, acquisitions and integration; our marketing strategies; our intellectual property; regulatory compliance; changes in headcount; our employee and labor relationships; investments in existing or new lines of business; our ability to attract new members and retain existing members; revenue from our paying members; our ability to attract and retain key employees; our dividend policy; the position of our brand; our investments in our business, including marketing and safety; the outcome of litigation and legal matters and proceedings; depreciation and amortization expense, cash flow and use of cash; our operating and capital expenditures; exchange rates; the impact of the Tax Cuts and Jobs Act of 2017 and adjustments, tax benefits, tax rates, tax audits and settlements; and the impact of new accounting pronouncements.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described under “Risk Factors” and elsewhere in this Quarterly Report and in our other public filings with the Securities and Exchange Commission.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by law.

1

PART I

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CARE.COM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

See accompanying notes to the condensed consolidated financial statements

2

	September 30, 2019			December 29, 2018
Assets
Current assets:
Cash and cash equivalents	$	94,560		$	92,432
Short-term investments	35,000			35,099
Accounts receivable (net of allowance of $100 and $100, respectively) (1)	6,488			4,663
Unbilled accounts receivable (2)	6,684			6,394
Prepaid expenses and other current assets	7,389			7,223
Total current assets	150,121			145,811
Property and equipment, net	3,336			3,423
Intangible assets, net	3,249			4,061
Goodwill	67,321			68,176
Other non-current assets	3,129			2,859
Operating lease right of use assets, net	23,525			—
Deferred tax assets	—			43,737
Total assets	$	250,681		$	268,067
Liabilities, redeemable convertible preferred stock, and stockholders' equity
Current liabilities:
Accounts payable (3)	$	2,277		$	3,437
Accrued expenses and other current liabilities (4)	25,176			20,463
Current contingent acquisition consideration	1,000			1,527
Deferred revenue (5)	24,459			20,176
Current operating lease liabilities	5,587			—
Total current liabilities	58,499			45,603
Non-current contingent acquisition consideration	—			438
Deferred tax liability	1,835			—
Other non-current liabilities	3,568			6,806
Non-current operating lease liabilities	24,619			—
Total liabilities	88,521			52,847
Contingencies (see Note 6)	—			—
Series A Redeemable Convertible Preferred Stock, $0.001 par value - 46 shares designated; 46 shares issued and outstanding at September 30, 2019 and December 29, 2018; at aggregate liquidation and redemption value at September 30, 2019 and December 29, 2018, respectively	55,199			53,007
Stockholders' equity
Preferred Stock: $0.001 par value - authorized 5,000 shares at September 30, 2019 and December 29, 2018, respectively	—			—
Common stock, $0.001 par value; 300,000 shares authorized; 33,082 and 32,057 shares issued and outstanding at September 30, 2019 and December 29, 2018, respectively	33			32
Additional paid-in capital	299,679			286,295
Accumulated deficit	(192,191		)	(124,122		)
Accumulated other comprehensive (loss) income	(560		)	8
Total stockholders' equity	106,961			162,213
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	250,681		$	268,067

⁽¹⁾ Includes accounts receivable due from related party of $231 and $421 at September 30, 2019 and December 29, 2018, respectively. (Note 14)

See accompanying notes to the condensed consolidated financial statements

3

⁽²⁾ Includes unbilled accounts receivable due from related party of $610 and $680 at September 30, 2019 and December 29, 2018, respectively. (Note 14)

⁽³⁾ Includes accounts payable due to related party of $0 and $530 at September 30, 2019 and December 29, 2018, respectively. (Note 14)

⁽⁴⁾ Includes accrued expenses and other current liabilities due to related party of $1,352 and $403 at September 30, 2019 and December 29, 2018, respectively. (Note 14)

⁽⁵⁾ Includes deferred revenue associated with related party of $57 and $1 at September 30, 2019 and December 29, 2018, respectively. (Note 14)

See accompanying notes to the condensed consolidated financial statements

4

CARE.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 29, 2018			September 30, 2019			September 29, 2018
Revenue (1)	$	53,285		$	49,160		$	157,599		$	142,451
Cost of revenue	15,598			11,532			43,050			30,798
Operating expenses:
Selling and marketing (2)	17,732			16,439			53,287			49,197
Research and development	8,417			8,860			36,563			25,640
General and administrative	13,281			10,987			35,604			33,047
Depreciation and amortization	478			416			1,408			1,245
Goodwill and intangible asset impairment charge	—			—			8,183			—
Restructuring and right of use asset impairment charges	(134		)	89			2,855			568
Total operating expenses	39,774			36,791			137,900			109,697
Operating (loss) income	(2,087		)	837			(23,351		)	1,956
Other (expense) income, net	(222		)	38			454			(168		)
(Loss) income before income taxes	(2,309		)	875			(22,897		)	1,788
(Benefit from) provision for income taxes	(73		)	(977		)	45,172			(2,592		)
Net (loss) income	(2,236		)	1,852			(68,069		)	4,380
Accretion of Series A Redeemable Convertible Preferred Stock dividends	(773		)	(718		)	(2,192		)	(2,063		)
Net (income) attributable to Series A Redeemable Convertible Preferred Stock	—			(155		)	—			(321		)
Net (loss) income attributable to common stockholders	$	(3,009	)	$	979		$	(70,261	)	$	1,996
Net (loss) income per share attributable to common stockholders (Basic):	$	(0.09	)	$	0.03		$	(2.16	)	$	0.06
Net (loss) income per share attributable to common stockholders (Diluted):	$	(0.09	)	$	0.03		$	(2.16	)	$	0.06
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
Basic	32,863			31,356			32,539			30,980
Diluted	32,863			33,880			32,539			33,633

⁽¹⁾ Includes related party revenue of $937 and $819 for the three months ended September 30, 2019 and September 29, 2018, respectively. Includes related party revenue of $2,759 and $2,161 for the nine months ended September 30, 2019 and September 29, 2018, respectively. (Note 14)

⁽²⁾ Includes related party expenses of $3,482 and $2,912 for the three months ended September 30, 2019 and September 29, 2018, respectively. Includes related party expenses of $9,946 and $8,565 for the nine months ended September 30, 2019 and September 29, 2018, respectively. (Note 14)

See accompanying notes to the condensed consolidated financial statements

5

CARE.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2019			September 29, 2018		September 30, 2019			September 29, 2018
Net (loss) income	$	(2,236	)	$	1,852	$	(68,069	)	$	4,380
Other comprehensive loss:
Foreign currency translation adjustments	(505		)	14		(568		)	(236		)
Comprehensive (loss) income	$	(2,741	)	$	1,866	$	(68,637	)	$	4,144

See accompanying notes to the condensed consolidated financial statements

6

CARE.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(in thousands, except per share data)

(unaudited)

	Redeemable Convertible Preferred Stock			Stockholders' Equity
				Common Stock			Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Number of Shares	Amount		Number of Shares	$0.001 Par Value					Accumulated Deficit
Balance at December 30, 2017	46	$	50,259	30,390	$	30	$	266,030		$	(177,145	)	$	546		$	89,461
Cumulative effect of ASC 606 adoption	—	—		—	—		—			133			—			133
Exercises of stock options	—	—		228	1		1,252			—			—			1,253
Issuance of restricted stock units	—	—		215	—		—			—			—			—
Stock-based compensation	—	—		—	—		3,712			—			—			3,712
Accretion of Series A Redeemable Convertible Preferred Stock dividends	—	680		—	—		(680		)	—			—			(680		)
Foreign currency translation adjustment	—	—		—	—		—			—			200			200
Net income	—	—		—	—		—			2,697			—			2,697
Balance at March 31, 2018	46	50,939		30,833	31		270,314			(174,315		)	746			96,776
Exercises of stock options	—	—		249	—		1,943			—			—			1,943
Issuance of restricted stock units	—	—		157	—		—			—			—			—
Stock-based compensation	—	—		—	—		4,988			—			—			4,988
Accretion of Series A Redeemable Convertible Preferred Stock dividends	—	665		—	—		(665		)	—			—			(665		)
Foreign currency translation adjustment	—	—		—	—		—			—			(450		)	(450		)
Net loss	—	—		—	—		—			(169		)	—			(169		)
Balance as of June 30, 2018	46	$	51,604	31,239	$	31	$	276,580		$	(174,484	)	$	296		$	102,423
Exercises of stock options	—	—		190	—		1,551			—			—			1,551
Issuance of restricted stock units	—	—		215	1		—			—			—			1
Stock-based compensation	—	—		—	—		4,281			—			—			4,281

See accompanying notes to the condensed consolidated financial statements

7

Accretion of Series A Redeemable Convertible Preferred Stock dividends	—	718		—	—		(718		)	—			—		(718		)
Foreign currency translation adjustment	—	—		—	—		—			—			14		14
Net income	—	—		—	—		—			1,852			—		1,852
Balance as of September 29, 2018	46	$	52,322	31,644	$	32	$	281,694		$	(172,632	)	$	310	$	109,404

See accompanying notes to the condensed consolidated financial statements

8

	Redeemable Convertible Preferred Stock			Stockholders' Equity
				Common Stock			Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Number of Shares	Amount		Number of Shares	$0.001 Par Value					Accumulated Deficit
Balance at December 29, 2018	46	$	53,007	32,057	$	32	$	286,295		$	(124,122	)	$	8		$	162,213
Exercises of stock options	—	—		168	—		1,267			—			—			1,267
Issuance of restricted stock units	—	—		201	—		—			—			—			—
Stock-based compensation	—	—		—	—		4,054			—			—			4,054
Accretion of Series A Redeemable Convertible Preferred Stock dividends	—	718		—	—		(718		)	—			—			(718		)
Foreign currency translation adjustment	—	—		—	—		—			—			(266		)	(266		)
Net loss				—	—		—			(1,028		)	—			(1,028		)
Balance at March 30, 2019	46	53,725		32,426	32		290,898			(125,150		)	(258		)	165,522
Exercises of stock options	—	—		124	—		420			—			—			420
Issuance of restricted stock units	—	—		189	1		—			—			—			1
Stock-based compensation	—	—		—	—		7,282			—			—			7,282
Accretion of Series A Redeemable Convertible Preferred Stock dividends	—	701		—	—		(701		)	—			—			(701		)
Foreign currency translation adjustment	—	—		—	—		—			—			203			203
Net loss	—	—		—	—		—			(64,805		)	—			(64,805		)
Balance at June 29, 2019	46	54,426		32,739	33		297,899			(189,955		)	(55		)	107,922
Exercises of stock options	—	—		6	—		46			—			—			46
Issuance of restricted stock units	—	—		337	—		—			—			—			—
Stock-based compensation	—	—		—	—		2,507			—			—			2,507
Accretion of Series A Redeemable Convertible Preferred Stock dividends	—	773		—	—		(773		)	—			—			(773		)
Foreign currency translation adjustment	—	—		—	—		—			—			(505		)	(505		)
Net loss	—	—		—	—		—			(2,236		)	—			(2,236		)
Balance as of September 30, 2019	46	$	55,199	33,082	$	33	$	299,679		$	(192,191	)	$	(560	)	$	106,961

See accompanying notes to the condensed consolidated financial statements

9

See accompanying notes to the condensed consolidated financial statements

10

CARE.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	September 30, 2019			September 29, 2018
Cash flows from operating activities
Net (loss) income	$	(68,069	)	$	4,380
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Stock-based compensation	13,843			12,981
Depreciation and amortization	2,150			1,527
Deferred income taxes	44,750			(2,712		)
Contingent consideration expense	—			29
Change in fair value of contingent consideration	669			257
Loss on impairment of goodwill and intangible assets	8,183			142
Foreign currency remeasurement loss	545			606
Disposal of fixed assets	525			—
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	(1,867		)	497
Unbilled accounts receivable	(303		)	(625		)
Prepaid expenses and other current assets	(1,856		)	(1,630		)
Other non-current assets	(27		)	(693		)
Operating lease right of use assets and liabilities	(208		)	—
Accounts payable	(1,150		)	(678		)
Accrued expenses and other current liabilities	5,420			4,677
Deferred revenue	4,376			3,645
Payments of contingent consideration in excess of acquisition date fair value	(521		)	—
Other non-current liabilities	2,894			1,330
Net cash provided by operating activities	9,354			23,733
Cash flows from investing activities
Purchases of property and equipment; and software	(1,606		)	(564		)
Payments for acquisitions, net of cash acquired	(7,472		)	(9,818		)
Purchase of short-term investment	(50,000		)	(35,099		)
Sale of short-term investment	50,099			15,000
Other	(84		)	—
Net cash used in investing activities	(9,063		)	(30,481		)
Cash flows from financing activities
Proceeds from exercise of common stock options	1,791			4,693
Payments of contingent consideration	(1,112		)	—
Net cash provided by financing activities	679			4,693
Effect of exchange rate changes on cash and cash equivalents	(269		)	(282		)
Net (decrease) increase in cash and cash equivalents and restricted cash	701			(2,337		)

See accompanying notes to the condensed consolidated financial statements

11

Cash and cash equivalents and restricted cash, beginning of the period	95,284		89,024
Cash and cash equivalents and restricted cash, end of the period	$	95,985	$	86,687
Cash and cash equivalents, end of the period	94,560		84,573
Restricted Cash (1)	1,425		2,114
Cash and cash equivalents and restricted cash, end of the period	$	95,985	$	86,687
Supplemental disclosure of cash flow activities
Cash paid for taxes	$	427	$	483
Supplemental disclosure of non-cash operating, investing and financing activities
Unpaid purchases of property and equipment	$	—	$	297
Series A Redeemable Convertible Preferred Stock dividend accretion	$	2,192	$	2,063
(1) As of the nine months ended September 30, 2019 $30 and $1,395 was included in Prepaid expenses and other current assets and Other non-current assets on the Condensed Consolidated Balance Sheet, respectively. As of the nine months ended September 29, 2018 $354 and $1,759 was included in Prepaid expenses and other current assets and Other non-current assets on the Condensed Consolidated Balance Sheet, respectively.

See accompanying notes to the condensed consolidated financial statements

12

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Care.com, Inc., a Delaware corporation, was incorporated on October 27, 2006. Unless the context indicates otherwise, when used in this report, the terms “we,” “us,” “our,” “Care.com” and the “Company” mean Care.com, Inc. and its consolidated subsidiaries, collectively. We are the world’s largest online marketplace for finding and managing family care. Our consumer matching solutions enable families to connect to caregivers and caregiving services in a reliable and easy way, and our payment solutions enable families to pay caregivers electronically online or via their mobile device and to manage their household payroll and tax matters with Care.com HomePay. In addition, we serve employers by providing access to our platform to employer-sponsored families and we serve care-related businesses – such as day care centers, nanny agencies and home care agencies – that wish to market their services to our care-seeking families and recruit our caregiver members.

Certain Significant Risks and Uncertainties

We operate in a dynamic industry and, accordingly, our business is affected by a variety of factors. For example, we believe that negative changes in any of the following areas could have a significant negative effect on our future financial position, results of operations or cash flows: rates of revenue growth; member engagement and usage of our existing and new products; perception of our brand; coverage by the media and other publicity; retention of qualified employees and key personnel; management of our growth; scaling and adaptation of existing technology and network infrastructure; competition in our market; performance of acquisitions and investments; protection of our intellectual property; protection of customers’ information and privacy concerns; security measures related to our website; access to capital at acceptable terms; and outcomes of governmental investigations or other legal proceedings.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed on March 7, 2019.

There have been no material changes in our significant accounting policies for the nine months endedSeptember 30, 2019 as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, with the exception of the adoption of the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Update (“ASU”) No. 2016-02, “Leases (Topic 842)” in the first quarter of fiscal 2019. Refer below to “Recently Issued and Adopted Accounting Pronouncements” for further information.

The condensed consolidated balance sheet as of December 29, 2018 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods, and are not necessarily indicative of the results of operations to be anticipated for fiscal 2019 or any future period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries, after elimination of all intercompany balances and transactions. We have prepared the accompanying financial statements in conformity with GAAP.

Fiscal Year-End

Prior to June 30, 2019, we operated and reported using a 52 or 53 week fiscal year ending on the Saturday in December closest and prior to December 31. Accordingly, our fiscal quarters ended on the Saturday that fell closest to the last day of the third month of each quarter.

In the second quarter of fiscal 2019, our board of directors approved a resolution to change the Company’s fiscal year from a 52 or 53 week fiscal year to a calendar year. Accordingly, our current fiscal year will be extended from December 28, 2019 to December 31, 2019, with subsequent fiscal years beginning on January 1 and ending on December 31 of each year. Beginning June 30, 2019, the first day of our third quarter, our quarterly results will be for the three month periods ending March 31, June 30, September 30 and December 31.

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

Subsequent Events Consideration

We consider events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events recorded in the condensed consolidated financial statements as of and for the three and nine months endedSeptember 30, 2019.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The guidance requires an entity to recognize a right-of-use asset and a lease liability for all of its leases with lease terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. We adopted ASU 2016-02 and its amendments in the first quarter of fiscal 2019 using the modified retrospective approach and with a cumulative effect recorded on the date of adoption of December 31, 2018, the first day of our 2019 reporting year. Prior periods were not restated accordingly.

We elected the Practical Expedient Package (Accounting Standards Codification (“ASC”) 842-10-65-1) permitted under the transition guidance within the new standard, which among other things allowed us to carry forward the historical lease classification. Refer to Note 15 “Leases” for the adoption impact to our condensed consolidated balance sheet. The difference between the operating lease liabilities and operating right of use assets is associated with accrued rent payments under ASC 840 and right of use asset impairments related to restructuring activities completed prior to the adoption date associated with our ceased use of certain office space subject to operating leases.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract,” which requires that a customer in a cloud computing arrangement that is a service contract follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early application is permitted. We have elected to prospectively adopt ASU No. 2018-15. Adoption will have no day one impact on the consolidated balance sheet.

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The guidance will be effective for us in the first quarter of fiscal 2020. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. We are currently evaluating the impact of ASU 2018-13 on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance will be effective for us in our annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted, and we are currently evaluating whether we will early adopt. ASU 2017-04 must be applied prospectively. We expect that ASU 2017-04 would simplify our measurement of goodwill impairment if any of our reporting units have a zero or negative carrying value, or would fail Step 1 of the impairment test following the date of adoption.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 will be effective for us in our first quarter of fiscal 2020, and earlier adoption is permitted. The modified-retrospective approach is required for adoption. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

14

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

2. Fair Value Measurements

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 29, 2018 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

	September 30, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market mutual funds	$	18,473	$	—	$	—	$	18,473	$	18,148	$	—	$	—	$	18,148
Certificates of deposit	36,395		—		—		36,395		37,180		—		—		37,180
Total assets	$	54,868	$	—	$	—	$	54,868	$	55,328	$	—	$	—	$	55,328
Liabilities:
Contingent acquisition consideration	$	—	$	—	$	1,000	$	1,000	$	—	$	—	$	1,964	$	1,964
Total liabilities	$	—	$	—	$	1,000	$	1,000	$	—	$	—	$	1,964	$	1,964

The following table sets forth a summary of changes in fair value of our contingent acquisition consideration liability, which represents the recurring measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs (in thousands):

	September 30, 2019
	Contingent Acquisition Consideration
Beginning balance - December 29, 2018	$	1,964
Change in fair value of contingent consideration	669
Payment of contingent consideration liability	(1,633		)
Ending balance - September 30, 2019	$	1,000

We recorded our estimates of the fair value of contingent consideration associated with the Town & Country Resources, Inc. and Trusted Labs, Inc. acquisitions based on the evaluation of the likelihood of the achievement of the contractual conditions that would result in the payment of the contingent considerations and weighted probability assumptions of these outcomes. For both acquisitions, the fair value of the initial liability was estimated using the Monte Carlo simulation with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820, Fair Value Measurements and Disclosures. Subsequently, the fair value of the liability was estimated using updated assumptions on the probability assessment of achievement of the financial and operating metrics. The significant inputs in the Level 3 measurement not supported by market activity included our probability assessments of the achievement of certain financial and operational metrics, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the merger agreements. The cash portion of the contingent consideration liabilities have been discounted to reflect the time value of money, and therefore, as the milestone dates approach, the fair value of these liabilities will increase. Changes in fair value are recorded in general and administrative expense in the accompanying consolidated statements of operations.

Non-Recurring Fair Value Measurements

We re-measure the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets comprise long-lived assets, including property and equipment, right of use asset impairments, intangible assets and goodwill. In the nine months endedSeptember 30, 2019 and September 29, 2018, no significant remeasurements were necessary. Other financial instruments not measured or recorded at fair value in the accompanying condensed consolidated balance sheets principally consist of accounts receivable, accounts payable and accrued liabilities. The estimated fair values of these instruments approximate their carrying values due to their short-term nature.

15

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

In the quarter ended September 30, 2017, we ceased use of 25,812 square feet of the Company’s headquarters facility and recorded a restructuring liability, which upon adoption of ASC 842 we reclassified this liability as a reduction of the right-of-use asset associated with the lease. We have updated our estimate in subsequent periods, as discussed in Note 12. These estimates include assumptions for the time period it will take to obtain a subtenant, construction costs and certain sublease rates. These estimates may vary from the sublease agreements ultimately executed, if at all, and could result in an adjustment to the right of use asset. In the first and third quarters of fiscal 2018, we updated our assumptions for the expected time period it will take to obtain a subtenant for the remainder of the ceased use space. This resulted in an additional $0.6 million of charges, of which $0.5 million was incurred in the first quarter of fiscal 2018 and $0.1 million was incurred in the third quarter of fiscal 2018. We also updated our assumptions in the first, second and third quarters of fiscal 2019. We signed a sublease agreement for a portion of the ceased use space during the third quarter of fiscal 2019 and accordingly updated our estimates. The updated assumptions resulted in $0.2 million and $0.3 million of restructuring and right of use asset impairment charges in the first and second quarters of fiscal 2019, respectively. In the third quarter of fiscal 2019 a reduction to the restructuring and right of use asset impairments of $0.1 million was recorded, when the final sublease agreement was signed and the subtenant income was known. The measurement of our restructuring charges and right of use asset impairments using these assumptions is a level 3 measurement.

During the quarter ended June 29, 2019, we decided to abandon and seek a sublet for 36,395 square feet of the Company’s headquarters facility, which resulted in a right of use asset impairment charge of $1.1 million. This loss was determined by comparing the fair value of the impacted right of use asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment (“ASC 360”). The fair value of the right of use asset was based on the estimated sublease income for the portion of the Company’s headquarters taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate and the sublease rate. Additionally, we recorded a restructuring loss of $0.7 million associated with abandoning the space. The loss comprised of exit and disposal costs consisting of construction costs, real estate taxes, broker fees and utilities. Furthermore, we wrote-off $0.5 million of leasehold improvements related to the space. Refer to Note 12 for further information. The measurement of our restructuring loss and right of use asset impairments using the assumptions described is a level 3 measurement.

In the second quarter of fiscal 2019, we decided to wind down our Figure 8 business. This resulted in an indicator of impairment for the associated goodwill and intangible assets. Given that Figure 8 was only acquired in the first quarter of fiscal 2019, we had not yet integrated the business into our existing reporting units. As we will be disposing of the business, our impairment assessment completed in the second quarter of fiscal 2019 resulted in an impairment loss of $8.2 million in the three and six months ended June 29, 2019. This impairment loss comprised of the $5.3 million of goodwill recorded upon acquisition and $2.9 million of net proprietary software intangible assets.

3. Revenue

Revenue Recognition

Revenue is recognized when control of the promised service is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the service. For all presentations below sales and usage-based taxes are excluded from revenue.

The following table presents our revenue disaggregated by major service lines for the three and nine months endedSeptember 30, 2019 and September 29, 2018 (in thousands).

16

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Business-to-Consumer
Matching Solutions	$	37,478	$	36,814	$	109,868	$	103,965
Payment Solutions	6,530		6,058		21,923		20,488
Business-to-Business
Care@Work Solutions	6,875		4,367		18,937		12,468
Recruiting and Marketing Solutions and other	2,402		1,921		6,871		5,530
Total revenue	$	53,285	$	49,160	$	157,599	$	142,451

The following table presents our revenue disaggregated by timing of transfer of services for the three and nine months endedSeptember 30, 2019 and September 29, 2018 (in thousands).

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Point-in-time	$	4,696	$	4,205	$	16,016	$	13,314
Over-time	48,589		44,955		141,583		129,137
Total revenue	$	53,285	$	49,160	$	157,599	$	142,451

Contract Balances

The increase in the deferred revenue balance at September 30, 2019 as compared to December 29, 2018 was primarily driven by cash payments received for our obligation to perform future services during fiscal 2019, offset by $18.5 million of revenue recognized that was included in the deferred revenue balance as of December 29, 2018. We consider on-demand back-up care overages for our Care@Work offering to be constrained variable consideration in the transaction price until the constraint is resolved upon usage. The revenue recognized in the nine months endedSeptember 30, 2019 related to on-demand back-up care overages for our Care@Work offering was $0.3 million.

Transaction Price Allocated to the Remaining Performance Obligations

For performance obligations that are part of contracts that have an original expected duration of greater than one year, we expect to recognize $1.5 million, $3.9 million, $1.4 million and $0.2 million of revenue related to our Care@Work offering in the remainder of fiscal 2019, fiscal 2020, fiscal 2021 and fiscal 2022, respectively, related to performance obligations that are currently unsatisfied (or partially satisfied) as of September 30, 2019.

This disclosure does not include revenue related to performance obligations that are part of a contract whose original expected duration is one year or less. Our matching solutions offering consists of subscription terms whose duration is one year or less, and the service period for our payment solutions revenue is one year or less. Additionally, most of our business-to-business contracts are for durations of one year or less. Furthermore, this disclosure does not include expected consideration related to performance obligations for which we elect to recognize revenue in the amount we have a right to invoice (e.g., usage-based pricing terms).

Contract Costs

We capitalize sales commissions for new customer contracts in our business-to-business solutions offerings. Capitalized commissions are amortized over the period of expected benefit, which is the customer life and we estimate to be approximately five years. As of September 30, 2019, capitalized commissions were $1.6 million. For the three and nine months endedSeptember 30, 2019 and September 29, 2018, amortized commission expense was (in thousands):

17

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Amortized commission expense	$	96	$	22	$	295	$	61

For renewal commissions with a renewal term of one year or less, we applied the practical expedient and expense commission when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expense.

4. Business Acquisitions

Filios Inc.

On January 4, 2019, we purchased all of the outstanding stock of Filios, Inc. (“Figure 8”), a mobile app for parents to organize and manage carpools, pursuant to which we acquired all of the outstanding shares of Figure 8 for total potential consideration of $12.6 million, consisting of $7.6 million as an up-front payment and four earn-outs of $0.5 million, $1.0 million, $1.0 million and $2.5 million to be earned consecutively over one-year periods for four years. All of the earn-outs were determined to be compensatory in nature based on required future services and product development milestones required to be achieved by the founders who will continue employment with us. The preliminary purchase price of $7.6 million was allocated to assets and liabilities as follows: $4.5 million of goodwill, $3.1 million in identified intangible assets, consisting proprietary technology in the form of Figure 8’s mobile application, and working capital assets and liabilities, which were immaterial. Additionally, we increased our goodwill by $0.8 million to record a deferred tax liability in purchase accounting related to the acquired intangible assets. In the second quarter of fiscal 2019, we decided to wind down our Figure 8 business. Please refer to Note 5 for further information on the impairment losses recorded.

Trusted Labs, Inc.

On July 12, 2018, we purchased all of the outstanding stock of Trusted Labs, Inc. (“Trusted”), an on-demand child care provider offering service in the San Francisco Bay Area and New York City, pursuant to which we acquired all of the outstanding shares of Trusted for total potential consideration of $8.1 million, consisting of an up-front payment of $4.6 million, up to $2.2 million in retention payments, earn-out payments of up to an aggregate of $1.0 million to be earned consecutively over three quarters following the closing, and payments of $0.3 million to settle liabilities. We estimated the fair value of the contingent consideration at the acquisition date to be $1.0 million and thus included this in the total accounting purchase price of $5.6 million. The purchase price of $5.6 million was allocated to assets and liabilities as follows: $3.4 million of goodwill, $2.5 million in identified intangible assets, consisting primarily of proprietary software and care-giver relationships, and $0.3 million in working capital liabilities, which were immaterial. The goodwill is primarily derived from synergies we expect as a result of the deal. Additionally, a discrete tax benefit of $0.6 million was recorded to account for the valuation allowance release primarily related to the acquired intangible assets which have increased fair market value basis for GAAP purposes but carryover basis for tax purposes, resulting in a deferred tax liability that provided a source of income supporting realization of other deferred tax assets.

Galore, Inc.

On May 31, 2018, we entered into an asset purchase agreement with Galore, Inc. (“Galore”), an e-commerce marketplace for parents to discover and purchase activities for their children and a SaaS platform for businesses providing family activities to offer those activities for purchase online, pursuant to which we acquired certain assets of Galore for total consideration of $0.3 million as an up-front payment, and two earn-out payments ranging from $0.3 - $0.5 million in year one and $0.7 - $0.9 million in year 2, based upon certain revenue achievement metrics. Due to ongoing service requirements pertaining to the earn-outs, the amounts are being recognized as compensation expense over the required employment period. The purchase price of $0.3 million was allocated to an identified intangible asset, consisting of proprietary software.

Town & Country Resources, Inc.

On January 9, 2018, we entered into an asset purchase agreement with Town & Country Resources, Inc. (“Town & Country”), a premium home staffing agency in the San Francisco Bay Area, pursuant to which we acquired certain assets for total potential consideration of $7.0 million, consisting of $5.0 million as an up-front payment, and two earn-outs of up to $1.0 million each to be earned over consecutive one-year periods. We estimated the fair value of the contingent consideration at the

18

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

acquisition date to be $1.0 million and thus included this in the total accounting purchase price of $6.0 million. The preliminary purchase price of $6.0 million was allocated to assets and liabilities as follows: $4.8 million of goodwill, $1.2 million in identified intangible assets, consisting primarily of caregiver relationships and the Town & Country trade name, and working capital assets and liabilities, which were immaterial. The goodwill is primarily derived from synergies we expect as a result of the deal.

Pro forma information related to the acquisitions in fiscal 2018 and 2019 were not presented as the impact of the acquisitions on our consolidated results of operations is not significant.

5. Goodwill and Intangible Assets

The following table presents the change in goodwill for the periods presented (in thousands):

Balance as of December 29, 2018	$	68,176
Effect of currency translation	(855		)
Business acquisition	5,325
Goodwill impairment	(5,325		)
Balance as of September 30, 2019	$	67,321

In the second quarter of fiscal 2019, we decided to wind down our Figure 8 business. This resulted in an indicator of impairment for the associated goodwill and intangible assets. Given that Figure 8 was only acquired in the first quarter of fiscal 2019, we had not yet integrated the business into our existing reporting units. As we will be disposing of the business, our impairment assessment completed in the second quarter of fiscal 2019 resulted in an impairment loss of $8.2 million in the second quarter of fiscal 2019. This impairment loss comprised of the $5.3 million of goodwill recorded upon acquisition and $2.9 million of net proprietary software intangible assets.

Additionally, in the quarter ended June 29, 2019 we incurred other expenses of $3.9 million in stock-based compensation related to the acceleration of time-based restricted stock units granted as part of the acquisition of Figure 8 and $4.1 million associated with the acceleration of the earn-out payments as part of the decision to no longer invest in Figure 8. We recorded $7.5 million of these expenses as research and development expense with the remaining $0.5 million recorded in general and administrative expenses. The $8.2 million impairment loss for the goodwill and intangible asset was recorded as goodwill and intangible asset impairment charge in the consolidated statements of operations for the nine months ended September 30, 2019.

After the Figure 8 impairment loss in the second quarter of fiscal 2019, we had $47.1 million of accumulated impairment losses.

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CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

The following table presents the detail of intangible assets for the periods presented (dollars in thousands):

	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted-Average Remaining Life (Years)
September 30, 2019
Indefinite lived intangibles	$	260	$	—		$	260	N/A
Trademarks and trade names	4,714		(4,488		)	226		5.3
Proprietary software	7,787		(5,665		)	2,122		3.7
Internal software	227		(184		)	43		1.1
Caregiver relationships	1,104		(731		)	373		1.4
Customer relationships	8,509		(8,284		)	225		3.3
Total	$	22,601	$	(19,352	)	$	3,249
December 29, 2018
Indefinite lived intangibles	$	260	$	—		$	260	N/A
Trademarks and trade names	4,742		(4,441		)	301		5.3
Proprietary software	7,869		(5,316		)	2,553		4.5
Internal software	227		(141		)	86		1.7
Leasehold interests	170		(163		)	7		0.4
Caregiver relationships	1,116		(538		)	578		2.1
Customer relationships	8,541		(8,265		)	276		4.0
Total	$	22,925	$	(18,864	)	$	4,061

Amortization expense was $1.1 million and $0.7 million for the nine months ended September 30, 2019 and September 29, 2018, respectively. Of these amounts, $0.4 million and $0.4 million was classified as a component of depreciation and amortization, and $0.7 million and $0.3 million was classified as a component of cost of revenue in the condensed consolidated statements of operations for the nine months ended September 30, 2019 and September 29, 2018, respectively.

As of September 30, 2019, the estimated future amortization expense related to intangible assets for future fiscal years was as follows (in thousands):

2019 remaining	258
2020	984
2021	712
2022	679
2023	313
Thereafter	43
Total	$	2,989

6. Contingencies

Legal matters

From time to time we are involved in regulatory, governmental and law enforcement inquiries, investigations and subpoenas, as well as legal proceedings, that arise in the ordinary course of our business. Each reporting period, we evaluate whether or not a loss contingency related to such matters is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. If a loss is probable and the potential estimate of the loss is a range, we evaluate if there is a point within the range that appears at the time to be a better estimate than any other point in the

20

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

range, and if so, that amount is accrued. If we conclude that no amount in the range appears to be a better estimate than any other, we accrue the minimum amount in the range. We monitor developments in legal matters that could affect estimates we have previously accrued and update our estimates as appropriate based on subsequent developments.

In March 2016, we learned of an investigation by the Marin County, California District Attorney’s Office regarding the clarity and conspicuousness of our automatic renewal disclosures and the mechanism by which we obtain informed consent when members purchase premium subscriptions on our website. In September 2016, we learned of an investigation by the San Francisco County, California District Attorney’s Office regarding the accuracy and clarity of our disclosures about the sex offender registry search available to consumers through our website. In 2017, the District Attorneys’ Offices proposed a joint settlement that would include a payment by us of approximately $4.9 million to resolve both investigations. We are in discussions with the District Attorneys’ Offices regarding a proposed settlement and continue to cooperate with the investigations. We have determined that it is probable that we will incur a loss in connection with these matters and have accrued an amount based on the low end of the range of our reasonable estimate of this loss.

In addition, on April 3, 2019, a complaint was filed against the Company and two of our officers, Sheila Lirio Marcelo, our chief executive officer, and Michael Echenberg, who was then our chief financial officer, in the U.S. District Court for the District of Massachusetts. The lawsuit purports to be brought on behalf of a class of purchasers of our stock during the period from March 27, 2015 to April 1, 2019, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, related to the Company’s disclosures about the screening of certain member information for criminal or other inappropriate inactivity. The complaint seeks compensatory and punitive damages, fees, interest, costs and other appropriate relief. A lead plaintiff has been appointed and on July 23, 2019 the court set a schedule for the completion of certain pretrial events. In accordance with that schedule, the plaintiffs filed an amended complaint on September 16, 2019 and the Company filed a motion to dismiss on November 1, 2019. The Company is unable to predict the ultimate outcome of this litigation, and therefore cannot estimate possible losses or ranges of losses, if any.

We also are currently involved in other pending regulatory and government inquiries and investigations and legal proceedings in the ordinary course of our business. Although the results of these matters cannot be predicted with certainty, we do not believe they will have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

7. Stockholders’ Equity

Stock-Based Compensation

The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands). During the nine months ended September 30, 2019, we recorded an additional $3.9 million of stock compensation associated with the wind down of our Figure 8 business in research and development expense on the accompanying condensed consolidated statements of operations. Please refer to Note 5 for further information.

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Cost of revenue	$	136	$	87	$	346	$	219
Selling and marketing	639		631		1,911		1,827
Research and development	503		1,105		7,063		3,134
General and administrative	1,229		2,458		4,523		7,801
Total stock-based compensation	$	2,507	$	4,281	$	13,843	$	12,981

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the nine months endedSeptember 30, 2019, we granted 1.3 million time-based restricted stock units (“RSUs”) to certain employees, advisors and directors, and 0.3 million performance-based RSUs (“PSUs”) to certain members of management and advisors.

21

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

In the first half of fiscal 2019, we granted 0.3 million PSUs. The number of PSUs that become eligible to vest for each recipient will be determined in the first quarter of 2020 based upon our level of achievement of certain financial targets for fiscal 2019. To the extent any PSUs become eligible to vest, they generally will vest over a two-year period, retroactive to March 2019, as continued services are performed. PSUs granted in 2018 and 2017 are vesting over a two-year and three-year period, respectively, retroactive to the grant date of the applicable award. We are recognizing expense using the graded-vesting method based on our estimate of the number of PSUs that will vest. If there is a change in the estimate of the number of PSUs that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made.

RSUs and PSUs are not included in issued and outstanding common stock until the shares are vested and released. The grant-date fair value of an RSU and PSU is measured based on the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share, which is the per share par value of our common stock.  The weighted-average grant-date fair value per vested share of RSUs and PSUs and the total fair value of vested shares from RSU and PSU grants were $16.10 and $11.6 million, respectively, for theninemonths endedSeptember 30, 2019. The weighted-average grant-date fair value per vested share of RSUs and PSUs and total fair value of per share of vested shares from RSU and PSU grants were $10.76 and $6.2 million, respectively, for the nine months endedSeptember 29, 2018.

During the nine months ended September 29, 2018, we granted 0.1 million stock options to certain employees and directors with a weighted-average exercise price per share of $17.44. We did not grant any stock options during the nine months ended September 30, 2019.

A summary of stock option, RSU and PSU activity for the nine months ended September 30, 2019 was as follows (in thousands for shares and intrinsic value):

								Restricted Stock Units
	Shares		Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding as of December 29, 2018	3,524		5.84	$	9.13	$	37,477	2,123		$	15.40
Granted(1)	—			$	—			1,599		$	17.19
Settled (RSUs and PSUs)	—							(718	)	$	16.10
Exercised	(298	)		$	5.84
Canceled and forfeited	(162	)		$	13.72			(768	)	$	17.72
Outstanding as of September 30, 2019	3,064		5.01	$	9.21	$	9,285	2,236		$	15.66
Vested and exercisable as of September 30, 2019	2,557		4.53	$	8.59	$	8,818	N/A		N/A

____________________________

⁽¹⁾ For RSUs, includes time-based and performance-based

Aggregate intrinsic value represents the difference between the closing price of our common stock and the exercise price of outstanding, in-the-money options. The closing price of our common stock as reported on the New York Stock Exchange as of September 30, 2019, the final trading day of the nine months ended September 30, 2019, was $10.45. The total intrinsic value of options exercised and RSUs and PSUs vested was approximately $14.2 million and $19.3 million for the nine months ended September 30, 2019 and September 29, 2018, respectively. The aggregate fair value of the options that vested during the nine months ended September 30, 2019 and September 29, 2018 was $1.7 million and $1.9 million, respectively.

As of September 30, 2019, total unrecognized compensation cost related to non-vested stock options and RSUs, including PSUs and market-based RSUs, was approximately $2.2 million and $23.7 million, respectively, which is expected to be recognized over a weighted-average period of 1.4 years and 2.0 years, respectively, to the extent they are probable of vesting. As of September 30, 2019, we had 3.4 million shares available for grant under the 2014 Plan.

22

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

Common Stock

As of September 30, 2019, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):

	September 30, 2019
Options issued and outstanding	3,064
Restricted stock units issued and outstanding	2,236
Common stock available for stock-based award grants under incentive award plans	3,373
Common stock available for conversion of Series A Redeemable Convertible Preferred Stock	5,257
Total	13,930

8. Net (Loss) Income per Share Attributable to Common Stockholders

Basic net (loss) income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. For the three and nine months endedSeptember 30, 2019 and September 29, 2018, we applied the two-class method to calculate basic and diluted net (loss) income per share of common stock, as our Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock) is a participating security. The two-class method is an earnings allocated formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. We compute diluted net (loss) income per common share using net (loss) income as the “control number” in determining whether potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options, unvested restricted stock outstanding during the period and potential issuance of stock upon the conversion of our Series A Preferred Stock, including accrued dividends, outstanding during the period, except where the effect of such securities would be anti-dilutive.

The calculations of basic and diluted net (loss) income per share and basic and diluted weighted-average shares outstanding for the three and nine months endedSeptember 30, 2019 and September 29, 2018 were as follows (in thousands, except per share data):

23

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 29, 2018			September 30, 2019			September 29, 2018
Numerator:
Basic:
Net (loss) income attributable to common stockholders	$	(3,009	)	$	979		$	(70,261	)	$	1,996
Diluted:
Net (loss) income attributable to common stockholders	$	(3,009	)	$	979		$	(70,261	)	$	1,996
Plus: undistributed earnings allocated to participating securities	—			873			—			2,384
Less: undistributed earnings reallocated to participating securities	—			(863		)	—			(2,362		)
Net (loss) income attributable to common stockholders	$	(3,009	)	$	989		$	(70,261	)	$	2,018
Denominator:
Weighted-average shares outstanding - basic	32,863			31,356			32,539			30,980
Dilutive impact from:
Options outstanding	—			1,899			—			1,944
Restricted stock units	—			625			—			709
Weighted-average shares outstanding - dilutive	32,863			33,880			32,539			33,633
Net (loss) income per share attributable to common stockholders (Basic):	$	(0.09	)	$	0.03		$	(2.16	)	$	0.06
Net (loss) income per share attributable to common stockholders (Diluted):	$	(0.09	)	$	0.03		$	(2.16	)	$	0.06

The following equity shares were excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2019	September 29, 2018	September 30, 2019	September 29, 2018
Stock options	3,064	514	3,064	746
Restricted stock units	2,236	1,046	2,236	805
Series A Redeemable Convertible Preferred Stock (as converted to common stock)	5,257	4,983	5,257	4,983

The Series A Preferred Stock is considered anti-dilutive due to the fact that the two-class method was more dilutive when calculating dilutive net (loss) income per share attributable to common stockholders.

9. Preferred Stock

Preferred Stock consists of the following at September 30, 2019 and December 29, 2018 (in thousands, except shares):

24

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

	Preferred Stock Authorized	Issuance Date	Issued and Outstanding	Liquidation Preference (as of June 29, 2023)		Carrying Value		Common Stock Issuable Upon Conversion (as of June 29, 2023)
September 30, 2019
Series A Redeemable Convertible Preferred Stock	46,350	June 29, 2016	46,350	$	67,424	$	55,199	6,421,369
December 29, 2018
Series A Redeemable Convertible Preferred Stock	46,350	June 29, 2016	46,350	$	67,424	$	53,007	6,421,369

Please refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 filed with the Securities and Exchange Commission on March 7, 2019 for further detail on the Series A Preferred Stock.

10. Income Taxes

We are required to compute income tax expense in each jurisdiction in which we operate. This process requires us to project our current tax liability and estimate our deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, we consider whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

ASC 740 requires a valuation allowance to reduce deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion, or all, of the deferred tax asset. A cumulative loss in recent years is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.

On a periodic basis, we reassess the need for a valuation allowance on deferred tax assets by weighing positive and negative evidence to assess the recoverability of deferred tax assets. We evaluate the realizability of our deferred tax assets by tax-paying jurisdiction and assess the need for a valuation allowance on a quarterly and annual basis. We evaluate the profitability of each tax-paying component on an historic cumulative basis and a forward-looking basis as part of this analysis. We also weigh other available evidence, both positive and negative, to inform our assessment. Based on the analysis performed in the second quarter of fiscal 2019, we concluded that it is not more likely than not that our deferred tax assets will be realized. As a result, we recorded a valuation allowance on our deferred tax assets in the second quarter of fiscal 2019.

In the fourth quarter of 2018 and at the first quarter of 2019, we reached a conclusion that it was more likely than not that substantially all of our deferred taxes would be realized. In each of those periods we had experienced cumulative consolidated pre-tax income on a 3-year basis, most significantly in the United States which has the substantial majority of our deferred tax assets. In addition, during these periods we were projecting to remain in a consolidated pre-tax income position in future years and this positive evidence outweighed all other evidence as it related to our ability to realize our deferred tax assets at these reporting periods.

There were several events that transpired in the second quarter of fiscal 2019, that resulted in a change in our financial outlook, our weighting of evidence, and therefore our conclusion is that it is not more likely than not we will realize substantially all of our deferred tax assets as of June 29, 2019. We entered a cumulative consolidated pre-tax loss in the second quarter of fiscal 2019 and are now projecting to remain in one in the near future. Our pre-tax losses incurred to date in fiscal 2019 and our projections for the remainder of the year have been negatively affected by meaningful increases in our operating expenses and decreases in our projected revenues. On May 9, 2019 we announced decisions we have made to invest in safety-related initiatives, which added a significant new cost to our operating plan. In the second quarter of fiscal 2019, we also experienced indicators of impairment related to our decision to no longer invest in Figure 8, which we recently acquired and for which we recorded compensation and other impairment charges described in Note 5. In addition, in the second quarter of fiscal 2019 we experienced lower than expected revenues which we attribute to lower than expected conversions of new members and

25

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

renewals of existing members. We also expect these trends to adversely affect our revenue growth for the remainder of the year. As a result, we have meaningfully lowered our projections of revenue for the remainder of the year, which significantly affects our ability to generate pre-tax income.

We concluded the negative evidence summarized above outweighs the positive evidence as of the second and third quarters of fiscal 2019, and therefore, have not relied on projections of taxable income in our assessment of the realization of deferred taxes at September 30, 2019. We recognized a valuation allowance of $44.5 million in income tax expense in the nine months ended September 30, 2019.

We recorded an income tax benefit of $0.1 million and $1.0 million for the three months ended September 30, 2019 and September 29, 2018, respectively, and income tax expense $45.2 million and an income tax benefit of $2.6 million for the nine months endedSeptember 30, 2019 and September 29, 2018, respectively. The benefit recorded for the three months ended September 30, 2019 primarily related to natural movement in our valuation allowance and naked liability related to the goodwill amortization for tax purposes for which there is no corresponding GAAP deduction.The expense recorded for the nine months endedSeptember 30, 2019 primarily relates to the recording of a valuation allowance against our net deferred tax assets.

The tax benefit recorded for the three and nine months endedSeptember 29, 2018 primarily relates to excess tax benefits recorded from the taxable compensation on share-based awards and a discrete benefit recorded related to the acquisition of Trusted. A benefit of $0.6 million was recorded in the third quarter of fiscal 2018 to account for the valuation allowance release primarily related to the acquired intangible assets which have increased fair market value basis for GAAP purposes but carryover basis for tax purposes. The tax benefit for the three and nine months endedSeptember 29, 2018 was partially offset by tax expenses pertaining to amortization of goodwill for tax purposes, for which there is no corresponding book deduction, foreign taxes in certain foreign jurisdictions, and certain state taxes based on operating income that are payable without regard to tax loss carryforwards.

11. Segments and Geographical Information

We consider operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the CEO. Our CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. For the periods presented we have concluded that we have a single operating and reportable segment.

No country outside of the United States provided greater than 10% of our total revenue. Revenue is classified by the major geographic areas in which our customers are located. The following table summarizes total revenue generated by our geographic locations (dollars in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
United States	$	48,505	$	44,594	$	143,477	$	128,494
International	4,780		4,566		14,122		13,957
Total revenue	$	53,285	$	49,160	$	157,599	$	142,451

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
	(As a percentage of revenue)
United States	91	%	91	%	91	%	90	%
International	9	%	9	%	9	%	10	%
Total revenue	100	%	100	%	100	%	100	%

26

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

Our long-lived assets are primarily located in the United States and are not allocated to any specific region. Therefore, geographic information is presented only for total revenue.

12. Restructuring Charges and Right of Use Asset Impairments

During the quarter ended September 30, 2017, we ceased use of 25,812 square feet of our 108,743 square foot headquarters facility in Waltham, Massachusetts. We recorded a lease obligation charge of $3.1 million. The lease obligation charge consisted of restructuring expense, including sublease income and construction costs, net of deferred rent liabilities of $2.6 million. Additionally, we wrote off $0.5 million of leasehold improvements related to the space. These estimates may vary from the sublease agreements ultimately executed, if at all, resulting in an adjustment to the charges. The initial restructuring charge was recorded as restructuring expense in the consolidated statements of operations for the three and nine months ended September 30, 2017. In the first and third quarters of fiscal 2018, we updated our assumptions for the expected time period it will take to obtain a subtenant for the remainder of the ceased use space. This resulted in and additional $0.6 million of charges, of which $0.5 million was incurred in the first quarter of fiscal 2018 and $0.1 million was incurred in the third quarter of fiscal 2018. We also updated our assumptions in the first, second and third quarters of fiscal 2019. We signed a sublease agreement for a portion of the ceased use space during the third quarter of fiscal 2019 and accordingly updated our estimates. The updated assumptions resulted in $0.2 million and $0.3 million of restructuring and right of use asset impairment charges in the first and second quarters of fiscal 2019, respectively. In the third quarter of fiscal 2019 a reduction to the restructuring and right of use asset impairments of $0.1 million was recorded when the final sublease agreement was signed and the subtenant income was known. Upon adoption of ASC 842, we reclassified the restructuring liability from liabilities to a reduction of the right of use asset associated with the lease.

During the quarter ended June 29, 2019, we decided to abandon and seek a sublet for 36,395 square feet of our 108,743 square foot headquarters facility in Waltham, Massachusetts. We recorded a right of use asset impairment charge of $1.1 million. This loss was determined by comparing the fair value of impacted right of use asset to the carrying value of the asset of the impairment measurement date, as required under ASC 360. The fair value of the right of use asset was based on the estimated sublease income for the portion of the Company’s headquarters taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate and the sublease rate. Additionally, we had a restructuring loss of $0.7 million associated with abandoning the space. The loss consisted of exit and disposal costs consisting of construction costs, real estate taxes, broker fees and utilities. Furthermore, we wrote off $0.5 million of leasehold improvements related to the space. These estimates may vary from the sublease agreements ultimately executed, if at all, resulting in an adjustment to the charges. The initial restructuring charge was recorded as restructuring and right of use impairment charges in the consolidated statements of operations for the nine months ended September 30, 2019.

13. Other (Expense) Income, net

Other (expense) income, net, consisted of the following (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 29, 2018			September 30, 2019			September 29, 2018
Interest income	$	338		$	180		$	1,039		$	488
Interest expense	(9		)	(11		)	(26		)	(35		)
Loss on foreign exchange	(551		)	(131		)	(559		)	(620		)
Other expense, net	—			—			—			(1		)
Total other (expense) income, net	$	(222	)	$	38		$	454		$	(168	)

14. Related Party Transactions

We had the following transactions with related parties as of and during the three and nine months endedSeptember 30, 2019 and September 29, 2018:

CapitalG LP

See accompanying notes to the condensed consolidated financial statements

27

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

On June 29, 2016, we issued Series A Preferred Stock to CapitalG LP, as described in Note 9. As a result of this transaction, Alphabet Inc., the ultimate parent of CapitalG LP (“CapitalG”), and all related affiliates of Alphabet Inc. are considered to be related parties. We had the following transactions with Alphabet Inc. and its affiliates during the three and nine months endedSeptember 30, 2019 and September 29, 2018 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Revenue	$	937	$	819	$	2,759	$	2,161
Selling and marketing expense	$	3,482	$	2,912	$	9,946	$	8,565

We had the following transactions with Alphabet Inc. and its affiliates as of September 30, 2019 and December 29, 2018 (in thousands):

	Period Ended
	September 30, 2019		December 29, 2018
Accounts receivable	$	231	$	421
Unbilled accounts receivable	$	610	$	680
Accounts payable	$	—	$	530
Accrued expense	$	1,352	$	403
Deferred revenue	$	57	$	1

15. Leases

On December 30, 2018, we adopted ASU No. 2016-02- Leases (ASC 842) using the modified retrospective method. We chose to apply the transition provisions as of the period of adoption. Results for reporting periods beginning on or after December 30, 2018 are presented under ASC 842 while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 840.

Adoption of the new standard resulted in the recording of $20.8 million of operating lease right of use assets, $4.3 million of short-term operating lease liabilities, and $23.5 million of long-term operating lease liabilities. The difference between the operating lease liabilities and operating right of use assets is associated with existing deferred rent under ASC 840 and existing restructuring liabilities under ASC 420, which we removed from our balance sheet upon the adoption of ASC 842. The following table summarizes the amount by which each financial statement line item was affected upon the adoption of ASC 842 as compared with the guidance that was in effect before the change (in thousands):

28

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

	December 29, 2018		ASC 842 Adjustment			December 30, 2018
Assets
Operating lease right of use assets, net	—		20,832			20,832
Total assets	$	268,067	$	20,832		$	288,899
Liabilities, redeemable convertible preferred stock, and stockholders' equity
Accrued expenses and other current liabilities *	20,463		(1,071		)	19,392
Current operating lease liabilities	—		4,268			4,268
Total current liabilities	45,603		3,197			48,800
Other non-current liabilities *	6,806		(5,818		)	988
Non-current operating lease liabilities	—		23,453			23,453
Total liabilities	52,847		20,832			73,679
Stockholders' equity
Total stockholders' equity	162,213		—			162,213
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	268,067	$	20,832		$	288,899
* Accrued expense and other current liabilities and other non-current liabilities represents lease restructuring charges and deferred rent reflected as reductions in operating lease right of use assets, net.

We consider a lease to be a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. We lease office spaces in various locations throughout the United States and Europe. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

For these lease agreements, we have elected the practical expedient to not separate non-lease and lease components and instead to account for them as a single lease component.

Some leases include an option to renew, with renewal terms that can extend the lease term from one to ten years. The exercise of lease renewal options is at our sole discretion. None of these options to renew are recognized as part of our right-to-use asset or lease liability as of September 30, 2019, as renewal was determined to not be reasonably assured. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

One of our leases includes variable lease payment based on an index rate, which is included in the lease liability using the index rate as of the lease commencement date. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, because we elected the practical expedient to not separate non-lease and lease components and instead account for them as a single lease component, our operating leases costs include variable lease costs associated with common area maintenance, insurance and real estate taxes.

We sublease certain real estate to third parties. Our subleases are primarily attributable to our headquarters office space in Waltham, Massachusetts. There are no variable lease payments or options to extend the subleases, nor do they contain any material residual value guarantees or material restrictive covenants.

As most of our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available at the adoption or commencement date, in determining the present value of lease payments.

The table below summarizes our lease costs as well as sublease income for the three and nine months endedSeptember 30, 2019 (in thousands):

29

CARE.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

		Three Months Ended			Nine Months Ended
		September 30, 2019			September 30, 2019
Lease Costs	Statement of Operations Classification
Operating lease costs (1)	General and administrative	$	1,002		2,819
Variable lease costs - operating leases	General and administrative	165			738
Sublease income	General and administrative	(179		)	(534		)
Total lease costs		$	988		$	3,023
(1) Operating lease costs include short-term leases, which are immaterial.

The table below summarizes the maturity of our lease liabilities as of September 30, 2019(in thousands):

Year	Operating Leases
2019 remaining	$	1,758
2020	$	7,138
2021	$	7,160
2022	$	6,601
2023	$	6,239
Thereafter	$	5,741
Total lease payments	$	34,637
Less: Discount to lease payments	(4,431		)
Present value of lease liabilities	$	30,206

The table below summarizes the weighted-average remaining lease term (in years) and the weighted-average incremental borrowing rate (in percentages):

Lease Term and Discount Rates	September 30, 2019
Weighted-average remaining lease term
Operating leases	4.9
Weighted-average incremental borrowing rate
Operating leases	5.5	%

Supplemental cash flow information related to operating leases for the nine months endedSeptember 30, 2019 are as follows (in thousands):

	Nine Months Ended
	September 30, 2019
Cash payments of amounts included in lease liabilities
Operating leases	$	(4,557	)
Right of use assets obtained in exchange for new lease obligations
Operating leases	$	5,854
Right of use asset impairment charge
Operating leases	$	1,128

30

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed on March 7, 2019. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from our expectations.

Overview

We are the world’s largest online marketplace for finding and managing family care. We have more than 35.2 million members, including 20.6 million families and 14.6 million caregivers, spanning over 20 countries. We help families address their particular lifecycle of care needs, which may include child care, senior care, special needs care and other non-medical family care needs such as pet care, tutoring and housekeeping. In the process, we also help caregivers find rewarding full-time and part-time employment opportunities.

Our consumer matching solutions allow families to search for, qualify, vet, connect with and ultimately select caregivers in a low-cost, reliable and easy way. We also provide caregivers with solutions to create personal profiles, describe their unique skills and experience, and otherwise differentiate and market themselves in a highly fragmented marketplace.

In addition to our consumer matching solutions, we offer our members innovative products and services to facilitate their interaction with caregivers. We provide solutions intended to improve both the ease and reliability of the care relationship in the home. One product area we are particularly focused on is consumer payments solutions. Through Care.com HomePay, families can subscribe to payroll and tax preparation services for domestic employees. This offering deepens our relationship with our members and could enhance the lifetime value associated with each member.

We also serve employers through our Care@Work offering by providing access to certain of our products and services, including back-up care for children and seniors, to employer-sponsored families. In addition, we serve care-related businesses— such as day care centers, nanny agencies and home care agencies — that wish to market their services to our care-seeking families and recruit our caregiver members. These businesses improve our member experience by providing additional caregiving choices for families and employment opportunities for caregivers.

We have experienced steady growth in revenue and members. Our members increased to 35.2 million as of September 30, 2019 from 30.8 million as of September 29, 2018, representing an annual growth rate of approximately 14%. Our revenue has increased to $157.6 million for the nine months ended September 30, 2019 from $142.5 million for the nine months ended September 29, 2018. However, we experienced a decline in net income from $4.4 million in the nine months ended September 29, 2018, to a net loss of $68.1 million for the nine months ended September 30, 2019. The significant decrease was primarily attributable to the re-establishment of our valuation allowance related to certain net operating losses and other deferred tax assets and, to a lesser extent, the impairment charge recognized on the Figure 8 acquisition.

See accompanying notes to the condensed consolidated financial statements

31

Key Business Metrics

In addition to traditional financial and operational metrics, we use the following business metrics to monitor and evaluate results (in thousands, except monthly average revenue per paying family - U.S. Consumer Business):

	As of
	September 30, 2019		September 29, 2018
Total members	35,196		30,795
Total families	20,595		17,699
Total caregivers	14,601		13,096
Paying families - U.S. Consumer Business	374		356
Monthly average revenue per paying family - U.S. Consumer Business	$	36	$	38

Total Members. We define total members as the sum of paying families, non-paying families, and caregivers worldwide who have registered through our websites and mobile apps since the launch of our marketplace in 2007 and have an account that remains open. Total members also includes subscribers of our Care.com HomePay service. We believe this metric is significant to our business because it represents the universe of families and caregivers who are more likely than the general population to drive revenue because our members are more familiar with our brand and the services we offer and are interested enough in them to have registered. Our total members increased14% as of September 30, 2019, compared to September 29, 2018.

Total Families. We define total families as the number of paying families and non-paying families who have registered through our websites and mobile apps since the launch of our marketplace in 2007 and have an account that remains open. Total families also includes subscribers of our Care.com HomePay service. Our total families increased16% as of September 30, 2019, compared to September 29, 2018.

Total Caregivers. We define total caregivers as the number of caregivers who have registered through our websites and mobile apps since the launch of our marketplace in 2007 and have an account that remains open. Our total caregivers increased11% as of September 30, 2019, compared to September 29, 2018.

Paying Families – U.S. Consumer Business. We define paying families – U.S. Consumer Business as the number of families located in the United States who have registered through our U.S.-based websites and mobile apps and who are paying subscribers of our U.S.-based matching services or our Care.com HomePay services as of the end of the fiscal period. The number of paying families in our U.S. Consumer Business increased5% as of September 30, 2019, compared to September 29, 2018.

Monthly Average Revenue per Paying Family – U.S. Consumer Business. We define monthly average revenue per paying family, or MARPPF, for our U.S. Consumer Business as total U.S. Consumer Business revenue, including revenue from subscriptions and products, divided by the average number of paying families of our U.S.-based matching services and Care.com HomePay services in a given fiscal period, expressed on a monthly basis. We believe MARPPF is significant to our business because it represents how successful we have been at monetizing the subset of members who we have converted into paying families. The numerator of this metric includes revenue that comes from caregivers in addition to revenue that comes from families, while the denominator includes only paying families. We believe this is the most meaningful presentation because we do not consider the caregiver component of our business to be separate and distinct; rather, we believe revenue generated from caregivers is a byproduct of the families that have registered on our site. Our U.S. Consumer Business MARPPF decreased5.3% as of September 30, 2019 compared to September 29, 2018.

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in the table below and within this Quarterly Report on Form 10-Q adjusted EBITDA, which is not a measure prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The table below represents a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

We have included adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our consolidated operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business.

Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

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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:

• 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 cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

• adjusted EBITDA does not reflect discontinued operations;

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

• adjusted EBITDA does not reflect costs related to mergers and acquisitions;

• adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

• adjusted EBITDA does not include accretion of Series A Redeemable Convertible Preferred Stock dividends or issuance costs;

• adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

• adjusted EBITDA does not reflect one time unusual or non-cash significant adjustments; and

• other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside our GAAP financial results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 29, 2018			September 30, 2019			September 29, 2018
Net (loss) income	$	(2,236	)	$	1,852		$	(68,069	)	$	4,380
Federal, state and franchise taxes	96			(833		)	45,718			(2,055		)
Other expense (income), net	222			(38		)	(454		)	168
Depreciation and amortization	623			603			2,150			1,527
EBITDA	(1,295		)	1,584			(20,655		)	4,020
Stock-based compensation	2,261			4,281			9,705			12,981
Merger and acquisition related costs	880			751			3,309			1,262
Restructuring, right of use asset impairment and other charges	692			89			3,681			568
Litigation related costs	517			157			549			177
Software implementation costs	71			5			351			308
Severance related costs	—			—			175			67
Strategic consulting and non-recurring professional fees	2,089			—			2,210			—
Impairment of goodwill, intangible assets and related costs	—			—			16,127			142
Adjusted EBITDA	$	5,215		$	6,867		$	15,452		$	19,525

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the assumptions and estimates associated with the following critical accounting policies have the greatest potential impact on our condensed consolidated financial statements:

• Revenue recognition;

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• Redeemable convertible preferred stock;

• Goodwill;

• Income taxes; and

• Amortization and impairment of intangible assets.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 filed on March 7, 2019 with the exception of the adoption of the Financial Accounting Standards Board’s Accounting Standard Update 2016-02, “Leases (Topic 842)” in the first quarter of fiscal 2019. Please refer to Note 15 of the notes to the condensed consolidated financial statements for further detail.

Recently Issued and Adopted Accounting Pronouncements

For information on recent accounting pronouncements, seeNote 1 “Recently Issued and Adopted Accounting Pronouncements” in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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Results of Operations

The following table sets forth our condensed consolidated results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 29, 2018			September 30, 2019			September 29, 2018
Revenue	$	53,285		$	49,160		$	157,599		$	142,451
Cost of revenue	15,598			11,532			43,050			30,798
Operating expenses:
Selling and marketing	17,732			16,439			53,287			49,197
Research and development	8,417			8,860			36,563			25,640
General and administrative	13,281			10,987			35,604			33,047
Depreciation and amortization	478			416			1,408			1,245
Goodwill and intangible asset impairment charge	—			—			8,183			—
Restructuring and right of use asset impairment charges	(134		)	89			2,855			568
Total operating expenses	39,774			36,791			137,900			109,697
Operating (loss) income	(2,087		)	837			(23,351		)	1,956
Other (expense) income, net	(222		)	38			454			(168		)
(Loss) income before income taxes	(2,309		)	875			(22,897		)	1,788
(Benefit from) provision for income taxes	(73		)	(977		)	45,172			(2,592		)
Net (loss) income	(2,236		)	1,852			(68,069		)	4,380
Accretion of Series A Redeemable Convertible Preferred Stock dividends	(773		)	(718		)	(2,192		)	(2,063		)
Net (income) attributable to Series A Redeemable Convertible Preferred Stock	—			(155		)	—			(321		)
Net (loss) income attributable to common stockholders	$	(3,009	)	$	979		$	(70,261	)	$	1,996
Net (loss) income per share attributable to common stockholders (Basic):	$	(0.09	)	$	0.03		$	(2.16	)	$	0.06
Net (loss) income per share attributable to common stockholders (Diluted):	$	(0.09	)	$	0.03		$	(2.16	)	$	0.06
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
Basic	32,863			31,356			32,539			30,980
Diluted	32,863			33,880			32,539			33,633

Stock-based compensation included in the results of operations data above was as follows (in thousands):

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	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Cost of revenue	$	136	$	87	$	346	$	219
Selling and marketing	639		631		1,911		1,827
Research and development	503		1,105		7,063		3,134
General and administrative	1,229		2,458		4,523		7,801
Total stock-based compensation	$	2,507	$	4,281	$	13,843	$	12,981

The following tables set forth our condensed consolidated results of operations for the periods presented as a percentage of revenue for those periods (certain items may not foot due to rounding).

	Three Months Ended				Nine Months Ended
	September 30, 2019		September 29, 2018		September 30, 2019		September 29, 2018
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	29	%	23	%	27	%	22	%
Operating expenses:
Selling and marketing	33	%	33	%	34	%	35	%
Research and development	16	%	18	%	23	%	18	%
General and administrative	25	%	22	%	23	%	23	%
Depreciation and amortization	1	%	1	%	1	%	1	%
Goodwill and intangible asset impairment charge	—	%	—	%	5	%	—	%
Restructuring and right of use asset impairment charges	—	%	—	%	2	%	—	%
Total operating expenses	75	%	75	%	88	%	77	%
Operating (loss) income	(4	)%	2	%	(15	)%	1	%
Other (expense) income, net	—	%	—	%	—	%	—	%
(Loss) income before income taxes	(4	)%	2	%	(15	)%	1	%
(Benefit from) provision for income taxes	—	%	(2	)%	29	%	(2	)%
Net (loss) income	(4	)%	4	%	(43	)%	3	%
Accretion of Series A Redeemable Convertible Preferred Stock dividends	(1	)%	(1	)%	(1	)%	(1	)%
Net (income) attributable to Series A Redeemable Convertible Preferred Stock	—	%	—	%	—	%	—	%
Net (loss) income attributable to common stockholders	(6	)%	2	%	(45	)%	1	%

Revenue

We generate revenue primarily through (a) subscription fees to our suite of products and services, which enable families to manage their diverse and evolving care needs, and caregivers to describe their unique skills and experience and otherwise differentiate and market themselves in a highly fragmented marketplace; and (b) annual contracts with corporate employers, both to provide access to our suite of products and services as an employee benefit, and to allow businesses to recruit employees and advertise their business profiles. Substantially all of our revenue earned is recognized on a ratable basis over the period the service is provided, with the exception of revenue from individually purchased background checks, which is recognized when the services are delivered to the end customer.

The following are our sources of revenue:

U.S. Consumer Business

Our U.S. Consumer Business consists of our U.S. matching solutions and our payments solutions.

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Our U.S. matching solutions provide families access to job posting features, search features, caregiver profiles and content and are offered directly to consumers. Access to this platform is free of charge for basic members. Paying family members pay a monthly, quarterly or annual subscription fee to connect directly with caregivers and to utilize enhanced tools such as third-party background checks. Paying caregiver members pay a subscription fee for priority notification of jobs, messaging services and to perform third-party background checks on themselves. Subscription payments are received from all paying members at the time of sign-up and are recognized on a daily basis over the subscription term as the services are delivered once the revenue recognition criteria are met (refer to Note 3 of the notes to the condensed consolidated financial statements for a description of the revenue recognition criteria).

Our payments solutions provide families several options to manage their financial relationship with their caregiver through the use of household employer payroll and tax services. Revenue related to Care.com HomePay, our household payroll and tax service, is primarily generated through quarterly subscriptions and recognized on a daily ratable basis over the period the services are provided.

Other Revenue

Other revenue includes revenue generated through contracts that provide corporate employers access to certain of our products and services, including on-demand back-up care, through our Care@Work solution. This product offering is typically sold through the use of an annual contract with an automatic renewal clause. Revenue related to this offering is recognized on a daily basis over the contract term. Additionally, other revenue includes revenue generated from international markets. This revenue is typically recognized on a daily basis over the term of a member’s subscription. We also generate revenue through our marketing solutions offering, which is designed to provide care-related businesses an efficient and cost-effective way to target qualified families seeking care services, and through our recruiting solutions offering, which allows care-related businesses to recruit caregivers for full-time and part-time employment. Revenue related to these product offerings is typically recognized in the period earned.

	Three Months Ended				Period-to-Period Change			Nine Months Ended				Period-to-Period Change
	September 30, 2019		September 29, 2018		$ Change	% Change		September 30, 2019		September 29, 2018		$ Change	% Change
	(in thousands)
Revenue	$	53,285	$	49,160	4,125	8	%	$	157,599	$	142,451	15,148	11	%

Comparison of the Three Months Ended September 30, 2019 and September 29, 2018

The change was primarily attributed to an increase of $2.6 million in our Care@Work solutions business. Additionally, there were increases of $0.7 million in our consumer matching solutions business, principally related to a higher number of paying families and caregivers, and $0.5 million in our consumer payment solutions business.

Comparison of the Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change was primarily attributed to an increase of $6.7 million in our Care@Work solutions business. Additionally, there were increases of $5.9 million in our consumer matching solutions business, principally related to a higher number of paying families and caregivers, an increase of $1.4 million in our consumer payment solutions business and an increase of $1.1 million in our recruiting and marketing solutions business.

Cost of Revenue

Our cost of revenue primarily consists of expenses that are directly related, or closely correlated, to revenue generation, including matching and payments member variable servicing costs such as personnel costs for customer support, transaction fees related to credit card payments, the cost of background checks run on both families and caregivers and costs associated with back-up care. Cost of revenue includes website hosting fees and amortization expense related to caregiver relationships, proprietary software acquired as part of acquisitions and website intangible assets. Additionally, we began to roll out an enhanced caregiver screening. We expect incremental costs associated with the additional screening and background checks performed on caregivers as part of the enhanced screening we are performing. We currently expect cost of revenue to increase on an absolute basis in the near term as we continue to expand our related customer base and roll out our additional safety investments for caregivers.

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	Three Months Ended						Period-to-Period Change				Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change		% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
Cost of revenue	$	15,598		$	11,532		$	4,066	35	%	$	43,050		$	30,798		$	12,252	40	%
Percentage of revenue	29		%	23		%					27		%	22		%

Comparison of the Three Months Ended September 30, 2019 and September 29, 2018

The change was related to increases in member servicing and background check screening fees of $2.7 million, compensation-related costs of $0.6 million and credit card fees of $0.5 million.

Comparison of the Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change was related to increases in member servicing and background check screening fees of $5.3 million, compensation-related costs of $4.2 million, credit card fees of $1.6 million, amortization expense of $0.5 million and hosting expense of $0.4 million.

Selling and Marketing

Our selling and marketing expenses primarily consist of customer acquisition marketing, including television advertising, branding, other advertising and public relations costs, as well as third-party resources for consulting and allocated facilities and other supporting overhead costs. In addition, sales and marketing expenses include salaries, benefits, stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. We plan to continue to invest in sales and marketing to grow our current customer base, continue building brand awareness, and expand our global footprint.

	Three Months Ended						Period-to-Period Change				Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change		% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
Selling and marketing	$	17,732		$	16,439		$	1,293	8	%	$	53,287		$	49,197		$	4,090	8	%
Percentage of revenue	33		%	33		%					34		%	35		%

Comparison of the Three Months Ended September 30, 2019 and September 29, 2018

The change was primarily attributed to an increase in acquisition marketing expense of $1.3 million.

Comparison of the Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change was primarily attributed to increases in both acquisition marketing expense of $3.5 million and compensation-related costs of $0.4 million.

Research and Development

Our research and development expenses primarily consist of salaries, benefits and stock-based compensation for our engineers, product managers and developers. In addition, product development expenses include third-party resources, as well as allocated facilities and other supporting overhead costs. We believe that continued investment in features, software development tools and code modification is important to attaining our strategic objectives and, as a result, we expect product development expense to increase on an absolute basis in the near term.

	Three Months Ended						Period-to-Period Change					Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change			% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
Research and development	$	8,417		$	8,860		$	(443	)	(5	)%	$	36,563		$	25,640		$	10,923	43	%
Percentage of revenue	16		%	18		%						23		%	18		%

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Comparison of the Three Months Ended September 30, 2019 and September 29, 2018

The change was primarily related to a decrease in compensation-related costs of $0.5 million.

Comparison of the Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change was primarily related to an increase in compensation-related costs of $10.8 million, which itself was due primarily to the acceleration of $3.9 million of stock-based compensation and $3.6 million in earn-out expense associated with the Figure 8 impairment in the second quarter of fiscal 2019. Additionally, we had an additional $2.6 million of compensation-related expense associated with increased headcount from our recent acquisitions.

General and Administrative

Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include: third-party resources, cyber security risk mitigation costs, legal and accounting services, acquisition-related costs, insurance premiums and facilities.

	Three Months Ended						Period-to-Period Change				Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change		% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
General and administrative	$	13,281		$	10,987		$	2,294	21	%	$	35,604		$	33,047		$	2,557	8	%
Percentage of revenue	25		%	22		%					23		%	23		%

Comparison of the Three Months Ended September 30, 2019 and September 29, 2018

The change was primarily related to increases in consulting resources for professional service expense, third-party advisors expense, IT-related expenses and recruiting expense of $2.0 million, $0.8 million, $0.2 million and $0.1 million, respectively. These were partially offset by a decrease in the compensation-related costs of $1.1 million.

Comparison of the Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change was primarily related to increases in consulting resources for professional services expense, third-party advisors expense and IT-related expense of $2.6 million, $1.2 million and $0.7 million, respectively. These were partially offset by a decrease in compensation related costs of $2.0 million.

Depreciation and Amortization

Depreciation and amortization expenses primarily consist of depreciation of computer equipment and software and amortization of leasehold improvements and acquired intangibles. Overall, we expect that depreciation and amortization expenses will decrease as a percentage of revenue.

	Three Months Ended						Period-to-Period Change				Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change		% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
Depreciation and amortization	$	478		$	416		$	62	15	%	$	1,408		$	1,245		$	163	13	%
Percentage of revenue	1		%	1		%					1		%	1		%

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Comparison of the Three and Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change was primarily attributed to new amortization associated with the acquisitions made during fiscal 2018 and 2019. Over the next five years, we expect to incur total annual amortization expense associated with previous acquisitions of $3.0 million.

Goodwill and Intangible Asset Impairment Charge

	Three Months Ended						Period-to-Period Change			Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change	% Change		September 30, 2019			September 29, 2018			$ Change	% Change
	(in thousands, except percentages)
Goodwill and intangible asset impairment charge	$	—		$	—		—	—	%	$	8,183		$	—		8,183	100	%
Percentage of revenue	—		%	—		%				5		%	—		%

Comparison of the Three and Nine Months EndedSeptember 30, 2019 and September 29, 2018

In the second quarter of fiscal 2019, we decided to wind down our Figure 8 acquisition service. This resulted in an indicator of impairment for the associated finite and intangible assets. Given that Figure 8 was only acquired in the first quarter of fiscal 2019, we had not yet integrated the business into our into existing reporting units. As we will be disposing of the business, our impairment assessment completed in the second quarter of fiscal 2019 resulted in an impairment loss of $8.2 million in the nine months ended September 30, 2019. This impairment loss consisted of the $5.3 million of goodwill recorded upon acquisition and $2.9 million of net proprietary software intangible assets.

Restructuring and Right of Use Asset Impairment Charges

	Three Months Ended						Period-to-Period Change					Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change			% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
Restructuring charges	$	(134	)	$	89		$	(223	)	(251	)%	$	2,855		$	568		$	2,287	403	%
Percentage of revenue	—		%	—		%						2		%	—		%

Comparison of the Three and Nine Months EndedSeptember 30, 2019 and September 29, 2018

In the first and third quarters of fiscal 2018, we updated our assumptions for the expected time period it will take to obtain a subtenant for the remainder of the ceased use space. This resulted in and additional $0.6 million of charges, of which $0.5 million was incurred in the first quarter of fiscal 2018 and $0.1 million was incurred in the third quarter of fiscal 2018. We also updated our assumptions in the first, second and third quarters of fiscal 2019. We signed a sublease agreement for a portion of the ceased use space during the third quarter of fiscal 2019 and accordingly updated our estimates. The updated assumptions resulted in $0.2 million and $0.3 million of restructuring and right of use asset impairment charges in the first and second quarters of fiscal 2019, respectively. In the third quarter of fiscal 2019 a reduction to the restructuring and right of use asset impairments of $0.1 million was recorded when the final sublease agreement was signed and the subtenant income was known.

During the quarter ended June 29, 2019, we decided to abandon and seek a sublet for 36,395 square feet of our 108,743 square foot headquarters facility in Waltham, Massachusetts. We recorded a right of use asset impairment charge of $1.1 million, consisting of the remaining rent expense for the ceased use space, offset by the estimated sublease rental income. Additionally, we had a lease obligation charge of $0.7 million. The lease obligation charge comprised of restructuring expense, including estimated construction costs, real estate taxes, broker fees and utilities. Furthermore, we wrote-off $0.5 million of leasehold improvements related to the space. These estimates may vary from the sublease agreements ultimately executed, if at all, resulting in an adjustment to the charges. The initial restructuring charge was recorded as restructuring and right of use impairment charges in the consolidated statements of operations for the nine months ended September 30, 2019.

Other (Expense) Income, net

Other (expense) income, net, consists primarily of foreign exchange gains and losses, net of the interest income earned on our cash and cash equivalents and investments.

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	Three Months Ended						Period-to-Period Change					Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change			% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
Other (expense) income, net	$	(222	)	$	38		$	(260	)	(684	)%	$	454		$	(168	)	$	622	(370	)%
Percentage of revenue	—		%	—		%						—		%	—		%

Comparison of the Three and Nine Months EndedSeptember 30, 2019 and September 29, 2018

The change primarily related to increased interest income from our short-term investments during the three and nine months endedSeptember 30, 2019 compared to the three and nine months endedSeptember 29, 2018. Additionally, the change was partially driven by the favorable movement of foreign exchange rates, primarily due to the weakening of the U.S. dollar against the Euro and British Pound Sterling during the three and nine months endedSeptember 30, 2019 compared to the three and nine months endedSeptember 29, 2018.

Benefit from (Provision for) Income Taxes

Benefit from (provision for) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions.

	Three Months Ended						Period-to-Period Change				Nine Months Ended						Period-to-Period Change
	September 30, 2019			September 29, 2018			$ Change		% Change		September 30, 2019			September 29, 2018			$ Change		% Change
	(in thousands, except percentages)
(Benefit from) provision for income taxes	$	(73	)	$	(977	)	$	904	(93	)%	$	45,172		$	(2,592	)	$	47,764	(1,843	)%
Percentage of revenue	—		%	(2		)%					29		%	(2		)%

Comparison of the Three and Nine Months EndedSeptember 30, 2019 and September 29, 2018

The benefit recorded for the three months ended September 30, 2019 primarily related to natural movement in our valuation allowance and naked liability related to the goodwill amortization for tax purposes for which there is no corresponding GAAP deduction.The expense recorded for the nine months endedSeptember 30, 2019 primarily relates to the recording of a valuation allowance against our net deferred tax assets.

Liquidity and Capital Resources

The following table summarizes our cash flow activities for the periods indicated (in thousands):

	Nine Months Ended
	September 30, 2019			September 29, 2018
Cash flow provided by (used in):
Operating activities	$	9,354		$	23,733
Investing activities	(9,063		)	(30,481		)
Financing activities	679			4,693
Effect of exchange rates on cash and restricted cash balances	(269		)	(282		)
(Decrease) Increase in cash and cash equivalents and restricted cash	$	701		$	(2,337	)

As of September 30, 2019, we had cash and cash equivalents and short-term investments of $129.6 million, which consisted of $94.6 million in cash and cash equivalents and $35.0 million in short-term investments. Cash and cash equivalents and short-term investments consist of cash, certificates of deposit, and money market funds. Cash held internationally as of September 30, 2019 was $14.0 million. We did not have any long-term investments. Additionally, we do not have any outstanding bank loans or credit facilities in place. To date, we have been able to finance our operations through proceeds from the public and private sales of equity and our positive cash flows from operations. We believe that our existing cash and cash equivalents balance will be

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sufficient to meet our working capital expenditure requirements for at least the next 12 months. From time to time, we may explore additional financing sources to develop or enhance our services, to fund expansion, to respond to competitive pressures, to acquire or to invest in complementary products, businesses or technologies, or to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, if at all.

Operating Activities

Our primary source of cash from operations was from ongoing subscription fees to our consumer matching solutions. We believe that cash inflows from these fees will grow from our continued penetration into the market for care.

Nine Months EndedSeptember 30, 2019

Cash from operating activities provided $9.4 million during the nine months endedSeptember 30, 2019. This amount resulted from a net loss of $68.1 million, adjusted for non-cash items of $70.7 million, and a net $6.8 million source of cash due to changes in working capital accounts.

Non-cash expenses within net loss consisted primarily of $44.8 million for deferred taxes, primarily associated with the realization of our valuation allowance for deferred tax assets, $13.8 million for stock-based compensation, $8.2 million for impairment charges associated with the wind down of our Figure 8 business and $2.2 million of depreciation and amortization expense.

Increases in operating liabilities and operating assets resulted in a net source of $6.8 million of cash within operating activities. The increase of cash within operating activities was primarily due to an increase of accrued expenses and other current liabilities of $5.4 million, deferred revenue of $4.4 million and other non-current liabilities of $2.9 million. This was partially offset by increases in accounts receivable and prepaid expenses and other current assets of $1.9 million and $1.9 million, and a decrease in accounts payable of $1.2 million.

Nine Months EndedSeptember 29, 2018

Cash from operating activities provided $23.7 million during the nine months ended September 29, 2018. This amount resulted from a net income of $4.4 million, adjusted for non-cash items of $12.8 million, and a net $6.5 million source of cash due to changes in working capital accounts.

Non-cash expenses within net income consisted primarily of $13.0 million for stock-based compensation, $1.5 million of depreciation and amortization expense, and $0.6 million of foreign currency remeasurement loss. This was partially offset by $2.7 million of deferred taxes.

Increases in operating liabilities and operating assets resulted in a net source of $6.5 million of cash within operating activities. The increase of cash within operating activities was primarily due to increases in accrued expenses, deferred revenue, and other non-current liabilities of $4.7 million, $3.6 million, and $1.3 million, respectively, and decreases in accounts receivable of $0.5 million. These were partially offset by increases in prepaid expenses and other current assets and unbilled accounts receivable of $1.6 million and $0.6 million.

Investing Activities

Nine Months EndedSeptember 30, 2019

Cash used in investing activities totaled $9.1 million, which was primarily related to the acquisition of Filios, Inc. for $7.5 million and purchases of property, equipment and software of $1.6 million. Our $15.1 million short-term investment matured in the first half of fiscal 2019, and we reinvested $15.0 million of this short-term investment in the first half of fiscal 2019. In the second half of fiscal 2019, our $15.0 million and $20.0 million short-term investments matured and we reinvested the $15.0 million and the $20.0 million short-term investments in the second half of fiscal 2019.

Nine Months EndedSeptember 29, 2018

Cash used in investing activities totaled $30.5 million, which was primarily related to the investment of $35.1 million in short-term investments. Of this amount, we purchased $15.0 million of short-term investments in the first quarter of fiscal 2017. These matured in the first quarter of fiscal 2018, and the $15.1 million was reinvested in the first quarter of fiscal 2018. In the third quarter of fiscal 2018, we invested an additional $20.0 million in short-term investments. Additionally, the acquisitions of Town & Country, Galore, and Trusted Lab of $9.8 million and purchases of property, equipment and software of $0.6 million contributed to the cash used in investing activities.

Financing Activities

Nine Months EndedSeptember 30, 2019

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Cash provided by financing activities totaled $0.7 million, which was primarily attributed to the exercise of common stock options of $1.8 million, offset by payments for contingent consideration of $1.1 million.

Nine Months EndedSeptember 29, 2018

Cash provided by financing activities totaled $4.7 million, which was attributed to the exercise of common stock options.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the Securities and Exchange Commission, in the nine months ended September 30, 2019 and September 29, 2018.

Contractual Obligations

Our contractual obligations relate primarily to non-cancelable operating leases and contingent acquisition consideration. There have been no significant changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 29, 2018, except as set forth below.

In the second quarter of 2019, we entered into a 5-year lease for an office facility in the San Francisco Bay Area. The lease commenced in the third quarter of 2019, and we will pay an aggregate of approximately $5.3 million over the lease term.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business.

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, principally the Euro, the British pound sterling, the Canadian dollar and the Swiss franc. The volatility of exchange rates depends on many factors that we cannot reliably forecast. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains (losses) related to revaluing certain cash balances, trade accounts receivable balances and accounts payable balances that are denominated in currencies other than the U.S. dollar. In the event our foreign currency denominated cash, accounts receivable, accounts payable, sales or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. A hypothetical change of 10% in appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at September 30, 2019 would not have a material impact on our revenue, operating results or cash flows in the coming year.

At this time we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.

Interest Risk

We did not have any long-term borrowings as of September 30, 2019 or September 29, 2018. Under our current investment policy, we are permitted to invest our excess cash only in money market funds and certificates of deposit. Our current investment policy seeks first to preserve principal, second to provide liquidity for our operating and capital needs and third to maximize yield without putting our principal at risk. Our investments are exposed to market risk due to the fluctuation of prevailing interest rates that may reduce the yield on our investments or their fair value. As our investment portfolio is short-term in nature, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our results of operations or cash flows to be materially affected to any degree by a sudden change in market interest rates.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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Our management, with the participation of our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

In addition, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the third fiscal quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

In March 2016, we learned of an investigation by the Marin County, California District Attorney’s Office regarding the clarity and conspicuousness of our automatic renewal disclosures and the mechanism by which we obtain informed consent when members purchase premium subscriptions on our website. In September 2016, we learned of an investigation by the San Francisco County, California District Attorney’s Office regarding the accuracy and clarity of our disclosures about the sex offender registry search available to consumers through our website. In 2017, the District Attorneys’ Offices proposed a joint settlement that would include a payment by us of approximately $4.9 million to resolve both investigations. We are in discussions with the District Attorneys’ Offices regarding a proposed settlement and continue to cooperate with the investigations. We have determined that it is probable that we will incur a loss in connection with these matters and have accrued an amount based on the low end of the range of our reasonable estimate of this loss.

In addition, on April 3, 2019, a complaint was filed against the Company and two of our officers, Sheila Lirio Marcelo, our chief executive officer, and Michael Echenberg, who was then our chief financial officer, in the U.S. District Court for the District of Massachusetts. The lawsuit purports to be brought on behalf of a class of purchasers of our stock during the period from March 27, 2015 to April 1, 2019, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, related to the Company’s disclosures about the screening of certain member information for criminal or other inappropriate inactivity. The complaint seeks compensatory and punitive damages, fees, interest, costs and other appropriate relief. A lead plaintiff has been appointed and on July 23, 2019 the court set a schedule for the completion of certain pretrial events. In accordance with that schedule, the plaintiffs filed an amended complaint on September 16, 2019 and the Company filed a motion to dismiss on November 1, 2019. The Company is unable to predict the ultimate outcome of this litigation, and therefore cannot estimate possible losses or ranges of losses, if any.

We also are currently involved in other pending regulatory and government inquiries and investigations and legal proceedings in the ordinary course of our business. Although the results of these matters cannot be predicted with certainty, we do not believe they will have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 1A.RISK FACTORS

Risks Related to Our Business

We may not maintain our current rate of revenue growth.

Our revenues have grown steadily, increasing to $192.3 million in fiscal year 2018 from $174.1 million in fiscal year 2017, representing an annual growth rate of 10%. Our continued revenue growth and the rate of our revenue growth depend largely on our ability to effectively and efficiently grow our membership, increase the number of families who pay for our products and services, increase the average revenue per paying family and lengthen the time period existing and new families continue to pay for our products and services. We cannot assure you that we will be successful in continuing to expand our paying family base at historical rates, or at all. In addition, our revenue growth rate may decline if we are not able to increase the number of paying families while managing our acquisition costs within our targeted return on investment range or if we are unsuccessful in cross-selling new and existing products and services to our members, such as our consumer payments solutions, or in continuing to develop and innovate with new products, services and solutions that members consider valuable, such as our mobile solutions. Furthermore, our revenue growth rate may decline if we are unable to expand our Care@Work client base.

You should not rely on our historical rate of revenue growth as an indication of our future performance. If our growth rates were to decline significantly or become negative, it could adversely affect our financial condition and results of operations.

We expect our revenue and operating results to fluctuate on a quarterly and annual basis, which may result in a decline in our stock price.

Our revenue and operating results have historically fluctuated from quarter-to-quarter and year-to-year and we expect these fluctuations to continue in the future. Such fluctuations may be significant and unpredictable and may fail to match our projections or the expectations of securities analysts due to a variety of factors, many of which are outside of our control. Any of these events could cause the market price of our stock to fluctuate.

In addition, we generally experience some seasonal fluctuations in our financial results due to heightened demand for caregivers from families at the beginning of the school year and at the beginning of the calendar year. Accordingly, purchases of subscriptions for our consumer matching solutions are generally higher in the first and third quarters than they are in the second and fourth quarters. In addition, other seasonal trends may develop, and the seasonality of consumer behavior that we have observed in the past may change.

See accompanying notes to the condensed consolidated financial statements

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We have based our current and projected future expense levels on our operating plans and sales forecasts, and our operating costs are relatively fixed in the short term. As a result, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenue, and even a small shortfall in revenue could disproportionately and adversely affect our financial results for a given quarter.

In addition to the other risk factors listed in this section, our operating results may be affected by a number of factors, including:

•our ability to attract and retain paying families;

•fluctuations in demand for our products and services;

•fluctuations in sales cycles for our products and services;

• the timing of revenue recognition as a result of guidance under GAAP;

•general economic conditions in our domestic and international markets and fluctuations in exchange rates;

•our ability to develop and introduce new products and product enhancements that are attractive to our members;

• the mix of monthly memberships and annual memberships, as the amount of revenue recognized per month on an annual membership is less than a monthly membership;

•member acceptance of new product introductions;

•the timing and success of changes in our pricing strategies and our competitors’ pricing strategies;

•our ability to sell our services to employers and care-related businesses;

• costs related to acquisitions of other businesses and our ability to successfully integrate, manage and grow those businesses;

• costs associated with actual and threatened lawsuits and government investigations;

• any significant changes in the dynamics of the markets in which we compete, including new entrants or substantial discounting of competitive products;

• any decision to increase or decrease operating expenses in response to changes in the marketplace or perceived marketplace opportunities;

•our ability to derive benefits from our investments in sales, marketing, engineering or other activities;

•changes in the regulatory environment for our products domestically and internationally;

•volatility in our stock price, which may lead to higher stock compensation expenses; and

• unpredictable fluctuations in our effective tax rate due to disqualifying dispositions of stock from our stock incentive plan, changes in the valuation of our deferred tax assets or liabilities, changes in actual results versus our estimates or changes in tax laws, regulations, accounting principles or interpretations thereof.

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

The market for accessing family care online is rapidly evolving and has not yet reached widespread adoption, making it difficult for us to predict our future operating results. Our business and prospects may be significantly affected by the risks and difficulties we may encounter in this rapidly evolving market. These risks and difficulties include those described in this Quarterly Report on Form 10-Q and our ability to, among other things:

•attract and retain members and maintain an appropriate family to caregiver ratio of active members;

•encourage paying families to stay longer and return as paying families sooner after their paid membership lapses;

• cross-sell our products and services to our new and existing members;

• continue to develop and diversify our product offerings for members;

• innovate more quickly than our competition to maintain and expand our position as a market leader;

• anticipate and react to changes in technology such as the shift from personal computers to mobile devices;

•sell our services to employers and care-related businesses;

•provide our members with superior user experiences;

•motivate members to contribute additional, timely and accurate content to our marketplace;

•anticipate and react to challenges from existing and new competitors;

•maintain the strength and increase awareness of our brand;

•integrate and grow the businesses we acquire as anticipated; and

•manage and grow our international operations in existing and new markets.

Failure to adequately address these risks and difficulties could harm our business and impact our ability to achieve or maintain positive net income. In addition, if the demand for online care does not develop as we expect, or if we fail to address the needs of this demand, our business will be harmed.

If the revenue generated by paying families differs significantly from our expectations, or if our membership acquisition costs differ significantly from our expectations, we may not be able to recover our membership acquisition costs or generate profits from these investments.

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We had $60.5 million in sales and marketing expenses in fiscal year 2018 and $66.9 million in sales and marketing expenses in fiscal year 2017. While we intend to further leverage unpaid marketing channels, we expect to continue to make significant investments to acquire additional members, including advertising through television, online, social media and other advertising campaigns. Our decisions regarding these investments are based on our anticipated marketing cost to acquire each additional paying family, the success of our unpaid marketing initiatives, and our analysis of the revenue we believe we can generate per paying family over the expected lifetime of such membership.

In addition, most of our paying families are currently enrolled in monthly memberships, and the fiscal year 2018 average total paid membership length for our consumer matching solutions was approximately 11.3 months. As a result, to maintain our revenue we must continually replace paying families who allow their membership to lapse with new paying families either by converting existing non-paying families or by attracting new paying families to our service. Our anticipated member acquisition costs and our analysis of the revenue that we expect new paying families to generate over the life of the membership depends upon estimates and assumptions regarding, among other things, paid membership lengths and renewal rates, conversion rates of existing families to paying families, future membership fees and our success in cross-selling existing and new products and services to members.

If our estimates and assumptions regarding either our costs to acquire paying families or the revenue we can generate from those memberships over their lifetime prove incorrect, we may be unable to recover our member acquisition costs and our net income may decrease. Similarly, if our member acquisition costs increase, or if the revenue we generate from new members decreases, the return on our investment in acquiring new members may be lower than we anticipate. If we cannot generate profits from this investment, we may need to alter our growth strategy, and our growth rate and results of operations may be adversely affected.

We have a significant accumulated deficit and may have operating losses as we continue to grow our business.

We experienced net losses from continuing operations of $0.7 million in fiscal 2016. Although we had net income of $52.9 million and $10.7 million in fiscal year 2018 and fiscal year 2017, respectively, and positive adjusted EBITDA in fiscal year 2018, there is no assurance that this will continue into the future.  We expect our operating expenses to increase over the next several years, which may diminish our profitability or lead to losses in the future. In particular, we intend to make substantial investments to expand the breadth and depth of the preliminary screening procedures we apply to individual caregivers on our U.S. consumer matching platform, and in marketing to acquire new, paying members. We also intend to hire additional personnel in safety, product, operations, sales and other areas of our business and to introduce new products, services and features, each of which will increase our expenses with no assurance that we will generate sufficient revenue to achieve or maintain positive net income. If we are unable to achieve or maintain profitability, we may adjust our strategic focus and investments, which could have a negative effect on our results of operations or our assessment that it is more likely than not that our deferred tax assets related to historic net operating losses will be realized.

If we are unable to introduce new and diversified products, services or features that families and caregivers find valuable, we may not be able to attract and retain families and caregivers on our online marketplace or expand our paying family base. Our efforts to develop new and diversified products and services could require us to incur significant costs.

In order to continue to attract and retain families and caregivers on our online marketplace and expand our paying family base, we will need to continue to invest in the innovation and development of new and diversified products, services and features that add value for families and caregivers. The success of new and diversified products, services and features depends on several factors, including the timely completion, introduction and market acceptance of the product, service or feature. If families and caregivers do not value our new or diversified products, services or features, they may choose not to use our online marketplace or pay for our services.

Attempting to develop and deliver new or diversified products, services or features is costly and involves inherent risks and difficulties. We cannot guarantee that we will be able to successfully manage these product developments or that they will work as intended or provide value to families and caregivers. In addition, some new or diversified products, services or features may be difficult for us to market and may also involve unfavorable pricing. Even if we succeed, we cannot guarantee that our members will respond favorably.

Many individuals use mobile devices to access online services. If we are unable to effectively operate or monetize on mobile devices, our business could be adversely affected.

The number of people who access online services through mobile devices, such as smart phones, handheld tablets and mobile telephones, as opposed to personal computers, has increased dramatically in the past few years and is projected to continue to increase. In fiscal year 2018, we had an average of over 9.4 million unique visitors to our platform each month, 61% of whom visited our site from mobile devices. Throughout fiscal 2019, we expect the percentage of visitors from mobile devices to increase. If the mobile solutions we have developed do not continue to meet the needs of prospective members or current members, they may not register for our services, they may not become paying members and/or they may reduce their usage of our services and our business could suffer. Additionally, we are dependent on the interoperability of Care.com with popular mobile operating systems

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that we do not control, such as Android and iOS, and any changes in such systems and their terms of service that degrade our solutions’ functionality, give preferential treatment to competitive products, prevent our ability to promote our services, or impact how we monetize our services could adversely affect our revenue or operating results.

Our business depends on the strength of our brand. If we are the subject of negative publicity, if the services we provide fail to meet our members’ expectations, if inappropriate actions by certain of our members are attributed to us, or if we are the target of lawsuits or investigations, our brand may be damaged, and we may be unable to maintain or expand our base of members and paying families.

The strength of our brand is essential to our business. Member awareness, and the perceived value, of our brand depends largely on the success of our marketing efforts and the ability of our members to have a consistent, high-quality experience with our service. As a result, we must ensure that our new and existing members are satisfied with our products and services. Negative publicity, complaints or negative views regarding our products or services, irrespective of their validity, could diminish members’ and prospective members’ confidence in and use of our platform and adversely impact our brand. We have in the past been, and may in the future be, the subject of media reports that cast our business practices or the products and services we provide in a negative light. For example, we have been the subject of media reports that have criticized our ability to detect and remove bad actors from our site. There have also been news reports of alleged criminal conduct by members who may have met their alleged victims through our site, including sexual abuse and conduct resulting in death. In some cases lawsuits have been filed against Care.com relating to such conduct. In addition, in recent years there has been an increase in fraud perpetrated against caregivers who seek employment opportunities on sites such as ours, and Care.com has been featured in news reports regarding these scams. Regardless of the accuracy of these reports, the validity of their claims or our response, such reports may have the effect of undermining confidence in our brand or increasing the perceived risk of using our services, which could affect our ability to attract and retain paying members and, as a result, negatively impact our results of operations. Even if the effect of such reports on our results of operations is limited, the perception that they could negatively impact our business could cause a decline in the price of our stock disproportionate to the actual harm caused.

Our Care@Work clients may be particularly sensitive to the brands with which their businesses are associated. As a result, harm to our brand, including as a result of events or publicity unrelated to our Care@Work business, may make it more difficult for us to attract new Care@Work clients and keep existing ones.

In addition to news reports, we may be subjected to negative publicity in connection with threatened or ongoing litigation or governmental investigations. Even if such claims or investigations do not have merit, and even if we are able to successfully defend, settle or otherwise resolve them, the publicity they generate, including press releases issued by or statements from our counterparties in the applicable dispute, may be perceived negatively, and may have the effect of harming our brand, negatively affecting our business or causing our stock price to decline.

The strength of our brand, and our ability to attract and retain paying members, depends significantly on the experience our members have with one another at the point of service, which we do not control. Conduct by our members may be attributed to us, and as a result inappropriate, illegal or otherwise harmful acts by caregivers or families, even if only by a small number of our members and even if such acts are outside of our control, could result in negative publicity or legal action that could have a significant negative impact on our brand. If our efforts to promote and maintain our brand are not successful or if our member experience is not otherwise positive, our operating results and our ability to attract and retain paying members may be adversely affected and our results of operations may be harmed.

Furthermore, an adverse, public event resulting from the actions of a caregiver on a competitor’s platform could increase the perceived risk of seeking care or employment through an online platform, and cause our members or prospective members to lose confidence in our services. Such an event could result in harm to our brand even if the caregiver has no relationship with our platform, and as a result could adversely affect our business.

We depend on highly skilled personnel to grow and operate our business and if we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.

Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly-skilled personnel. Our ability to execute efficiently depends upon contributions from all of our employees, in particular our senior management team and employees from key business areas such as product, engineering and analytics. Key institutional knowledge remains with a small group of long-term employees whom we may not be able to retain. We do not have employment agreements other than offer letters with any of our key employees, including our chief executive officer, and we do not currently maintain key person life insurance for any employee. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed. Our growth strategy also depends on our ability to expand and retain our talent pool. Identifying, recruiting, training and integrating qualified individuals require significant time, expense and attention. In addition to hiring new employees, we must continue to focus on retaining our best talent. Competition for these resources, particularly in Boston, Austin and the San Francisco Bay area, three

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areas where we have offices, is intense. If we are not able to effectively increase and retain our talent, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.

In August 2019, Sheila Lirio Marcelo, our president and chief executive officer, announced on behalf of the Company that the Company will initiate a search for a new Chief Executive Officer and that she will transition to the role of Executive Chairwoman to focus her efforts on advocating for improvements and innovations in the country’s care infrastructure to better enable families to find quality care and caregivers to find meaningful work. Ms. Marcelo will remain CEO until her successor is appointed, participating in the search process with the other members of our board of directors, and transition to Executive Chairwoman at that time. Such announcement followed our announcement in June 2019 of the resignation of Michael Echenberg, our former chief financial officer, which became effective on August 30, 2019, at which time an acting chief financial officer was appointed.  The departure of two of our senior executives and the concomitant transitions of their responsibilities to new executives have the potential to negatively affect our operations, including by impeding management’s ability to execute its business strategy, diverting management attention and resources, disrupting our relationships with our employees, customers, suppliers and investors, and hindering our ability to retain our current employees and hire new employees.  In addition, there is no guarantee we will be able to find suitable successors promptly, or at all, or that we will be able to integrate the successors we hire into our management team.  Even if the risks related to the departures of Ms. Marcelo and Mr. Echenberg do not materialize, the perception that they could may harm our business or cause our stock price to fall.

We believe that our culture has the potential to be a key contributor to our success. As we grow, if we do not continue to develop our corporate culture it could harm our ability to foster the innovation, creativity and teamwork we believe we need to support our growth.

Finally, we rely on the resources of third parties over whom we have limited control to assist us in developing certain products and features. If any of these third parties terminates its relationship with us or fails to provide adequate services, it could cause delays in our release of new product offerings and/or features and harm our business.

If we fail to manage our growth effectively, our business, operating and financial results may suffer.

We have recently experienced, and expect to continue to experience, significant growth, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We expect that our growth strategy will require us to commit substantial financial, operational and technical resources. It is important that we appropriately prioritize our efforts and allocate our limited resources effectively. Continued growth also could strain our ability to maintain reliable service levels for our members, to enhance our product offerings, to develop and improve our operational, financial and management controls, to continue to strengthen our reporting systems and procedures and to recruit, train and retain highly skilled personnel. As our operations grow in size, scope and complexity, we will need to scale our systems and infrastructure accordingly and may determine we need to open additional offices, add more network capacity and make other capital investments, which will require significant expenditures and allocation of valuable management resources. For example, in fiscal 2017 to access additional personnel talent, we made the decision to increase our staffing and resources in the Bay Area, a market which is more expensive and competitive than other markets in which we operate.  If we continue to see the need to enter or increase personnel in markets to access specific types of talent, this may increase our expenses going forward.Additionally, if we fail to maintain the necessary level of discipline and efficiency, or if we fail to appropriately prioritize our efforts and allocate limited resources effectively in our organization as it grows, our business, operating results and financial condition may suffer.

We recently announced additional investments in our business that may increase our expenses and adversely affect our results of operations.

We are making additional investments in our business that may adversely affect our operating expenses and results of operations. For example, we are expanding the breadth and the depth of the preliminary screening procedures that apply to individual caregivers on our U.S. consumer matching platform, including by running expanded criminal background checks. The roll out of caregiver screening across our consumer matching platform has increased our costs and could cause a material reduction of our operating margins. As a result, to maintain or increase the profitability of our consumer matching services we must increase the revenue we receive from families who use these services, and there is no guarantee we will be able to do so. We rely on our consumer matching services to generate a substantial majority of our total revenues. If we are unable to maintain the profitability of our consumer matching services, our results of operations will be harmed, and our stock price may decline.

We make product and investment decisions that may not prioritize short-term financial results and may not produce the long-term benefits that we expect.

We seek to continually enhance our members’ experience with our products and services with the objective of maximizing our long-term financial performance. As a result, we frequently make product and investment decisions that may not prioritize our short-term results. For example, we are making substantial investments to expand the breadth and depth of the preliminary screening procedures that apply to individual caregivers on our U.S. consumer matching platform. Even though we believe that these enhancements will improve the quality of our platform, in the short term they will increase our costs and may have the effect

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of reducing or eliminating our operating margins and profitability, thereby harming our financial performance. As a result, our investments could have material adverse effects on our stock price and results of operations in the short term. Because there is no guarantee that our investments will produce the benefits we expect, we cannot assure that these or other adverse effects will be temporary or will be reduced or eliminated in the future. The success of these investments depends on a number of factors, some of which are outside of our control, including our ability to implement additional screening measures cost-effectively, the availability of screening services from third-party providers and governmental entities at a cost and scale that permits us to operate profitably and the acceptance by consumers and regulators of changes to our business practices as they relate to the additional screening measures. If the benefits we hope to achieve from our investment decisions fail to materialize, our results of operations may be harmed, and we may decide to reduce the scope of or eliminate the programs, products and initiatives the investments were intended to support. Any such reduction or elimination may expose us to negative publicity, regulatory scrutiny and litigation, any of which could have the effect of harming our brand and our stock price.

Our ongoing investments in safety may reveal additional instances in which caregivers with criminal backgrounds have been able to use our website to provide services to families seeking care.

We are making substantial investments and changes to our operating procedures to improve the quality, safety and reliability of our U.S. consumer matching services.  As part of these efforts we expect to significantly increase the number of caregivers who are subjected to criminal background checks, including by running additional background checks on caregivers who had profiles on our website before these changes were implemented, or who have already used our website to find employment with families.  It is possible these background checks will reveal criminal conduct by caregivers that neither we nor the families who hired the caregivers were aware of before.  The discovery of previously unknown criminal activity by caregivers who use our site may negatively affect user trust and engagement, harm our reputation and brand and adversely affect our business and financial results.  It may also subject us to additional litigation, regulatory scrutiny and inquiries and negative media reports and other publicity, any of which could subject us to monetary penalties and damages, divert management’s time and attention and lead to enhanced regulatory oversight.

If we fail to cost-effectively attract and retain qualified caregivers, or to increase the utilization of our platform by existing caregivers, our business, financial condition and results of operations could be harmed.

The success of our business and the strength of our brand is substantially dependent on our ability to reliably match families who are seeking care with qualified caregivers who can meet their needs.  We are enhancing the rigor of the pre-screening and background checking procedures that the caregivers on our U.S. consumer matching platform are subjected to.  As we implement these procedures, some caregivers who seek to use our platform, including caregivers who have used our platform in the past, will be unable to do so, which may decrease the number of caregivers who are able to offer their services through our site.  Any such reduction could result in increased competition for qualified caregivers or higher costs of recruitment and retention. 

In addition, changes in laws and regulations in the jurisdictions in which we operate, including those related to immigration, labor, employment, background checks and privacy could reduce the number of caregivers who are able to offer their services on our platform.  For example, legislators or regulators could pass laws or adopt regulations that require caregivers to undergo a materially different type of qualification, screening or background check process, or that limit our ability to access information used in the background check process in an efficient manner, which could prevent or substantially increase the cost of running certain kinds of background checks.  If we are unable to cost-effectively attract and retain qualified caregivers in a volume sufficient to meet the needs of our care-seeking families, our business, financial condition and results of operations may be harmed.  Furthermore, we rely on a single background-check provider in certain jurisdictions, and we may not be able to arrange for adequate background checks from a different provider on commercially reasonable terms or at all.  Any failure of this provider to provide background checks on a timely basis would diminish our capacity to efficiently and cost-effectively attract and retain qualified caregivers.

If we fail to adapt our operations to meet the increased contractual demands of our Care@Work clients, our brand and results of operations may be negatively impacted.

The significance of our Care@Work offering to commercial clients has grown as we have entered into agreements with large organizations with operations throughout the United States and around the world. Meeting our contractual obligations to such organizations has demanded significant management attention, and has required us to undertake a rapid expansion of the scale and complexity of our Care@Work operations. If we fail to meet our contractual obligations to our Care@Work clients, they may seek to terminate their contracts with us and recover damages, which would have a negative effect on our results of operations. In addition, such failure could result in negative publicity and reputational harm, hurting our brand and making it more difficult for us to keep our current clients and attract new ones. Even if we are successful meeting our obligations under existing contracts with our Care@Work clients, there is no guarantee that such clients will continue their relationships with us through or beyond their current contractual term. Any termination of a contract by our Care@Work clients would have a negative effect on our results of operations, and could result in negative publicity and reputational harm, hurting our brand and making it more difficult for us to

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keep our current clients and to engage new clients such that our investments in our Care@Work offering will generate the targeted return.

If evolving consumer behavior in the era of mobile devices and messaging/social networking apps hinders our ability to effectively market to and communicate with members and potential members, our business, financial condition and results of operations could be adversely affected.

Evolving consumer behavior can affect the availability of profitable marketing opportunities. For example, as traditional television viewership declines and as consumers spend more time on mobile devices rather than desktop computers, the reach of many of our traditional advertising channels may contract.  To continue to reach potential members and grow our businesses, we must identify and devote more of our overall marketing expenditures to newer advertising channels, such as mobile and online video platforms as well as targeted campaigns in which we communicate directly with potential, former and current members via new virtual means.  Generally, the opportunities in and sophistication of newer advertising channels are relatively undeveloped and unproven, and there can be no assurance that we will be able to continue to appropriately manage and fine-tune our marketing efforts in response to these and other trends in the advertising industry.  Any failure to do so could adversely affect our business, financial condition and results of operations.

In addition, as consumers communicate less via email and more via text messaging and other virtual means, the reach of our email campaigns may be adversely impacted.  One of our primary means of communicating with our members and keeping them engaged with our products is via email.  Our ability to communicate via email enables us to keep our members updated on activity with respect to their job postings or profile, inform them of new members they may be interested in connecting with, introduce them to new products or services they may be interested in using, and present discount and free trial offers, among other things.  Any erosion in our ability to communicate successfully with our members via email could have an adverse impact on member experience and the rate at which non-paying members become paid members.

If we fail to expand and increase adoption of our Care@Work and consumer payments solutions, our future growth could suffer.

As part of our growth strategy, we intend to grow our Care@Work solutions. Although we have continued to acquire new customers, our growth could be adversely affected if we are unable to acquire new customers at the same rate or volume as we have in the past. Additionally, our growth could be impacted if we are unable to scale our internal enterprise sales team. Further, our Care@Work solutions grow, we are increasing the scale of our in-home and in-center back-up care network, which involves third-party relationships, as well as the operations required to deliver these services, and we will need to continue to do so in the future. We may also need to further differentiate our Care@Work products and services to effectively compete with our competition. If we fail to continue to acquire new customers, scale our internal enterprise sales team and operations, scale our in-home and in-center back-up care network and differentiate our Care@Work products and services, then our growth may be adversely impacted. For more information about risks related to the growth of our Care@Work solutions, see “If we fail to adapt our operations to meet the increased contractual demands of our Care@Work clients, our brand and results of operations may be negatively impacted,” above.

Additionally, as part of our growth strategy, we intend to grow our consumer payments solutions. Although an increasing number of our members are using Care.com HomePay, our household employer payroll and tax product, if this trend does not continue, or if any other payments solutions we may offer do not achieve adequate acceptance in the market, our competitive position could be impaired and our growth could be adversely affected.

We depend on search engines and job board sites to attract a significant percentage of our members, and changes to those businesses’ rankings or listings practices, algorithms or pricing could impact our ability to attract new members.

Many of our members locate our services through search engines, such as Google and Bing. Search engines typically provide two types of search results, algorithmic and purchased listings, and we rely on both types. Algorithmic listings cannot be purchased and are determined and displayed by a set of formulas designed by the search engine. Search engines revise their algorithms from time to time in an attempt to optimize search result listings. If the search engines on which we rely for algorithmic listings modify their algorithms in a manner that reduces the prominence of our listing, fewer potential members may find and click through to our services. Additionally, our competitors’ search engine optimization efforts may result in their services receiving greater prominence in search result listings than ours, which could also reduce the number of potential members that visit our services. We have experienced fluctuations in the prominence of our search result listings in the past and we anticipate fluctuations in the future. In addition, costs for purchased listings on search engines have increased in the past and may continue to increase in the future. Price increases could reduce the number of potential members that visit our services and increase our costs. Any reduction in the number of users directed to our services from search engines would harm our business and operating results.

Third-party job board sites are also an important part of our caregiver acquisition efforts. Many of our caregivers are drawn to our site by job listings that are created on our platform and that appear in organic searches on those job boards. Some job board

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aggregators have denied certain of our listings, or removed certain listings we have posted. If a greater portion of our listings are denied we may have to find alternative paid sources to acquire caregivers, which would impact our ability to attract new members and increase our acquisition costs.

Data security and integrity are critically important to our business, and breaches of security, unauthorized disclosure of information about our members, denial of service attacks or the perception that member information is not secure could result in a material loss of business, substantial legal liability or significant harm to our reputation.

Our operations are substantially dependent on the proper functioning and integrity of our technology systems. In the ordinary course of our business, we rely on our systems to collect, process and store a large amount of consumer information, including financial information and sensitive personal information. In addition, we use our systems to create, transmit and store confidential business and financial information. This information is often accessed through transmissions over public and private networks, including the internet. Despite our physical security measures, implementation of technical controls and contractual precautions designed to identify, detect and prevent the unauthorized access, alteration, use, transmission or disclosure of our data, there is no guarantee that these measures or any other measures will be sufficient to protect our data or detect any compromise of our data’s security. Our systems are vulnerable to bugs, defects, breakdown, malicious intrusion, random attack and theft. Data privacy or security breaches by individuals authorized to access our technology systems, including our employees, contractors or contractual counterparties, or others may pose a risk that sensitive data may be accidentally or deliberately exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. We have been and expect to continue to be targeted by cyber-attacks, which may be carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious intent. Several recent, highly publicized data security breaches and denial of service attacks at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems.

Any unauthorized disclosure of sensitive or confidential business or member information, information, including as a result of cyber-attacks or other security breaches, could cause a loss of data, give rise to remediation or other expenses, disrupt our operations, expose us to substantial liability under federal, state and foreign laws, and subject us to litigation and investigations, which could have an adverse effect on our business, cash flows, financial condition and results of operations. In addition, some laws and regulations mandate notification to affected individuals and regulatory authorities in the event that personal data is accessed or acquired by unauthorized persons. For example, the General Data Protection Regulation, or the General Data Protection Regulation, or the GDPR, which was adopted by the European Union, or the E.U., in 2016 and went into effect in May 2018, includes data breach notification requirements in regard to both affected individuals and E.U. data protection authorities (depending on the facts of the breach) with which we will have to comply. Complying with such numerous and complex regulations in the event of unauthorized access would be expensive and difficult, and failure to comply with these regulations could subject us to regulatory scrutiny and additional liability.

We use, store and, in some instances, share information collected from or about our members and site visitors and their devices, which may subject us to governmental and industry regulation and other legal obligations related to privacy and data protection and our actual or perceived failure to comply with such obligations could harm our business.

We receive, store and process information from and about our members and website visitors and their devices, as well as information about Care.com HomePay and back-up care users, including name, contact information, and in some cases sensitive personal information, such as credit card numbers, tax return information, bank account numbers, social security numbers, government identifications and other personal information such as criminal background information and information relating to children and vulnerable individuals. In addition, members using our services can allow us to share information, including personal and background information, with other members and with third parties.

Diverse legal and industry requirements in the regions where our members and site visitors reside may apply to our collection, use, storage and sharing of information about such individuals, including to the extent that our members choose to share data about themselves or family members in connection with potential employment in the home setting. The scope of these privacy and data protection obligations are changing in substantial and unpredictable ways, are subject to differing interpretations, and may be inconsistent between different regions or conflict with other rules. For example, the E.U.-U.S. Safe Harbor program was invalidated and replaced with the Privacy Shield program in 2016. Privacy Shield has been subject to legal challenges and may not be appropriate for us.

The GDPR came into effect on May 25, 2018, replacing the Data Protection Directive 95/46/EC. The GDPR introduces stringent operational requirements for companies established in the E.U. or European Economic Area, or the EEA, or those outside the E.U. or EEA but which are targeting or monitoring individuals located in the E.U. or EEA, including fulfilling new and strengthened rights for data subjects (e.g., the right to erasure of personal data, data portability, etc.), detailed disclosures to data subjects (including disclosure of the legal basis on which personal data is processed), additional obligations when contracting with service providers, mandatory data breach notification requirements, appropriate privacy governance framework to be implemented including policies, procedures, training and data audit, and increased fines, with potential fines for violations of certain provisions

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of the GDPR reaching as high as the greater of €20 million or 4% of a company’s total annual global revenue. In addition, failure by us, our partners, our vendors, our employees or our contractors to comply with the GDPR could result in regulatory investigations, reputational damage, orders to cease or change our use of data, enforcement notices, or potential civil claims including class actions where individuals suffer harm.

We are subject to E.U. rules with respect to cross-border transfers of personal data out of the E.U. and EEA. While currently we have legally recognized mechanisms in place which are based on E.U. Commission approved model clauses and/or other permitted mechanisms that we believe allow for the transfer of E.U. member, customer, and employee information to the United States and other countries outside of the E.U. and EEA, it is possible that these mechanisms may not be sufficient under the GDPR or other future legal requirements that could have an impact on how we move data to Care.com entities outside the E.U. or EEA. For example, there is currently ongoing litigation in the E.U. challenging the legitimacy of the E.U. Commission approved model clauses as a data export mechanism under the GDPR. As such, it is uncertain whether the model clauses may be invalidated as a compliant data transfer mechanism in the near future.

In response to these regulatory changes and the ongoing scrutiny of transfer mechanisms generally, we may be required to find alternative solutions for the compliant transfer of personal data outside the E.U. or EEA and to make changes in regard to our data export processes. We may have to require some of our vendors who process personal data to take on additional privacy and security obligations, and some may refuse, causing us to incur potential disruption and expense related to our business processes. If our policies and practices, or those of our vendors, are, or are perceived to be, insufficient, or if our members and customers have concerns regarding the transfer of data from the E.U. or EEA to the United States or other countries outside of the E.U. or EEA, we could be subject to enforcement actions or investigations by individual E.U. or EEA data protection authorities or lawsuits by private parties. In addition, member engagement could decline and our business could be negatively impacted. The requirements imposed by the GDPR and similar laws, regulations and policies that are applicable to us may limit the use and adoption of our products and solutions, which together with the costs of compliance, could have a material adverse impact on our results of operations.

As a data controller under GDPR, we are accountable for third-party data vendors or service providers we engage to process personal data on our behalf. We attempt to address the associated risks by implementing various processes designed to mitigate such risks, which include, without limitation, the performance of vendor security reviews, due diligence and other activities. We also enter into agreements with vendors and service providers that access personal data and, where required under the GDPR, obligate them to only process data according to our instructions and to take sufficient security measures to protect such data. There is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such data. Any violation of data or security laws by our third-party vendors could have a material adverse effect on our business and result in the fines and penalties outlined above.

We are also subject to evolving European privacy laws on cookies and e-marketing. The E.U. is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each European member state. The draft e-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e., the greater of €20 million or 4% of total global annual revenue). While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European legislative process and commentators now expect it to be adopted during the second half of 2020 or during 2021 following a transition period.

We are subject to evolving privacy regulation under U.S. law as well. A number of proposals are pending before federal and state legislative and regulatory bodies, and additional laws and regulations have been passed but are not yet effective, any of which could significantly affect our business. For example, on June 28, 2018, California passed the California Consumer Privacy Act of 2018, or the CCPA, which will go into effect on January 1, 2020. The CCPA introduces significant changes to privacy law for businesses that collect personal information from California residents, including giving consumers statutory rights that are similar in some ways to those granted to consumers under the GDPR. The CCPA will impose substantial new compliance burdens on businesses subject to the law, and also creates a new potential source of consumer litigation through the private right of action authorized under the statute.

Some industry requirements subject us to payment card association operating rules, certification requirements and rules, including the Payment Card Industry Data Security Standard, or PCI DSS, a security standard with which companies that collect, store or transmit certain data regarding credit and debit cards, credit and debit card holders, and credit and debit card transactions are required to comply. Our failure to remain fully compliant with the PCI DSS may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors and merchant banks. Such failure to comply fully may also subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our services or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.

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We strive to comply with laws, policies, legal obligations and industry requirements relating to privacy and data protection, that we believe we are subject to. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other privacy-related legal obligations, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our members and customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable laws, their contractual obligations to us or our policies, such violations may also put our members’ information at risk and could in turn have an adverse effect on our business.

Complying with existing and proposed laws, regulations and industry standards applicable to the collection, use, storage and sharing of data about our members and site visitors can be costly and can delay or impede the development of new products, result in negative publicity and reputational harm, increase our operating costs, require significant management time and attention, increase our risk of non-compliance and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.

The expansion of our service offerings exposes us to increased litigation risk and costs related to our on-demand caregivers and may create confusion between our various service models.

In connection with new and expanded service offerings, we have increased the number of caregivers we employ for the purpose of providing care to families on an on-demand basis, and have engaged nanny agencies and daycare centers, whose caregivers provide on-demand services to our corporate clients. For example, our subsidiaries Care Concierge, Town & Country and Trusted Labs provide back-up child and adult care to families an on-demand basis. Our relationships with on-demand caregivers and caregivers we employ may increase the likelihood that we will be found liable for caregiver misconduct. Such liability, in individual cases or in the aggregate, could be substantial, and could have a negative effect on our results of operations. In addition, the expansion of our on-demand care offerings has increased the cost of certain related insurance policies. These costs may continue to rise in the future, and there is no guarantee that that the policies we maintain will be sufficient to protect us from all liability, or that they will cover all types of claims that may be made against us.

Moreover, with the expansion of service models involving employed and on-demand caregivers, consumers, the media and regulators may inaccurately believe that there is a similar employment relationship between us and the caregivers in our U.S. consumer matching business. Any such confusion could lead to increased risk of litigation and regulatory inquiry, as well as negatively impact our brand.

If the businesses we have acquired do not perform as expected or we are unable to effectively integrate acquired businesses, our operating results and prospects could be harmed.

We have acquired complementary businesses in the past. The benefits that we expect to achieve as a result of our acquisitions depend in part on our ability to realize anticipated growth opportunities and cost savings synergies. Our success in realizing these opportunities and synergies and the timing of this realization depend among other things on the successful integration of the acquired companies’ businesses and operations with our businesses and operations and the adoption of our respective best practices. Even if we are able to integrate these businesses and operations successfully and implement those strategic initiatives, it may not result in the realization of the full benefits of the growth opportunities and synergies we currently expect to achieve, within the anticipated time frame or at all. If a company we purchase does not perform as we expect, our investment could become impaired or we could discontinue the operations and our financial results could be negatively impacted.

Our mergers and acquisitions involve numerous risks, including the following:

• difficulties in integrating and managing the combined operations, technologies, technology platforms and products of the acquired companies and realizing the anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical or financial problems;

• legal or regulatory challenges or litigation post-acquisition, which could result in significant costs or require changes to the businesses or unwinding of the transaction;

• failure of the acquired company to achieve anticipated revenue, earnings or cash flow;

• diversion of management’s attention or other resources from our existing business;

• our inability to maintain the key customers and business relationships and the reputations of acquired businesses;

• uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions;

• our dependence on unfamiliar affiliates and partners of acquired businesses;

• unanticipated costs associated with pursuing acquisitions;

• responsibility for the liabilities of acquired businesses, whether such liabilities were disclosed to us or not prior to our acquisition and whether such liabilities meet or exceed our estimates, including, without limitation liabilities arising out of

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the acquired businesses’ failure to maintain effective data protection and privacy controls and comply with applicable regulations;

• difficulties in assigning or transferring intellectual property licensed by acquired companies from third parties to us or our subsidiaries;

• potential loss of key employees of the acquired companies;

• challenges in integrating and auditing the financial statements of acquired companies that have not historically prepared financial statements in accordance with GAAP;

• difficulties in integrating acquired companies’ systems controls, policies and procedures to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002; and

• potential accounting charges to the extent intangibles recorded in connection with an acquisition, such as goodwill, trademarks, customer relationships or intellectual property, are later determined to be impaired and written down in value.

Moreover, we rely heavily on the representations and warranties provided to us by the sellers of acquired companies, including as they relate to the financial condition of the company, creation, ownership and rights in intellectual property, and compliance with laws and contractual requirements. If any of these representations and warranties are inaccurate or breached, such inaccuracy or breach could result in costly litigation and assessment of liability for which there may not be adequate recourse against such sellers, in part due to contractual time limitations and limitations of liability.

We may make acquisitions of or investments in complementary businesses in the future, which could require significant management attention, disrupt our business, result in dilution to our stockholders, and adversely affect our financial results.

As part of our business strategy, we have made, and may in the future make, acquisitions to add specialized employees, complementary companies, products or technologies. In addition, we may make investments in complimentary businesses. The identification of suitable acquisition or investment candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or investments. Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. For any such transaction, we may:

•issue additional equity securities that would dilute our stockholders;

•use cash that we may need in the future to operate our business;

•incur debt on terms unfavorable to us or that we are unable to repay;

•incur large charges or expenses or assume substantial liabilities;

•become subject to new laws and regulations about which we have limited prior experience or knowledge;

•encounter difficulties retaining key employees of the acquired companies; and

•become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

Any of these risks could harm our business and operating results. In addition, for legal, technical or business reasons, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of any company we acquire as quickly or fully as we would like. The integration of any acquired company may require, among other things, coordination of administrative, sales and marketing, accounting and finance functions, harmonization of legal terms and privacy policies and expansion of information and management systems.

Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets or goodwill.

We have recorded significant goodwill impairment charges from our discontinued operations and may be required to record additional charges to future earnings if our goodwill or intangible assets become impaired.

We are required under generally accepted accounting principles to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business. In the second quarter of 2019, we recorded a pre-tax goodwill and intangible asset impairment charges of $5.3 million and $2.9 million, respectively, related to our Figure 8 acquisition. We will need to continue to evaluate the carrying value of our goodwill and may be required to record additional charges to earnings during the period in which any impairment of our goodwill or other intangible assets is determined, which could adversely impact our results of operations, prospects and financial position. As of September 30, 2019, our goodwill balance was $67.3 million and our intangible asset balance was $3.2 million, which represented 27% and 1% of total consolidated assets, respectively.

Our international operations are subject to certain challenges and risks.

While we intend to focus most of our international efforts on growing our existing international markets, we also may expand our international operations in the future. Our ability to manage our business and conduct our operations internationally requires

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considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, regulatory systems and commercial infrastructures. Our international operations require us to invest significant funds and other resources. International expansion also subjects us to numerous risks, including risks associated with:

•recruiting and retaining talented and capable employees in foreign countries;

• providing products and services across a significant distance, in different languages and among different cultures, including potentially modifying our solutions and features to ensure that they are culturally relevant in different countries;

• compliance with applicable foreign laws and regulations, which, in certain areas such as privacy and data protection, for example GDPR, may be more restrictive than U.S. laws and regulations;

• compliance with anti-bribery laws, including without limitation compliance with the Foreign Corrupt Practices Act and the United Kingdom Bribery Act;

•currency exchange rate fluctuations; and

•higher costs of doing business internationally.

If our revenue from our international operations does not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer.

We are subject to litigation and other legal proceedings and investigations which could have an adverse effect on our financial condition.

We are, and expect in the future to be, subject to litigation and various legal proceedings and/or government investigations, including litigation, proceedings and/or government investigations related to privacy, advertising, other consumer protection laws, contracts, intellectual property, discrimination or other matters and that involve claims for substantial amounts of money or for other relief or that might necessitate changes to our business or operations. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we may establish reserves and/or disclose the relevant litigation claims or legal proceedings, as and when required or appropriate. These assessments and estimates are based on information available to management at the time of such assessment or estimation and involve a significant amount of judgment. As a result, actual outcomes or losses could differ materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these litigations or legal proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition and results of operations.

The number of our registered families is significantly higher than the number of our paying families and substantially all of our revenue is derived from our paying families.

The number of registered members in our marketplace is significantly higher than the number of paying families because some families choose to register, but not become paying families, and others become paying families, but choose not to renew their paid memberships. If we are not able to attract new registered families, convert registered families to paying families or retain our paying families for longer periods of time our business may not grow as fast as we expect, or at all, which would harm our operating and financial results and may cause our stock price to decline. Therefore, we must provide features and products that demonstrate the value of our marketplace to our members and motivate them to become paying members. If we fail to successfully motivate our members to do so, our business and operating results could be adversely affected.

Our business may be harmed if users view our marketplace as primarily limited to finding regularly scheduled caregivers for children.

Our membership growth and engagement rates could be adversely affected if consumers perceive the utility of our marketplace to be limited to finding full-time caregivers for children. Despite the breadth of care needs that can be met through our platform, including after school care, occasional babysitting, senior care, pet care, tutoring and housekeeping, 33% of job postings in fiscal year 2018 were for full-time child caregivers.  If families and caregivers fail to utilize the breadth of the family care and other services available through our marketplace, our membership growth and engagement rates could be negatively impacted, and our business will be harmed.

We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our platform is accessible, and our business is subject to risks of events outside of our control.

Our members access information through our websites and mobile apps. Our reputation and ability to acquire, retain and serve our members depend upon the reliable performance of our websites and mobile apps and the underlying network infrastructure. We have previously experienced, and may experience in the future, service disruptions, outages and other performance problems due to a variety of factors, such as infrastructure changes, human or software errors, computer viruses or physical or electronic break-ins, denial of service attacks, capacity constraints and fraud or security violations. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time, or at all. It may become increasingly difficult to maintain and improve the performance and availability of our platform, especially during peak usage

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times, as our solutions become more complex and if our user traffic increases. If our platform is unavailable when users attempt to access it, or if it does not load as quickly as they expect, users may use other services and may not return to our platform as often in the future, or at all. This would negatively impact our ability to attract users and increase engagement on our website and mobile apps, as well as our ability to generate revenue from our paying families. These negative effects could be especially pronounced if our platform becomes unavailable or if its performance degrades during peak usage times. We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our infrastructure to accommodate actual and anticipated changes in our business and in our technology, our business and operating results may be harmed.

Substantially all of our communications, network and computer hardware used to operate our online services and mobile applications are located in facilities that we do not own or control. Our systems and operations are also vulnerable to damage or interruption from tornadoes, floods, fires, power losses, telecommunications failures or acts of war. For example, a significant natural disaster, such as a major snowstorm or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for such losses that may occur. In addition, acts of terrorism could negatively affect our results of operations by causing disruptions in our business or the economy as a whole.

We have implemented disaster recovery procedures that allow us to move our services to a back-up operating infrastructure in the event our primary operating infrastructure fails or otherwise becomes unavailable. However, these procedures do not allow an instantaneous transition from our primary to our back-up operating infrastructure, and there is no guarantee that our back-up operating infrastructure will function as intended. Therefore, if our primary operating infrastructure becomes inoperable, there will be a period of time during which our platform will be unavailable while the transition to our back-up operating infrastructure takes place, and there is a risk that the transition will be unsuccessful. Any period during which our existing members are unable to access our services, or prospective members are unable to register on our website, could negatively affect our business.

Interruptions or delays in service arising from our third-party vendors could impair the delivery of our service and harm our business.

We rely upon third-party vendors to provide certain services upon which we rely, including data center, communications and network infrastructure services, credit card and payment processing services, background checking services, in-center and in-home back-up care services, email management and delivery services, customer relationship management services and other services critical to our business. The operation of our product and service offerings could be impaired if the availability of these services is interrupted or limited in any way. We have contractual relationships with these parties but do not have physical control over their daily operations, which increases our vulnerability to problems with the services they provide. If any of these third-party service providers terminates its relationship with us, or does not provide an adequate level of service to our members, it would be disruptive to our business as we seek to replace the service provider or restore an adequate level of service.

In addition, these service providers are vulnerable to damage or interruption from tornadoes, floods, fires, power loss, telecommunications failures and similar events. They also are subject to break-ins, sabotage, acts of vandalism, the failure of physical, administrative and technical security measures, terrorist acts, human error, financial insolvency and other unanticipated problems or events. The occurrence of any of these events could result in interruptions in our service and unauthorized access to, or alteration of, the content and data contained on our systems and the content and data that these third-party vendors store and deliver on our behalf.

We have experienced, and expect in the future to experience, interruptions and delays in service and availability from third party vendors. Any errors, failures, interruptions or delays experienced in connection with third-party technologies and services could negatively impact our relationship with our members, our brand and reputation and our ability to attract, retain and serve our members.

If we or our service providers fail to process payment transactions effectively and accurately or fail to protect against potential fraudulent activities relating to payment transactions, we may incur expenses and suffer reputational harm.

We offer Care.com HomePay, our household employer payroll and tax services. We also offer an electronic payments solution through a third-party payments processor that allows families to make electronic payments to their caregivers through our website and mobile apps. It is possible that we or our service provider may make errors in processing payments or that funds may be misappropriated due to fraud. We may also make errors in calculating and remitting taxes to the Internal Revenue Service and state tax authorities. In addition, the online tax preparation, payroll administration and online payments industries have increasingly been subject to fraudulent activities by third parties. In addition to any direct damages and potential fines we may incur as a result of payment processing errors or fraud relating to our payments products, negative publicity or a loss of confidence regarding these services could harm our business and damage our brand.

We may not be able to compete successfully against current and future competitors.

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We are and will continue to be faced with many competitive challenges, any of which could adversely affect our prospects, results of operations and financial condition.

With respect to our consumer matching solutions, we compete for families, caregivers, employers and care-related businesses with traditional offline consumer resources, online job boards and other online care marketplaces. We also compete for a share of care-related businesses’ overall recruiting and advertising budgets with traditional, offline media companies and other internet marketing providers. Our principal competitors are Craigslist, a ‘‘free to consumer’’ website, and UrbanSitter and Sittercity, which are online care-specific marketplaces. Our principal competitor in our employer channel is Bright Horizons. In the consumer payments market, Care.com HomePay competes with similar products offered by HomeWork Solutions, Inc., NannyChex and GTM Payroll Services. In addition, we may in the future be subject to competition from companies that operate other online marketplaces and that decide to expand into the online care market or other established companies that decide to expand into the consumer payments market. These potential competitors may be larger and have more resources than we do, may enjoy substantial competitive advantages, such as greater name recognition, longer operating histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. As a result, these potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities or technologies.

To compete effectively for members, we must continue to invest significant resources in marketing and in the development of our products and services to enhance their value. To compete effectively for revenue from employers and care-related businesses, we must continue to invest in marketing and in growing our membership. Failure to compete effectively against our current or future competitors could result in loss of current or potential members, which could adversely affect our margins, and prevent us from achieving or maintaining profitability. We cannot assure you that we will be able to compete effectively for members in the future against existing or new competitors, and the failure to do so could result in loss of existing or potential members, reduced membership revenue, increased marketing or selling expenses or diminished brand strength, any of which could harm our business.

We may incur liability or other expenses if caregivers or other users of our services engage in inappropriate, harmful or illegal conduct, or if we do not notify our members of alleged inappropriate or illegal conduct.

Families and caregivers have sought, and may seek in the future, damages from us if a caregiver or family does not meet their expectations or causes them harm. Currently, Care.com is a party to several lawsuits brought by members relating to alleged criminal acts by other members they found through the Care.com site, including acts resulting in death. These types of claims also may be brought under foreign laws. If a decision were rendered against us in a claim of this type, we may incur significant liability and/or negative publicity. Even if these claims do not result in liability to us, they may result in significant investigation or defense costs, as well as negative publicity. In addition, because there is a particularly low tolerance for failure when seeking care for a loved one, any such claims, events or publicity could have a significant adverse effect on our reputation and brand. Any of these results, particularly damages to our brand and reputation, could adversely affect our financial condition, business and operating results.

From time to time, we become aware of information relating to our members through complaints from other members, publicly available sources or otherwise, which results in the removal of the member from our marketplace. Because of the complex legal and regulatory environment in which our business operates, we generally do not advise other members when we decide to remove a particular member and, when we do advise members that we have removed a member, we generally do not tell them the reason for removal. As a result, a member who hires a caregiver through our platform may not be aware that the caregiver has subsequently been removed from our marketplace or the reason the caregiver was removed, and may seek to make a legal claim against us for failure to notify them of the removal or the reason for the removal. Any such claims, whether or not meritorious, or any claim by a caregiver that he or she should not have been so removed, may be a distraction to management, result in our incurring costs to defend or settle the claim, result in adverse publicity, require us to pay damages or otherwise harm our business and reputation.

Adverse economic conditions may adversely impact our business.

Our business depends on the overall demand for care. Our prospective members’ employment and income impact their demand for care. Adverse economic conditions, including increases in unemployment or reductions in labor force participation in general or among our members and prospective members, could reduce the number of dual-income families – a key component of our target market ‑ and therefore the number of families seeking care. In addition, if consumer spending is reduced due to a weak economy, families may decrease spending on care services they believe to be non-essential, such as housekeeping and tutoring, or reduce or eliminate certain activities that typically require the services of our caregivers, such as date nights that require babysitters and vacations that may require pet sitters. As a result, adverse changes in prevailing economic conditions could decrease the traffic on our platform, reduce sales of our products and services and delay adoption of new offerings, which could cause our business to suffer.

If we require additional funds from outside sources in the future, those funds may not be available on acceptable terms, or at all.

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We may require additional funds from outside sources in the future, and we may not be able to obtain those funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders.

If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our development programs. We also may have to reduce marketing or other resources devoted to our products or cease operations. Any of these actions could harm our operating results.

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

We are or may be found to be subject to numerous state, federal and foreign laws and regulations that affect consumer-based businesses and companies that conduct business on the internet. Because our services are accessible worldwide, we are also subject to laws and regulations in jurisdictions, both in the United States and internationally, in which we have no operations. Many of these laws and regulations are still evolving and being tested in courts, and could be interpreted in ways that could harm our business.  These may involve user privacy, information security and data protection, use of consumer background information, intellectual property, electronic contracts, consumer protection, telecommunications, taxation, employment, securities law compliance and online payment services. For example, many jurisdictions have passed laws, such as the GDPR and the CCPA, that impose new restrictions and obligations in connection with the collection, storage, use, transmittal and retention of consumer data, and other jurisdictions are considering such laws. These laws require the adoption of operating standards that can be vaguely defined and difficult, expensive and time consuming to implement. Many of these laws are new and remain untested. As a result, the costs of complying with these laws may increase in the future as they are interpreted and standards coalesce around their implementation. These laws have imposed, and will continue to impose, substantial new compliance burdens, and will expand our litigation and regulatory enforcement risks.

The U.S. federal, state, local and foreign laws and regulations that we are subject to affect, and in many cases restrict, the manner in which we are permitted to operate. Our compliance with these laws and regulations is monitored by governmental authorities, many of which have the power to launch investigations, or to cause legal proceedings to be commenced against us. Compliance with these laws and regulations also may be onerous and expensive, and variations and inconsistencies among jurisdictions in their scope and interpretation may further increase the cost of compliance and litigation risk. For example, we are subject to laws and regulations regarding unfair or deceptive trade practices. These laws and regulations can be interpreted to apply to content on our website, communications we make to our members and marketing materials we place with third parties or transmit to prospective or current members. We have been and are currently subject to regulatory investigations in connection with our auto-renew practices and compliance with unfair and deceptive trade practices laws. For more information about investigations related to our auto-renew practices, see Item 3 “Legal Proceedings.” In addition, a recently enacted law in California, known as Assembly Bill 5, codified an employment classification test set forth by the California Supreme Court that established a new standard for determining employee or independent contractor status in the context of California wage orders. The passage of this bill could lead to additional scrutiny of the employment classification of caregivers who use our marketplace to connect with care seekers. Any adverse determination regarding the employment classification of caregivers who use our marketplace could complicate our efforts to operate profitably in California, which would harm our business. The penalties, fees and expenses we incur in connection with our compliance efforts or in response to investigations could be significant, either individually or in the aggregate. Changes to our practices in these or other areas that are required by law or as a result of investigations, or that we deem are advisable in light of the business and regulatory environments in which we operate, may have a negative effect on our results of operations.

In the United States we acquire information about our members from consumer credit reporting agencies and other third-party sellers of public data. We use this information in an effort to verify the accuracy of certain information that some of our members provide about themselves and to advance our business objective to maintain a trusted online community for our members. We also facilitate the purchase and sharing of third-party consumer reports and background checks by members, subject to the permission of the individual who is the subject of the report. The Fair Credit Reporting Act, or the FCRA, applies to consumer credit reporting agencies as well as data furnishers and users of consumer reports, as those terms are defined in the FCRA. The FCRA promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies that engage in the practice of assembling or evaluating information relating to consumers for certain specified purposes, including for employment. The FCRA limits the distribution and use of consumer reports and establishes consumer rights to access and dispute their own credit files, among other rights and obligations. Members who access consumer reports about job applicants via our service expressly agree to follow the FCRA requirements for employers. Violation of the FCRA can result in civil and criminal penalties. The U.S. Federal Trade Commission, the U.S. Consumer Financial Protection Bureau and state attorneys’ general, acting alone or in cooperation with one another, actively enforce the FCRA, as do private litigants. Many states have enacted laws with requirements similar to the FCRA. Some of these laws impose additional, or more stringent, requirements than the FCRA.

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In addition, the payment processing and tax preparation industries are receiving heightened attention from federal and state governments. New legislation, regulation, public policy considerations, litigation by the government or private entities or new interpretations of existing laws may subject us to additional legal or regulatory oversight or obligations, restrict the types of products and services that we can offer or the prices we can charge, or otherwise cause us to change the way we operate our payment processing and tax preparation businesses or offer our payment processing and tax products and services. This in turn may increase our cost of doing business and limit our revenue opportunities. In addition, if our practices are not consistent with current or new interpretations of existing laws, we may become subject to lawsuits, penalties and other liabilities.

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

Our practices surrounding the auto-renewal of our paid subscriptions have been, and may in the future be, the subject of regulatory scrutiny and litigation.

We offer members a paid subscription service that auto-renews until downgraded to a non-paying membership. Many states have enacted laws specific to auto-renewing contracts and other states are considering such laws. Among other things, these laws may require specific notifications to or consents from consumers prior to and/or after a consumer agrees to an auto-renewing contract, including reminder notifications prior to a subscription renewing, and may specify the manner in which such notifications are given. Governmental investigations in connection with these laws can result in increased legal fees and settlements that require the payment of fines, changes to our business practices, or both. Violations of a state auto-renew laws can result in civil penalties and in many instances render the contract unenforceable, which could result in a refund of all fees paid under the contract. We have been and are subject to regulatory investigations in connection with our auto-renew practices. For example, the Marin County District Attorney’s Office is conducting an investigation related to the clarity and conspicuousness of our automatic renewal disclosures and the mechanism by which we obtain informed consent when members purchase premium subscriptions on our website. Violations of state auto-renew laws can result in civil penalties and in many instances render the applicable contract unenforceable, which could result in a refund of all fees paid under the contract. Even if no violations are found, complying with investigations can subject us to increased and adverse publicity. In addition, our contractual counter-parties may require us to make changes to our operating procedures related to the auto-renewal of our paid subscriptions. Any changes to our auto-renew practices that are required in connection with these investigations, that are required by law or by third parties, or that we deem are necessary or appropriate in light of the business and regulatory environments in which we operate may have a negative effect on our results of operations.

We could be subjected to lawsuits or investigations in numerous jurisdictions, including those in which we do not have any operations.

Because our services are accessible worldwide, we are subject to laws and regulations in numerous jurisdictions in the United States and abroad, including jurisdictions in which we have no local entity, employees, infrastructure or operations. We could be subjected to investigations or litigation in any number of these jurisdictions. Lawsuits or investigations in one jurisdiction could make similar lawsuits or investigations in other jurisdictions more likely, and even if we are able to successfully defend, settle or otherwise resolve an investigation or litigation in one jurisdiction, there is no guarantee we will be successful doing so in other jurisdictions. As a result, even disputes or allegations of non-compliance that are insignificant on an individual basis could, if duplicated in other jurisdictions, aggregate to have a material adverse effect on our business and results of operations.

As we develop and sell new products, services and features, we may be subject to additional and unexpected regulations, which could increase our costs or otherwise harm our business.

As we develop and sell new products, services and features to our members, we may become subject to additional laws and regulations, which could create unexpected liabilities for us, cause us to incur additional costs or restrict our operations. For example, we offer our convenience payments product to our members through a third party. If, in the future, we provide this product directly to our members, we would be subject to complex financial regulations. We may also become subject to financial regulations as we develop additional payment and financial solutions for our members. In addition, if we expand our offerings to include more personalized services, we may become subject to various laws and regulations relating to the protection of children, seniors and/or prospective employees.

Many of the laws and regulations that we are or may be subject to were enacted prior to the advent of internet commerce, and as a result their applicability to our various lines of business may be difficult to anticipate. Even newly enacted laws and regulations may be unclear in their scope and applicability. Our failure to accurately or timely anticipate the application of laws and regulations that governmental authorities or others may claim are applicable to our products and services, or other failures to comply, could create liability for us, result in adverse publicity or cause us to alter our business practices, including curtailing or

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withdrawing entirely from one or more lines of business or jurisdictions, which could hurt our brand or cause our revenue to decrease, our costs to increase or our business otherwise to be harmed.

We could face liability or other expenses for information on or accessible through our online marketplace, including background check reports.

We offer families the ability to purchase and view through our marketplace background checks, including criminal background checks, of caregivers they are interested in hiring, subject to the caregivers’ consent, and we have begun expanding the criminal background checks that we run on caregivers actively seeking jobs via the U.S. consumer matching services as part of our preliminary caregiver screening procedures. We contract with third-party agencies that we believe are reputable to offer a variety of background checks that range in cost and comprehensiveness. For various reasons, including federal and state law limitations, state and county criminal record reporting system limitations, and human and electronic misstatements or errors, even the most comprehensive background check offered may not disclose the existence of all criminal records in all jurisdictions. These checks are performed with the consent of the person being checked, using information he or she provides, such as home address, social security number, date of birth, and name. If a member provides incorrect information, the check might be run with inaccurate identifying data, which can impact the validity of the criminal check. Finally, criminal records are not always reported accurately or promptly, and human and electronic error can result in inaccurate or incomplete reporting. Even though we disclose to families that the background checks run on caregivers as part of our preliminary screening procedures or that families purchase and/or view through our marketplace are not comprehensive and may not be accurate, up to date or complete, we are and may continue to be subject to lawsuits alleging that background checks offered and viewed through our marketplace failed to completely or accurately detect or disclose the criminal history of a caregiver, which resulted in the family hiring the caregiver and experiencing a loss for which we are responsible. We are, and in the future may be, subject to government investigations and inquiries into whether we failed to adequately describe or disclose the limitations of background checks conducted in connection with our services. The incidence of, and our potential liability and losses in connection with, these lawsuits and investigations may increase as we expand the scope of the screening we conduct as a matter of course on individual caregivers who use our U.S. consumer matching services. Our failure to successfully defend or settle any of these litigations or government proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition and results of operations. Even if we are able to successfully defend or favorably resolve a litigation, proceeding or investigation, publicity surrounding such litigation, proceeding or investigation could have a negative effect on our reputation and brand, which could harm our business and cause our stock price to fall.

In addition, a significant portion of the information available through our online marketplace, including job postings, caregiver profiles and photographs, is generated by families, caregivers and third parties. We also allow care-related businesses and other third parties to advertise their products and services on our websites and include links to third-party websites. We could be exposed to liability with respect to this information. Members could assert that information concerning them on our website contains errors or omissions and/or seek damages from us for losses incurred if they rely upon incorrect information provided by our members, care-related businesses or others. We could also be subject to claims that individuals posting information on our websites do not have the right to post such information or are infringing the rights of third parties, such as copyrights in photographs and privacy and publicity rights. Among other things, we might be subject to claims that by directly or indirectly providing links to websites operated by third parties, we are liable for wrongful actions by the third parties operating those websites. These claims also may be brought under foreign laws that often do not provide the same protections for online services companies that laws in the United States do. We could incur significant costs in investigating and defending against these claims even if they do not result in liability to us.

We also allow families to submit reviews of caregivers. Our terms of use prohibit members from providing inaccurate, misleading, defamatory or false information to us or to any other user of our website and that all opinions expressed must be genuinely held. However, we do not have a regular practice of verifying the accuracy of all of the information provided by our members. There is a risk that a review or other content posted by a member may be considered defamatory or otherwise offensive, objectionable or illegal under applicable law. We also have been and may in the future be subject to claims that we failed to detect and remove unsafe members from our website-based content provided in reviews. Therefore, there is a risk that publication on our website of our ratings and reviews may result in a suit against us for defamation, civil rights infringement, negligence, copyright or trademark infringement, invasion of privacy, personal injury, discrimination, or other legal claims. Even if these claims do not result in liability to us, they may result in costly and time-consuming litigation and/or injury to our reputation.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

We rely on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as contractual restrictions, to safeguard our intellectual property. We do not have any patents or pending patent applications. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our digital content, aspects of our solutions for members, our technology, software, branding and functionality, or obtain and use information that we consider proprietary. Moreover, policing our proprietary rights is difficult and may not always be effective. As we expand internationally, we may need

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to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States.

Our digital content is not protected by any registered copyrights or other registered intellectual property. Rather, our digital content is protected by statutory and common law rights, user agreements that limit access to and use of our data and by technological measures. Compliance with use restrictions is difficult to monitor, and our proprietary rights in our digital content databases may be more difficult to enforce than other forms of intellectual property rights.

We hold several registered trademarks in the United States, including ‘‘Care.com’’, which is registered on the principal register. We also hold registered trademarks in the E.U., Germany and Canada. Some of our trade names may not be eligible to receive trademark protection. Trademark protection may also not be available, or sought by us, in every country in which our service may become available. Competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly confusing consumers and caregivers.

We currently hold the ‘‘Care.com’’, ‘‘Betreut.de’’, “myhomepay.com” and ‘‘Breedlove.com’’ internet domain names and various other domain names. Domain names generally are regulated by internet regulatory bodies. If we lose the ability to use a domain name in the United States or any other country, we would be forced to incur significant additional expense to market our solutions, including the development of a new brand and the creation of new promotional materials, which could substantially harm our business and operating results. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize the ‘‘Care’’ name or other names we utilize in all of the countries in which we currently intend to conduct business.

In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our personnel, consultants and third parties with whom we have relationships. These agreements may not effectively prevent disclosure of trade secrets and other confidential information, and may not provide an adequate remedy in the event of misappropriation of trade secrets or any unauthorized disclosure of trade secrets and other confidential information. In addition, others may independently discover trade secrets and confidential information and, in such cases, we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions, and failure to obtain or maintain trade secret protection, or our competitors being able to obtain our trade secrets or to independently develop technology similar to ours or competing technologies, could adversely affect our competitive business position.

Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

Internet, technology and social media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. Some own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us. We have received in the past and may in the future receive notices asserting that we have infringed, misappropriated or otherwise violated a third party’s intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. We cannot assure you that we are not infringing or violating any third-party intellectual property rights.

We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation claims arising from such assertions will substantially harm our business and operating results. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s patent or copyright rights; cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our solutions; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials; and to indemnify our partners and other third parties. Royalty or licensing agreements, if required or desirable, may not be available on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. Any of these events could seriously harm our business, operating results and financial condition. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business and our stock price.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be reevaluated frequently.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will be detected.

Our revenue may be negatively affected if we are required to charge sales tax or other transaction taxes on all or a portion of our past and future sales in jurisdictions where we are currently not collecting and reporting tax.

We currently only charge and collect sales or other transaction taxes in certain of the jurisdictions where our members reside. A successful assertion by any state, local jurisdiction or country in which we do not charge and collect such taxes that we should be collecting sales or other transaction taxes on the sale of our products or services, or the imposition of new laws requiring the collection of sales or other transaction taxes on the sale of our products or services, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, reduce demand for our products or services, decrease our ability to compete if competitors lower their fees to offset the tax but we do not or otherwise substantially harm our business and results of operations.

Changes in our provision for (benefit from) income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our provision for (benefit from) income taxes is subject to volatility and could be adversely affected by the following:

•changes in the valuation of our deferred tax assets;

•net operating losses;

•foreign or domestic income tax assessments and any related tax interest or penalties;

•expiration of, or lapses in, the research and development tax credit laws;

•tax effects of nondeductible compensation;

•adjustments to the pricing of intercompany transactions and transfers of intellectual property or other assets;

•changes in accounting principles; or

• changes in tax laws and regulations, including changes in taxation of the services provided by our foreign subsidiaries.

Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, that if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital. In addition, we are subject to the examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. The outcomes of these examinations might have a material and adverse effect on our operating results and financial condition.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 29, 2018, we had federal net operating loss carryforwards of $137.2 million and state net operating loss carryforwards of $116.9 million. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an ‘‘ownership change,’’ the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an ‘‘ownership change’’ generally occurs if there is a cumulative change in our ownership by ‘‘5-percent shareholders’’ that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We may have experienced an ownership change in the past and may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income and taxes may be subject to significant limitations.

Our international operations subject us to potentially adverse tax consequences.

We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.

Comprehensive tax reform bills could adversely affect our business and financial condition.

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The U.S. government recently enacted comprehensive federal income tax legislation that includes significant changes to the taxation of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could be adversely affected. In addition, the recently-enacted legislation could create additional operational cost for our Care.com HomePay service and/or adversely affect the tax position of caregivers, which may negatively impact our revenue from that service. This Quarterly Report on Form 10-Q does not discuss any such tax legislation or the manner in which it might affect purchasers or holders of our common stock. We urge current and prospective stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our common stock.

We may not be able to successfully prevent others, including copycat websites and mobile apps, from misappropriating our content.

From time to time, third parties have attempted to misappropriate our content through website scraping, search robots or other means. We have deployed several technologies designed to detect and prevent such efforts. However, we may not be able to successfully detect and prevent all such efforts in a timely manner or assure that no misuse of our content occurs.

In addition, third parties operating ‘‘copycat’’ websites have attempted to imitate our brand or the functionality of our service. When we have become aware of such efforts by other companies, we have employed technological or legal measures in an attempt to halt their operations. However, we may not be able to detect all such efforts in a timely manner, or at all, and even if we could, the technological and legal measures available to us may be insufficient to stop their operations. In some cases, particularly in the case of companies operating outside of the United States, our available remedies may not be adequate to protect us against the damage to our business caused by such websites or mobile apps. Regardless of whether we can successfully enforce our rights against the operation of these third parties, any measures that we may take could require us to expend significant financial or other resources and have a significantly adverse effect on our brand.

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

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

We are an ‘‘emerging growth company,’’ and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are currently an ‘‘emerging growth company,’’ as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and expect to remain an emerging growth company until the end of our fiscal 2019 fiscal year. We will no longer be an “emerging growth company,” as defined by the JOBS Act as of fiscal 2019 year-end. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In our proxy statement filed with the SEC on April 26, 2019, we did not include all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised

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accounting standards as other public companies that are not emerging growth companies. We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management has and will continue to be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. These expenses are likely to increase once we are no longer an “emerging growth company”. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The New York Stock Exchange and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel have devoted and will continue to need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly.

We are continually evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

The results of the United Kingdom’s referendum on withdrawal from the E.U. may have a negative effect on global economic conditions, financial markets and our business.

On June 23, 2016, the United Kingdom (the “U.K.”) held a referendum in which the majority of eligible members of the electorate in the U.K. voted to approve the U.K.’s withdrawal from the E.U., commonly referred to as “Brexit.” As a result of the referendum, the U.K. government served notice under Article 50 of the Treaty of the European Union on March 29, 2017 to formally initiate a withdrawal process. Under Article 50, the U.K and the E.U. had a two-year period to negotiate the terms of the U.K.’s withdrawal from the E.U. While this period has lapsed, the E.U. and the U.K. have agreed to extend the negotiation period on multiple occasions, most recently until January 31, 2020, though withdrawal before this date is possible if the British Parliament approves a plan earlier. The long-term nature of the U.K.’s relationship with the E.U. remains unclear, and there is considerable uncertainty as to if, when and how any relationship between the U.K. and the E.U. will be agreed upon and implemented.

A withdrawal could, among other outcomes, disrupt the free movement of goods, services and people between the U.K. and the E.U., undermine bilateral cooperation in key policy areas and significantly disrupt trade between the U.K. and the E.U. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the U.K. from the E.U. would have and how such withdrawal would affect us.

The Brexit vote has caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business. The strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results. The announcement of Brexit vote and the proposed withdrawal of the U.K. from the E.U. have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Such global economic uncertainty may cause our customers to closely monitor their costs and reduce their spending budgets. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.

Risks Related to Ownership of Our Common Stock

Our stock price may be volatile, and the value of an investment in our common stock may decline.

Shares of our common stock were sold in our initial public offering in January 2014 at a price of $17.00 per share and, from the date our common stock first traded on the New York Stock Exchange through 43770 our common stock has subsequently traded as high as $29.25 and as low as $4.89. The market price of our common stock could be subject to significant fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this ‘‘Risk Factors’’ section and elsewhere in this Quarterly Report on Form 10-Q, these factors include:

•our operating performance and the operating performance of similar companies;

•the overall performance of the equity markets;

•the number of shares of our common stock publicly owned and available for trading;

•threatened or actual litigation;

•changes in laws or regulations relating to our solutions;

•any major change in our board of directors or management;

• publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts;

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• the inclusion, exclusion or deletion of our stock from any trading indices, such as the S&P SmallCap 600;

•large volumes of sales of shares of our common stock by existing stockholders; and

•general political and economic conditions.

In addition, the stock market in general, and the market for the stock of technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities, and has been instituted against us. This litigation could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.

If securities or industry analysts publish inaccurate or unfavorable research about our business, cease coverage of our company or make projections that exceed our actual results, our stock price and trading volume could decline.

The trading market for our common stock is and will be influenced by the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Furthermore, such analysts publish their own projections regarding our actual results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our stock price may decline if we fail to meet securities and industry analysts’ projections.

Certain stockholders could attempt to influence changes within our Company which could adversely affect our operations, financial condition and the value of our common stock.

Our stockholders may from time-to-time seek to acquire a controlling stake in our Company, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes to our board, our management or our Company. For example, the Company recently received an open letter from an activist stockholder encouraging our board to explore strategic alternatives. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could disrupt our operations and divert the attention of our board of directors and senior management from the pursuit of our business strategies. Any perceived uncertainties as to our future direction resulting from activist activity could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the performance and prospects of our Company. These actions could adversely affect our operations, financial condition and the value of our common stock.

Short sellers of our stock have been, and may in the future be, manipulative and may drive down the market price of our common stock.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks. In the past, the publication of such commentary about us by a disclosed short seller precipitated a decline in the market price of our common stock. Efforts by such short seller or by other short sellers, whether or not they identify themselves as such, may have a similar effect, and no assurances can be made that any such effect would be temporary or insignificant.

Our management has broad discretion over our existing cash resources and might not use such funds in ways that increase the value of your investment.

Our management generally has broad discretion over the use of our cash resources, and you will be relying on the judgment of our management regarding the application of these resources. Our management might not apply these resources in ways that increase the value of your investment.

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Concentration of ownership among our officers, directors, large stockholders and their affiliates may prevent new investors from influencing corporate decisions.

Our officers, directors and their affiliated funds and certain of our principal stockholders beneficially own or control, directly or indirectly, a substantial percentage of the outstanding shares of our common stock. As a result, if some of these persons or entities act together, they will have significant influence over the outcome of matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit the ability of other stockholders to influence corporate matters and may have the effect of delaying or preventing an acquisition or cause the market price of our stock to decline. Some of these persons or entities may have interests different from yours. For example, because some of these stockholders purchased their shares at prices substantially below the price at which shares are currently being sold to the public and have held their shares for a relatively longer period, they may be more interested in selling the company to an acquirer than other investors or may want us to pursue strategies that are different from the wishes of other investors.

We do not intend to pay dividends for the foreseeable future.

We never have declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain any future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their shares of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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

Our certificate of incorporation, by-laws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

• authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

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

• limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

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

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

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

• establishing a classified board of directors so that not all members of our board are elected at one time;

• limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office; and

• providing that directors may be removed by stockholders only for cause.

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

Risks Related to Our Series A Preferred Stock

The issuance of shares of our Series A Preferred Stock to CapitalG LP reduces the relative voting power of holders of our common stock, dilutes the ownership of such holders, may adversely affect the market price of our common stock and could discourage a change in control of our company.

On June 29, 2016, we completed the sale of shares of our Series A Preferred Stock to CapitalG LP (“CapitalG”) for an aggregate purchase price of $46.35 million pursuant to an Investment Agreement, dated June 29, 2016, between us and CapitalG (the “Investment Agreement”). As of June 29, 2016, these shares represented approximately 13.7% of our outstanding common stock, on an as-converted basis. Holders of Series A Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable semi-annually in arrears. The dividends are to be paid in-kind over a seven-year period.

As holders of our Series A Preferred Stock are entitled to vote on an as-converted basis together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, the issuance of the Series A Preferred Stock to CapitalG, and the subsequent payment of in-kind dividends, effectively reduces the relative voting power of the holders of our common stock.

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In addition, the conversion of the Series A Preferred Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock. We granted CapitalG customary registration rights in respect of any shares of common stock issued upon conversion of the Series A Preferred Stock. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading. Sales by CapitalG, or transferees of our Series A Preferred Stock, of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.    

CapitalG is owned by Alphabet Inc., a multinational conglomerate whose portfolio encompasses several industries and includes numerous companies, including Google LLC. It is possible that CapitalG’s affiliation with companies such as Google LLC may deter other companies from exploring acquisition opportunities of the company, particularly if those potential acquirers view Google LLC or other companies affiliated with CapitalG as competitors.

CapitalG may exercise influence over us, including through their ability to designate and the ability of the Series A Preferred Stockholders to elect a member of our board of directors, and their interests may not always be aligned with the holders of our common stock.

As of December 29, 2018, CapitalG is the beneficial owner of approximately 13.6% of our outstanding common stock, on an as converted basis, making CapitalG our largest stockholder. Moreover, the ongoing payment of in-kind dividends to CapitalG is expected to increase the company’s ownership interest in our company. CapitalG is in the business of making investments in companies, including businesses that may directly or indirectly compete with certain portions of our business, and they may have interests that diverge from, or even conflict with, those of our other stockholders.

In addition, pursuant to the terms of the Investment Agreement and the Series A Preferred Stock, for so long as CapitalG or its affiliates beneficially own at least 50% of the shares of Series A Preferred Stock purchased from us pursuant to the Investment Agreement, the holders of Series A Preferred Stock have the right to elect one director to our board, with CapitalG having the right to designate the nominee for such position. Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of a director designated by CapitalG may differ from the interests of our stockholders as a whole or of our other directors.

Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of CapitalG or other holders of Series A Preferred Stock differing from those of our common stockholders.

The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

The holders of our Series A Preferred Stock also have certain redemption rights or put rights, including the right to require us to repurchase the Series A Preferred Stock on any date after June 29, 2023, at 100% of the Liquidation Preference thereof plus all Accrued but Unpaid Dividends, and the right to require us to repurchase the Series A Preferred Stock upon certain change of control events at 150% of the then current Liquidation Preference plus all Accrued but Unpaid Dividends.

These preferential rights could result in divergent interests between CapitalG or other holders of our Series A Preferred Stock and holders of our common stock. Moreover, the repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.

ITEM 6.EXHIBITS

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Exhibit Number	Exhibit Description
10.1#	Transition Agreement, dated as of August 6, 2019, between Care.com, Inc. and Sheila Lirio Marcelo
10.2#	Consulting Agreement, dated as of August 5, 2019, between Care.com, Inc. and Michael Echenberg
10.3#	Offer letter between the Care.com, Inc. and Michael Goss, dated August 30, 2019
31.1*#	Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2*	Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1**	Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350
101*	The following materials from Care.com, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statement of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to the Consolidated Financial Statements
*	Filed herewith
**	Furnished herewith
#	Indicates management contract or compensatory plan

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CARE.COM, INC.
Dated: November 6, 2019	By: /s/ SHEILA LIRIO MARCELO
	Sheila Lirio Marcelo
	President and Chief Executive Officer and Director
	(Principal Executive Officer)
Dated: November 6, 2019	By: /s/ MICHAEL GOSS
	Michael Goss
	Acting Chief Financial Officer
	(Principal Financial and Accounting Officer)

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