S-1 1 d647121ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on February 28, 2014

 

 

 

 

No. 333-                    

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

GRUBHUB INC.

(Exact name of registrant as specified in its charter)

Delaware   7389   46-2908664

(State or other jurisdiction of incorporation

or organization)

 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer Identification No.)

111 W. Washington Street, Suite 2100

Chicago, Illinois 60602

(877) 585-7878

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

 

Margo Drucker, Esq.

Vice President and General Counsel

GrubHub Inc.

111 W. Washington Street, Suite 2100

Chicago, Illinois 60602

(877) 585-7878

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

 

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

Joshua N. Korff, Esq.

Michael Kim, Esq.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

David J. Goldschmidt, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, NY 10036

(212) 735-3574

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

 

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

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

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

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

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

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

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of

Securities to be Registered

  

Proposed

Maximum

Aggregate
  Offering Price (1)(2)  

   Amount of
  Registration Fee  

Common Stock, $0.0001 par value per share

   $100,000,000    $12,880

 

 

(1)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)   Includes the offering price of any additional shares of common stock that the underwriters have the option to purchase.

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

 

 

 


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

 

SUBJECT TO COMPLETION, DATED FEBRUARY 28, 2014

 

PRELIMINARY PROSPECTUS

 

LOGO

 

Common Stock

$             per share

 

This is the initial public offering of shares of common stock of GrubHub Inc. We are offering                  shares to be sold in this offering. The selling stockholders identified in this prospectus are offering an additional                  shares. We will not receive any of the proceeds from the sale of shares being sold by the selling stockholders.

 

We and the selling stockholders have granted the underwriters an option to purchase up to                  additional shares of our common stock.

 

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $             and $            . We intend to apply to list our common stock on the New York Stock Exchange (“NYSE”) under the symbol “GRUB.”

 

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

 

Investing in our common stock involves risks. See the section titled “Risk Factors” beginning on page 13.

 

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

 

     Per Share      Total  

Public Offering Price

   $                    $                

Underwriting Discount

   $         $     

Proceeds to GrubHub Inc. (before expenses)

   $         $     

Proceeds to Selling Stockholders (before expenses)

   $         $     

 

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

 

Citigroup    Morgan Stanley
Allen & Company LLC
BMO Capital Markets    Canaccord Genuity    Raymond James    William Blair

 

                    , 2014


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LOGO


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

 

 

 

TABLE OF CONTENTS

 

     Page  

SUMMARY

     1   

RISK FACTORS

     13   

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     33   

BASIS OF PRESENTATION

     34   

INDUSTRY AND MARKET DATA

     36   

USE OF PROCEEDS

     37   

DIVIDEND POLICY

     38   

CAPITALIZATION

     39   

DILUTION

     41   

UNAUDITED PRO FORMA FINANCIAL INFORMATION

     43   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

     46   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     50   

BUSINESS

     72   

MANAGEMENT

     82   

EXECUTIVE COMPENSATION

     90   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     99   

PRINCIPAL AND SELLING STOCKHOLDERS

     101   

DESCRIPTION OF CAPITAL STOCK

     104   

SHARES ELIGIBLE FOR FUTURE SALE

     108   

U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     111   

UNDERWRITING

     115   

LEGAL MATTERS

     121   

EXPERTS

     121   

WHERE YOU CAN FIND MORE INFORMATION

     121   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

 

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SUMMARY

 

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise stated or the context requires otherwise, (i) when we refer to the “Seamless Platform,” we refer to the operations for Seamless North America, LLC as of and for the year ended December 31, 2011 and from January 1, 2012 through October 28, 2012, the date when Aramark Corporation (“Aramark”) completed the spin-off of its interest in the Seamless business, and to the operations for Seamless Holdings Corporation, an entity formed for the purpose of completing the spin-off and whose assets primarily consist of Aramark’s former interest in the Seamless business and its subsidiaries (“Seamless Holdings”), beginning on October 29, 2012 and (ii) when we refer to the “GrubHub Platform,” we refer to the operations of GrubHub Holdings Inc., formerly known as GrubHub, Inc. (“GrubHub Holdings”), and its subsidiaries. On August 8, 2013 (the “Merger Date”), we completed a merger of the GrubHub Platform and the Seamless Platform (the “Merger”). Through the Merger, we formed GrubHub Inc., formerly known as GrubHub Seamless Inc., which includes both the GrubHub Platform and the Seamless Platform. In this prospectus, unless the context otherwise requires, the terms “GrubHub,” “the Company,” “our platform,” “we,” “us,” and “our” refer, (i) prior to the Merger Date, to the Seamless Platform and (ii) after the Merger Date, to GrubHub Inc. and its subsidiaries.

 

References to operating metrics as “combined” reflect the combined results for the GrubHub Platform and the Seamless Platform beginning on the first day of the period for which the operating metric is presented. See “Basis of Presentation.”

 

Our Mission

 

Our mission is to make takeout better.

 

Our Company

 

GrubHub is the leading online and mobile platform for restaurant pick-up and delivery orders, which we refer to as takeout. We processed more than 135,000 combined Daily Average Grubs (as defined herein) in 2013 and had approximately $1.3 billion of combined Gross Food Sales (as defined herein) on our platforms in 2013. We connect local restaurants with hungry diners in more than 600 cities across the United States and are focused on transforming the takeout experience. For restaurants, GrubHub generates higher margin takeout orders at full menu prices. Our platform empowers diners with a “direct line” into the kitchen, avoiding the inefficiencies, inaccuracies and frustrations associated with paper menus and phone orders. We have a powerful two-sided network that creates additional value for both restaurants and diners as it grows.

 

Our target market is primarily independent restaurants. These independent restaurants, which account for 61% of all U.S. restaurants (according to a 2013 industry report prepared by Euromonitor International (“Euromonitor”)), remain local, highly fragmented and are mostly owner-operated family businesses. According to Euromonitor, Americans spent $204 billion at these approximately 350,000 independent restaurants in 2012. We believe that Americans spent approximately $67 billion on takeout at these independent restaurants.

 

For restaurants, takeout enables them to grow their business without adding seating capacity or wait staff. Advertising for takeout, typically done through the distribution of menus to local households or advertisements in local publications, is often inefficient and requires upfront payment with no certainty of success. In contrast, we provide the approximately 28,800 restaurants on our platform (as of December 31, 2013) with an efficient way to

 

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generate more takeout orders. We enable restaurants to access local diners at the moment when those diners are hungry and ready to purchase takeout. In addition, we do not charge the restaurants in our network any upfront or subscription fees, we do not require any discounts from their full price menus and we only get paid for the orders we generate for them, providing restaurants with a low-risk, high-return solution. We charge restaurants a per-order commission that is primarily percentage-based.

 

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

 

For diners, the traditional takeout ordering process is often a frustrating experience—from using paper menus to communicating an order by phone to a busy restaurant employee. In contrast, ordering on GrubHub is enjoyable and a dramatic improvement over the “menu drawer.” We provide diners on our platform with an

easy-to-use, intuitive and personalized platform that helps them search for and discover local restaurants and then accurately and efficiently place an order from any Internet-connected device. We also provide diners with information and transparency about their orders and status and solve problems that may arise. In addition, we make re-ordering convenient by storing previous orders, preferences and payment information, helping us promote diner frequency and drive strong repeat business.

 

The proliferation of mobile devices over the past few years has significantly increased the value of our platform. With powerful, easy-to-use mobile applications for iPhone, iPad and Android, we enable diners to access GrubHub whenever and wherever they want takeout. The discovery and ordering capabilities that are available on our consumer websites are also available through our mobile applications. We monetize the orders placed through our mobile applications using the same rate as orders placed through our websites. Our mobile applications make ordering from GrubHub more accessible and personal, driving increased use of our platform by restaurants and diners. Orders placed on mobile devices increased from approximately 20% of our consumer orders during the quarter ended December 31, 2011 to approximately 43% of our consumer orders during the quarter ended December 31, 2013.

 

The GrubHub Platform was founded in 2004 and the Seamless Platform was founded in 1999. We completed the Merger of the two companies in August 2013. The Merger has enabled us to expand our two-sided network, connecting customers in the geographies we serve with more restaurants. Through the combination of the GrubHub Platform and the Seamless Platform, we are able to eliminate duplicative marketing expenses and restaurant sales and take advantage of a complementary geographic footprint.

 

Our business has grown rapidly. In 2013, we generated revenue of $137.1 million, representing a 67% increase from 2012. Our revenue growth has been driven primarily by increasing adoption of our platform by restaurants and diners, with 3.4 million Active Diners (as defined herein) as of December 31, 2013, and the inclusion of results from the GrubHub Platform. $26.3 million of the increase in revenue and 1.9 million of the increase in Active Diners were due to the inclusion of results from the GrubHub Platform following the Merger Date. In 2013, our net income was $6.7 million and our Adjusted EBITDA was $38.1 million. See “—Summary Historical Consolidated Financial Information” for a discussion and reconciliation of Adjusted EBITDA to net income.

 

The Takeout Market Opportunity

 

Food is an essential, social and enjoyable aspect of everyday life. However, there is often little time to cook at home or dine out. In addition, diners are increasingly looking for a broader and more diversified choice of cuisines and menu items. Takeout offers a convenient alternative, providing diners with a wide variety of options, wherever they want and whenever they want.

 

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Large and Fragmented Market

 

Our primary target market is comprised of approximately 350,000 independent restaurants that account for 61% of all U.S. restaurants, according to Euromonitor. According to Euromonitor, Americans spent $204 billion at these independent restaurants in 2012. We believe that Americans spent approximately $67 billion on takeout at these independent restaurants.

 

Challenges for Independent Restaurants

 

Independent restaurant owners recognize that increasing takeout orders enables them to grow their business because they can service the additional orders by leveraging existing resources, including excess capacity and perishable inventory, without adding seating capacity or wait staff. Advertising for takeout is often done through the distribution of menus to local households or through local publications such as the yellow pages. These traditional methods of advertising are typically inefficient, require upfront payment with no certainty of success and are rapidly becoming obsolete as diners shift to online and mobile solutions for local search and discovery. Providing a quality experience for takeout diners is also a key challenge for restaurants. Because independent restaurants focus on serving on-premise diners, they typically have a limited ability to attend to the needs of takeout diners. The traditional takeout ordering process is highly manual and prone to errors and delays. Effectively and efficiently managing order delivery is also a challenge for independent restaurants given the nature of the process as well as their limited resources to handle follow-up calls.

 

Independent restaurants seek a simple and effective solution to expand their takeout business without significant investments or expertise in marketing and technology.

 

Challenges for Diners

 

For diners, ordering takeout is usually a chore and is often a frustrating experience. Typically, ordering takeout starts with the challenge of choosing where to order from and what to order—usually relying on a tired, outdated and limited choice of menus found in the “menu drawer.” Once a diner chooses and calls a restaurant, the ordering process can lead to angst, as the diner is faced with long hold times, distracted order-takers in an already error-prone process, difficulty communicating special requests, incomplete pricing information and the inevitable wait for delivery with limited transparency. Upon delivery, diners only have a few seconds to confirm that what they received is indeed what they ordered, with limited recourse in the event it is not.

 

Diners seek a simple, convenient and transparent takeout ordering solution with a wide variety of restaurant choices that provides them with a “direct line” into the kitchen.

 

The GrubHub Solution

 

At GrubHub, we focus on providing value to both restaurants and diners through our two-sided network. We provide restaurants with more orders, help them serve diners better and enable them to improve the efficiency of their takeout business. For diners, we make takeout accessible, simple and enjoyable, enabling them to discover new restaurants and accurately and easily place their orders anytime and from anywhere.

 

Why Restaurants Love GrubHub

 

With approximately 28,800 restaurants in our network as of December 31, 2013, we believe that we provide restaurants with the following key benefits:

 

   

More Orders.    Through GrubHub, restaurants in our network receive more orders at full menu prices.

 

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Targeted Reach.    Restaurants in our network gain an online and mobile presence with the ability to reach their most valuable target audience—hungry diners in their area.

 

   

Low Risk, High Return.    GrubHub generates higher margin takeout orders for the restaurants in our network by enabling them to leverage their existing fixed costs.

 

   

Service and Efficiency.     Restaurants in our network can receive and handle a larger volume of takeout orders more accurately, increasing their operational efficiency while providing their takeout diners with a high-quality experience.

 

   

Insights.    We provide restaurants with actionable insights based on the significant amount of order data we gather, helping them to optimize their delivery footprints, menus, pricing and online profiles.

 

Why Diners Love GrubHub

 

With 3.4 million Active Diners as of December 31, 2013 and more than 135,000 combined Daily Average Grubs in 2013, we believe that we provide diners with the following key benefits:

 

   

Discovery.    GrubHub aggregates menus and enables ordering from restaurants across more than 600 cities in the United States, in most cases providing diners with more choices than the “menu drawer” and allowing them to discover hidden gems from local restaurants in our network.

 

   

Convenience.    Using GrubHub, diners do not need to place their orders over the phone. We provide diners with an easy-to-use, intuitive and personalized platform that makes ordering simple from any connected device.

 

   

Control and Transparency.    Our platform empowers diners with a “direct line” into the kitchen, without having to talk to a distracted order-taker in an already error-prone process.

 

   

Service.    For diners, GrubHub’s role is similar to that of the waiter in a restaurant, providing a critical layer of customer service that is typically missing in takeout.

 

Our Competitive Advantages

 

Our focus on making takeout better for both restaurants and diners has helped us to develop the following competitive advantages:

 

   

Market Leader with Significant Scale.    We are the largest takeout platform, with approximately $1.3 billion in combined Gross Food Sales on our platform; approximately 28,800 restaurants across 600 cities in the United States; and 3.4 million Active Diners, yielding more than 135,000 combined Daily Average Grubs across our platform.

 

   

Powerful Two-Sided Network Effect.    As we continue to increase the number of restaurants in our network, we become a more compelling platform for diners. As we continue to increase the number of diners on our platform, we generate more orders for and become more compelling to restaurants.

 

   

Growing and Recurring Diner Base.    We believe that our easy-to-use ordering system, restaurant choices and enjoyable user experience all inspire new diners to try GrubHub and encourage existing diners to make GrubHub a way of life, driving repeat and growing use of our platform.

 

   

Product Innovation.    We have a history of introducing new products that make our platform better, such as the introduction of our mobile applications and our restaurant-facing products, OrderHub and Boost.

 

   

Mobile Engagement and Monetization.    We benefit from the growing adoption and increased use of our mobile applications, as they significantly increase the number of orders diners place through GrubHub.

 

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Orders placed on mobile devices increased from approximately 20% of our consumer orders during the quarter ended December 31, 2011 to approximately 43% of our consumer orders during the quarter ended December 31, 2013. We monetize the orders placed through our mobile applications using the same rate as orders placed through our websites.

 

   

Attractive Business Model.    Our scalable platform enables us to process additional orders at low incremental cost. As our two-sided network of restaurants and diners has grown, many of our restaurants have chosen to pay higher rates to receive better exposure to more diners on our platform, and this has resulted in higher overall commission rates for us.

 

Our Growth Strategy

 

We strive to make GrubHub an integral part of everyday life for our restaurants and diners through the following growth strategies:

 

   

Grow our Two-Sided Network.    We intend to grow the number of restaurants in our existing geographic markets by providing them with opportunities to generate more takeout orders. We intend to grow the number of diners and orders placed on our network primarily through word-of-mouth referrals, marketing that encourages adoption of our mobile applications and increased order frequency.

 

   

Enhance our Platform.    We plan to continue to invest in our websites and mobile products, develop new products and better leverage the significant amount of order data that we collect.

 

   

Deliver Excellent Customer Service.    By meeting and exceeding the expectations of both restaurants and diners through our customer service, we seek to gain their loyalty and support for our platform.

 

   

Pursue Strategic Acquisitions.    We intend to continue to pursue expansion opportunities in existing and new markets, as well as in core and adjacent categories through strategic acquisitions.

 

Risk Factors

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our common stock. Some of these risks are:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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Our Corporate Information

 

The GrubHub Platform was founded in 2004 and the Seamless Platform was founded in 1999. We completed the Merger of the two platforms on the Merger Date.

 

Our principal executive offices are located at 111 W. Washington Street, Suite 2100, Chicago, Illinois 60602, and our telephone number is (877) 585-7878. Our website addresses are www.grubhub.com and www.seamless.com. Information contained on or that can be accessed through our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.

 

As of December 31, 2013, we had more than 40 trademarks registered in the United States, including “GrubHub,” “happy eating,” “Seamless,” “OrderHub” and “Your food is here.” This prospectus may also contain trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the TM, SM, © and ® symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable owners, if any, to these trademarks, service marks, trade names and copyrights.

 

Emerging Growth Company Status

 

We qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

   

an exemption from complying with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002, as amended (“Section 404”);

 

   

a requirement to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

 

   

an exemption from the requirement to seek non-binding advisory votes on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

We have not made a decision regarding whether to take advantage of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may be more volatile.

 

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

 

We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large

 

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accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

 

The Offering

 

Common stock offered by us

                shares (or                 shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock offered by the selling

stockholders

                shares (or                 shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock to be outstanding after this offering

                shares (or                 shares if the underwriters exercise their option to purchase additional shares in full).

 

Use of proceeds

We expect to receive net proceeds from this offering of approximately $             million (or approximately $             million if the underwriters exercise their option to purchase additional shares in full), based upon an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders.

 

  We currently intend to use the net proceeds from this offering (including any additional proceeds that we may receive if the underwriters exercise their option to purchase additional shares of our common stock) for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. See the section titled “Use of Proceeds” for additional information.

 

Concentration of ownership

Upon completion of this offering, our executive officers and directors, and their affiliates, will beneficially own, in the aggregate,     % of our outstanding shares of common stock (or     % if the underwriters exercise their option to purchase additional shares in full).

 

Proposed trading symbol

“GRUB.”

 

The number of shares of common stock that will be outstanding after this offering is based on 148,771,309 shares outstanding as of December 31, 2013, and excludes:

 

   

15,061,647 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted average exercise price of $2.04 per share; and

 

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5,054,055 shares of common stock reserved for future issuance under our 2013 Omnibus Incentive Plan as of December 31, 2013, and any future increase in shares reserved for issuance under such plan.

 

Except as otherwise indicated, all information in this prospectus assumes:

 

   

the automatic conversion of all outstanding shares of our convertible Series A Preferred Stock (the “Preferred Stock”) into an aggregate of 38,568,210 shares of common stock, the conversion of which will occur immediately prior to the closing of this offering;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the closing of this offering; and

 

   

no exercise by the underwriters of their option to purchase up to an additional                 shares of common stock from us in this offering.

 

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Summary Historical Consolidated Financial and Other Data

 

The following tables summarize our historical financial and other data, which has been derived from our consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements included elsewhere in this prospectus reflect the results of operations and financial condition of (i) the Seamless Platform as of and for the years ended December 31, 2011 and 2012, (ii) the Seamless Platform from January 1, 2013 through the Merger Date and for both the GrubHub Platform and the Seamless Platform after the Merger Date through December 31, 2013 and (iii) GrubHub Inc. as of December 31, 2013. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
(in thousands)    2011     2012      2013(1)  

Statement of Operations Data:

       

Revenues

   $ 60,611      $ 82,299       $ 137,143   

Costs and expenses:

       

Sales and marketing

     17,198        26,892         37,347   

Operations and support

     13,961        18,165         34,173   

Technology (exclusive of amortization)

     5,651        10,172         15,357   

General and administrative

     9,777        12,249         21,907   

Depreciation and amortization

     4,033        6,089         13,470   
  

 

 

   

 

 

    

 

 

 

Total costs and expenses

     50,620        73,567         122,254   

Income before provision for income taxes

     9,991        8,732         14,889   

Provision (benefit) for income taxes

     (5,220     813         8,142   
  

 

 

   

 

 

    

 

 

 

Net income

   $ 15,211      $ 7,919       $ 6,747   
  

 

 

   

 

 

    

 

 

 

Other Financial Information:

       

Adjusted EBITDA(2)

   $ 14,827      $ 17,185       $ 38,134   
  

 

 

   

 

 

    

 

 

 

 

(1)   Includes results for Seamless Holdings through August 8, 2013, when we completed the Merger, and of GrubHub Inc., the combined company, for the remainder of the period presented.
(2)   See the section titled “Non-GAAP Financial Measures” below for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles.

 

     As of December 31, 2013  
     Actual(1)      Pro  Forma(2)      Pro Forma  As
Adjusted(3)(4)
 
     (unaudited)  
(in thousands)       

Balance Sheet Data:

        

Cash and cash equivalents

   $ 86,542       $                    $                

Working capital

     29,568         

Total assets

     762,812         

Convertible Preferred Stock

     4         

Total stockholders’ equity

     557,375         

 

(1)   Reflects the actual balances at GrubHub Inc. as of December 31, 2013.

 

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(2)   The pro forma column above reflects the automatic conversion of all outstanding shares of our convertible Preferred Stock as of December 31, 2013 into an aggregate of 38,568,210 shares of common stock, which conversion will occur immediately prior to the closing of this offering, as if such conversion had occurred on December 31, 2013.
(3)   The pro forma as adjusted column above gives effect to the pro forma adjustments set forth above and the sale and issuance by us of                 shares of common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(4)   Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the cash and cash equivalents, working capital, total assets and total stockholders’ equity by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of one million shares in the number of shares offered by us would increase or decrease, as applicable, the cash and cash equivalents, working capital, total assets and total stockholders’ equity by $             million assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us.

 

Key Business Metrics

 

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

 

     Year Ended December 31,  
     2011      2012          2013      
     (unaudited)  

Active Diners(1)

     689,000         986,000         3,421,000   

Daily Average Grubs(2)

     45,700         62,000         107,900   

Gross Food Sales (in millions)(3)

   $ 412.2       $ 568.8       $ 1,014.9   

 

(1)   We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date.
(2)   We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period.
(3)   We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Because we act as an agent of the merchant in the transaction, we recognize as revenue only our commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

Non-GAAP Financial Measures

 

Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). We define Adjusted EBITDA as net income adjusted to exclude acquisition costs and related severance, incomes taxes, depreciation and amortization and stock-based compensation expense. Below, we have provided a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly

 

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titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.

 

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

 

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

 

     Year Ended December 31,  
     2011     2012      2013(1)  
(in thousands)    (unaudited)  

Reconciliation of Adjusted EBITDA:

       

Net income

   $ 15,211      $ 7,919       $ 6,747   

Income taxes(2)

     (5,220     813         8,142   

Depreciation and amortization

     4,033        6,089         13,470   
  

 

 

   

 

 

    

 

 

 

EBITDA

     14,024        14,821         28,359   

Merger and restructuring costs(3)

     —          —           4,842   

Stock—based compensation

     803        2,364         4,933   
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 14,827      $ 17,185       $ 38,134   
  

 

 

   

 

 

    

 

 

 

 

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

 

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(2)   The increase in income tax expense was primarily attributable to a reversal of deferred tax liability of $8.4 million in 2011 associated with the June 2011 sale of preferred stock to SLW Investors, LLC offset by 2011 income tax paid of $2.2 million, which represents the income tax expense from January 1, 2011 through May 31, 2011. For the period January 1, 2012 through October 27, 2012, the Company was a pass-through entity for income tax purposes. Immediately following the Merger Date, 100% of our taxable income is subject to income tax.
(3)   Merger and restructuring costs include transaction and integration related costs, such as legal and accounting costs, associated with the Merger, and restructuring costs.

 

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RISK FACTORS

 

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

 

Risks Related to Our Business

 

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

 

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

 

   

accurately forecast our revenues and plan our operating expenses;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

avoid interruptions or disruptions in our service;

 

   

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

 

   

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

 

   

effectively manage rapid growth in our personnel and operations.

 

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

 

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

 

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

 

   

we may make changes to unify our pricing models that could affect our relationship with existing restaurants in our network;

 

   

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

 

   

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

 

   

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

 

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

 

   

unified policies, procedures and controls may not be applied to the combined company in a timely manner following the Merger;

 

   

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

 

   

our chosen strategy leading to the Merger may not be the appropriate strategy.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We rely upon restaurants in our network, principally small and local independent businesses, to provide quality food to our diners on a timely basis. If these restaurants experience difficulty servicing diner demand, producing quality food, providing timely delivery and good service or meeting our other requirements or standards, our reputation and brand could be damaged. In addition, if restaurants in our network were to cease operations, temporarily or permanently, face financial distress or other business disruption, or if our relationships with restaurants in our network deteriorate, we may not be able to provide diners with restaurant choices. This risk is more pronounced in markets where we have fewer restaurants. In addition, if we are unsuccessful in choosing or finding popular restaurants, if we fail to negotiate satisfactory pricing terms with them or if we ineffectively manage these relationships, it could harm our business and results of operations.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Our performance is subject to economic conditions and their impact on levels of consumer spending. Some of the factors having an impact on discretionary consumer spending include general economic conditions, unemployment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, energy prices, interest rates, consumer confidence and other macroeconomic factors. Consumer purchases of discretionary items generally decline during recessionary periods and other periods in which disposable income is adversely affected. Small businesses that do not have substantial resources, like virtually all of the restaurants in our network, tend to be more adversely affected by poor economic conditions than large businesses. Also, because spending for food purchases from restaurants is generally considered to be discretionary, any decline in consumer spending may have a disproportionate effect on our business relative to those businesses that sell products or services considered to be necessities. If spending at many of the restaurants in our network declines, or if a significant number of these restaurants go out of business, diners may be less likely to use our service, which could harm our business and results of operations. In addition, significant adverse economic conditions could harm the businesses of our corporate customers, resulting in decreased use of our platform. Moreover, the majority of restaurants in our network are located in major metropolitan areas like New York City, Chicago and the San Francisco Bay Area. To the extent any one of these geographic areas experience any of the above described conditions to a greater extent than other geographic areas, the harm to our business and results of operations could be exacerbated.

 

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

 

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

 

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

 

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

 

   

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

 

   

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

 

   

excessive governmental regulation; and

 

   

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

In addition, we rely on off-the-shelf hardware and software platforms developed by third parties to build and customize our OrderHub and Boost tablet and mobile applications. If third parties fail to continue to produce or

 

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maintain these hardware and software platforms, our OrderHub and Boost tablet and mobile applications may become less accessible to restaurants and diners, and our business and results of operations could be harmed.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

   

enhance our existing products and develop new products;

 

   

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

 

   

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

 

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

 

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

 

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

 

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

 

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

 

   

our ability to attract new restaurants and diners and retain existing restaurants and diners in our network;

 

   

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

 

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the effects of changes in search engine placement and prominence;

 

   

the effects of increased competition on our business;

 

   

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

 

   

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

 

   

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

 

   

the impact of weather on our business;

 

   

our ability to protect our intellectual property;

 

   

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

 

   

our ability to maintain and increase traffic to our platform;

 

   

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

 

   

the success of our sales and marketing efforts;

 

   

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

 

   

changes in governmental or other regulation affecting our business;

 

   

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

 

   

the attraction and retention of qualified employees and key personnel;

 

   

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

 

   

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

 

   

the effects of natural or man-made catastrophic events;

 

   

the effectiveness of our internal controls;

 

   

changes in the online payment transfer rate; and

 

   

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

   

regulatory hurdles;

 

   

the anticipated benefits may not materialize;

 

   

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

 

   

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

 

   

retention of employees from the acquired company;

 

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

 

   

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

 

   

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

 

   

coordination of product development and sales and marketing functions;

 

   

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

 

   

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

 

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

 

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

 

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

 

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

 

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

 

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or features, which

 

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would negatively affect our business. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred to prevent or mitigate this potential liability could also harm our business and results of operations.

 

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

 

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

 

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

 

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

 

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

 

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

 

We operate in an industry with extensive intellectual property litigation. Other parties have asserted, and in the future may assert, that we have infringed their intellectual property rights. Such litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence. We could be required to pay substantial damages or cease using intellectual property or technology that is deemed infringing.

 

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

 

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

 

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

 

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

 

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

 

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired, and our business may be harmed.

 

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

 

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

 

Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

 

We may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal income tax purposes. As of December 31, 2011, 2012 and 2013, we had aggregate federal net operating loss carryforwards of $4.2 million, $3.4 million and $34.3 million, respectively, which expire at various dates through 2034. Our gross state and local net operating loss carryforwards are equal to or less than the federal net operating loss carryforward and expire over various periods based on individual state tax law.

 

We periodically assess the likelihood that we will be able to recover our net deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. As a result of this analysis of all available evidence, both positive and negative, we concluded that a valuation allowance against our net deferred tax assets should be applied as of December 31, 2012. To the extent we determine that all or a portion of our valuation allowance is no longer necessary, we will recognize an income tax benefit in the period in which such determination is made for the reversal of the valuation allowance. Once the valuation allowance is eliminated or reduced, its reversal will no longer be available to offset our current tax provision. These events could harm our results of operations.

 

Risks Related to Ownership of Our Common Stock and this Offering

 

Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions and could delay or prevent a change in corporate control.

 

Upon completion of this offering, our executive officers, directors and holders of 5% or more of our outstanding common stock will beneficially own, in the aggregate, approximately     % of our outstanding shares of common stock. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests or which adversely impact the value of your investment. These stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control in us or changes in management and could also make the approval of certain transactions difficult or impossible without the support of these stockholders, which in turn could reduce the price of our common stock.

 

An active, liquid and orderly trading market for our common stock may not develop or be sustained, the price of our stock may be volatile, and you could lose all or part of your investment.

 

Prior to this offering, there was no public market for shares of our common stock. The initial public offering price of our common stock will be determined through negotiation with the underwriters. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares of common stock following

 

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this offering. In addition, the trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

 

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

 

The trading price of our common stock following this offering may fluctuate substantially and may be higher or lower than the initial public offering price. The trading price of our common stock following this offering will depend on a number of factors, including those described in this “—Risk Factors” section and “Special Note Regarding Forward-Looking Statements,” many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our common stock include the following:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

announcements by us or our competitors of new products;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

any significant change in our management; and

 

   

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

 

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

 

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A total of             , or             %, of our total outstanding shares after the offering are restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.

 

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our common stock. Based on 148,771,309 shares outstanding as of December 31, 2013, we will have                  shares of common stock outstanding after this offering. Of these shares, the common stock sold in this offering will be freely tradable in the United States, except for any shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act. The holders of shares of outstanding common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock during the 180-day period beginning on the date of this prospectus, except with the prior written consent of Citigroup Global Capital Markets Inc. and Morgan Stanley & Co. LLC. After the expiration of the 180-day restricted period, these shares may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from United States registration, including, in the case of shares held by affiliates or control persons, compliance with the volume restrictions of Rule 144.

 

Upon completion of this offering, stockholders owning an aggregate of shares will be entitled, under contracts providing for registration rights, to require us to register shares of our common stock owned by them for public sale in the United States. In addition, we intend to file a registration statement to register the approximately                  shares reserved for future issuance under our 2013 Omnibus Incentive Plan. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and, in certain cases, lock-up agreements with the representatives of the underwriters referred to above, the shares of common stock issued upon exercise of outstanding options will be available for immediate resale in the United States in the open market.

 

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

 

Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm our business and results of operations.

 

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC, and the              impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will 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, accounting and financial compliance costs and have made and will continue to make some activities more time consuming and costly, particularly after we cease to be an “emerging growth company” as defined in the Jumpstart Our Business Startups Act enacted in April 2012. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

 

Our management team, including our CEO, has limited or no experience in managing publicly traded companies. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and we may not successfully or efficiently manage our transition to a public company. To

 

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comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which would require us to incur additional expenses and harm our results of operations.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

 

   

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

 

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

 

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

 

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

 

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

 

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

 

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

 

The assumed initial public offering price of our common stock of $         per share, based on the midpoint of the price range on the cover page of this prospectus, is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $         in the net tangible book value per share from the price you paid. In addition, following this offering, purchasers who bought shares from us in the offering will have contributed     % of the total consideration paid to us by our stockholders to purchase shares of common stock, in exchange for acquiring approximately     % of our total outstanding shares as of September 30, 2013 after giving effect to this offering. The exercise of outstanding stock options and warrants will result in further dilution.

 

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

 

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

 

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

 

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

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties that may cause actual results to differ materially from those that we expect. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “anticipates,” “believes,” “contemplates,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “target” or “will” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

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

 

   

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

 

   

our ability to effectively manage our integration after the Merger;

 

   

our ability to attract and retain restaurants to use our platform;

 

   

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

 

   

our ability to strengthen our two-sided network;

 

   

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

 

   

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

 

   

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

 

   

our ability to effectively manage our growth and future expenses;

 

   

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

 

   

our ability to comply with modified or new laws and regulations applying to our business; and

 

   

the attraction and retention of qualified employees and key personnel.

 

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

 

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

 

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BASIS OF PRESENTATION

 

Unless otherwise stated or the context requires otherwise, (i) when we refer to the “Seamless Platform,” we refer to the operations for Seamless North America, LLC as of and for the year ended December 31, 2011 and from January 1, 2012 through October 28, 2012, the date when Aramark Corporation (“Aramark”) completed the spin-off of its interest in the Seamless business, and for Seamless Holdings Corporation, an entity formed for the purpose of completing the spin-off and whose assets primarily consist of Aramark’s former interest in the Seamless business and its subsidiaries (“Seamless Holdings”), beginning on October 29, 2012 and (ii) when we refer to the “GrubHub Platform,” we refer to the operations of GrubHub Holdings Inc., formerly known as GrubHub, Inc. (“GrubHub Holdings”), and its subsidiaries. On August 8, 2013 (the “Merger Date”), we completed a merger of the GrubHub Platform and the Seamless Platform (the “Merger”). Through the Merger, we formed GrubHub Inc., formerly known as GrubHub Seamless Inc., which includes both the GrubHub Platform and the Seamless Platform.

 

Financial Information

 

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

 

Operating Metrics

 

Throughout this prospectus, we discuss key business metrics, including Active Diners, Daily Average Grubs and Gross Food Sales. Unless otherwise stated or the context requires otherwise, each of these metrics include results for the Seamless Platform alone prior to the Merger Date and for both the GrubHub Platform and the Seamless Platform, as GrubHub Inc., after the Merger Date to December 31, 2013. Our key business metrics are defined as follows:

 

   

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

 

   

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

 

   

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

 

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for such transaction. Unless otherwise stated or the context requires otherwise, when we disclose Gross Food Sales during the twelve months ended December 31, 2013, we include the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through the Seamless Platform from January 1, 2013 to August 8, 2013 and the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through both the GrubHub Platform and the Seamless Platform from August 9, 2013 to December 31, 2013.

 

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

 

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

 

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

 

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INDUSTRY AND MARKET DATA

 

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

 

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USE OF PROCEEDS

 

We expect to receive net proceeds from this offering of approximately $             million, based upon an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $             million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

 

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

 

The principal purposes of this offering are to increase our financial flexibility, create a public market for our common stock and facilitate our future access to the public equity markets.

 

We currently intend to use the net proceeds that we will receive from this offering (including any additional proceeds that we may receive if the underwriters exercise their option to purchase additional shares of our common stock) for working capital and other general corporate purposes. We may also use a portion of the net proceeds that we receive to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any acquisitions or investments at this time.

 

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

 

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

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2013 as follows:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to the automatic conversion of all outstanding shares of our convertible Preferred Stock into an aggregate of 38,568,210 shares of common stock, which conversion will occur immediately prior to the closing of this offering, as if such conversion had occurred on December 31, 2013; and

 

   

on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and the sale and issuance by us of                  shares of common stock in this offering, based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with our financial statements and related notes, and the sections titled “Use of Proceeds,” “Selected Historical Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     As of December 31, 2013  
     Actual      Pro Forma      Pro Forma as
Adjusted
 
     (in thousands, except share and per share
data)
 

Cash and cash equivalents

   $ 86,542       $                    $                
  

 

 

    

 

 

    

 

 

 

Redeemable common stock, $0.0001 par value per share, 2,688,328 shares outstanding

   $ 18,415       $         $     

Stockholders’ equity:

     

Convertible Preferred Stock, par value $0.0001 per share, issued in Series A; 38,568,210 shares authorized, 38,568,210 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

     4         —           —     

Common stock, par value $0.0001 per share: 330,000,000 shares authorized, 107,514,771 shares issued and outstanding, actual;              shares authorized,              shares issued and outstanding, pro forma; and              shares authorized,              shares issued and outstanding, pro forma as adjusted

     11      

Accumulated other comprehensive income

     132      

Additional paid-in capital

     500,348      

Retained earnings

     56,880      
  

 

 

       

Total stockholders’ equity

     557,375      
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 575,790       $         $     
  

 

 

    

 

 

    

 

 

 

 

If the underwriters’ option to purchase additional shares from us were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and shares issued and outstanding as of December 31, 2013 would be $             million, $             million, $             million and $            , respectively.

 

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Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our cash and cash equivalents, additional paid-in capital and total stockholders’ equity by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

 

The pro forma and pro forma as adjusted columns in the table above exclude the following:

 

   

15,061,647 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted average exercise price of $2.04 per share; and

 

   

5,054,055 shares of common stock reserved for future issuance under our 2013 Omnibus Incentive Plan as of December 31, 2013, and any future increase in shares reserved for issuance under such plan.

 

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DILUTION

 

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering.

 

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of December 31, 2013 was $575.8 million, or $5.22 per share. Our pro forma net tangible book value as of December 31, 2013 was $575.8 million, or $3.87 per share, based on the total number of shares of our common stock outstanding as of December 31, 2013, after giving effect to the automatic conversion of all outstanding shares of our convertible Preferred Stock as of December 31, 2013 into an aggregate of 38,568,210 shares of common stock, which conversion will occur immediately prior to the closing of this offering.

 

After giving effect to the sale by us of shares of             common stock in this offering at the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2013 would have been $         million, or $         per share. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $         per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of December 31, 2013

   $ 3.87      

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $     
     

 

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $        , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options or warrants to purchase common stock are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase additional shares from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $         per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $         per share.

 

The following table presents, on a pro forma as adjusted basis as of December 31, 2013, after giving effect to the conversion of all outstanding shares of convertible Preferred Stock into common stock immediately prior to the closing of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and convertible Preferred Stock, cash received from the exercise of stock options and the average price per share

 

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paid or to be paid to us at an assumed offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average
Price
per Share
 
      Number      Percent     Amount     Percent    

Existing stockholders

     148,771,309                $ 627,245,829 (1)             $ 4.22   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

New investors

           
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Totals

        100   $          100  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

(1)   Includes (i) $312,837,558 of our common stock issued in exchange of GrubHub Holdings common stock in connection with the Merger, (ii) $108,680,829 of our Preferred Stock issued in exchange of GrubHub Holdings preferred stock in connection with the Merger, (iii) $154,229,000 of our common stock issued when Aramark acquired the Seamless Platform, (iv) $50,000,000 of preferred units in Seamless North America, LLC issued in connection with Spectrum’s (as defined below) initial investment, which were exchanged for shares of our Preferred Stock in connection with the Merger, and (v) $1,498,442 received by the Company in connection with the exercise of options.

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors will experience further dilution.

 

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full from us, our existing stockholders would own         % and our new investors would own         % of the total number of shares of our common stock outstanding upon the completion of this offering and the net tangible book value would be $         per share and the dilution to new investors in this offering would be $         per share.

 

The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of December 31, 2013 and excludes:

 

   

15,061,647 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted average exercise price of $2.04 per share; and

 

   

5,054,055 shares of common stock reserved for future issuance under our 2013 Omnibus Incentive Plan as of December 31, 2013, and any future increase in shares reserved for issuance under such plan.

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

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

 

   

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

 

For purposes of the Unaudited Pro Forma Condensed Statement of Operations for the year ended December 31, 2013, we assumed that the Merger occurred on January 1, 2013 as it relates to the year ended December 31, 2013. As a result, the Unaudited Pro Forma Condensed Statement of Operations was derived from:

 

   

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

 

   

the unaudited historical statement of operations of GrubHub Holdings (Acquiree) for the period January 1, 2013 to August 8, 2013.

 

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

 

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

 

GrubHub Inc. Basic and Diluted earnings per share:

 

Basic: The weighted average number of shares outstanding used to calculate basic earnings per share in the Unaudited Pro Forma Condensed Statement of Operations does not account for the automatic conversion of Preferred Stock into shares of common stock that will occur immediately prior to the closing of this offering.

 

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

 

Pro Forma Basic and Diluted earnings per share:

 

Basic: The weighted average number of shares outstanding used to calculate the pro forma basic earnings per share in the Unaudited Pro Forma Condensed Statement of Operations reflects the common stock issued at the time of the Merger as if the common stock had been issued as of the beginning of each period presented.

 

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

 

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GrubHub Inc.

Unaudited Pro Forma Condensed Statement of Operations

For the Year Ended December 31, 2013

(In thousands, except per share data)

 

    GrubHub
Inc.
    GrubHub
Holdings
from
January 1,
2013 to
August 8,
2013
    Acquisition
Adjustments

(A)
    Acquisition
Adjustments

(B)
    Acquisition
Adjustments

(C)
    Acquisition
Adjustments

(D)
    Pro Forma  

Revenues

  $ 137,143      $ 32,943      $ —        $ —        $ —        $ —        $ 170,086   

Sales and marketing

    37,347        10,948        —          540        —          —          48,835   

Operations and support

    34,173        11,466        —          491        —          —          46,130   

Technology (exclusive of amortization)

    15,357        3,794        —          306        —          —          19,457   

General and administrative

    21,907        10,495        —          1,660        (9,131     —          24,931   

Depreciation and amortization

    13,470        1,536        6,475        —          —          —          21,481   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    122,254        38,239        6,475        2,997        (9,131     —          160,834   

Income (loss) before provision for income taxes

    14,889        (5,296     (6,475     (2,997     9,131        —          9,252   

Provision for income taxes

    8,142        —          —          —          —          (3,050     5,092   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,747      $ (5,296   $ (6,475   $ (2,997   $ 9,131      $ 3,050      $ 4,160   

Dividends on Preferred Stock

    (1,073               (1,073
 

 

 

             

 

 

 

Net income per share attributable to common stockholders

  $ 5,674                $ 3,087   

Basic

  $ 0.07                $ 0.03   

Diluted

  $ 0.06                $ 0.02   

Weighted average number of shares outstanding:

             

Basic

    81,362                  109,548   

Diluted

    113,289                  151,267   

 

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GrubHub Inc.

Notes to Unaudited Pro Forma Condensed Statement of Operations

For the Year Ended December 31, 2013

(In thousands, except share data)

 

(A)     Amortization

 

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

 

     Useful life      GrubHub Holdings Amortization  
        January 1, 2013
to August 8, 2013
 

Developed technology

     3 years       $ 1,038   

Customer list

     16.4 years         6,171   
     

 

 

 

Total pro forma impact

        7,209   

Less amounts already recorded

        (734
     

 

 

 

Adjustment necessary

      $ 6,475   
     

 

 

 

 

(B)    Replacement stock option awards

 

In connection with the Merger, we were required to replace the GrubHub Platform share based payment awards. The fair value of the replacement options for services performed after the Merger was recognized as compensation cost. The pro forma adjustment reflects an adjustment of $2,997 had the Merger occurred on January 1, 2013.

 

(C)     Transaction costs

 

The pro forma adjustment reflects the elimination of the transaction costs incurred of $9,131 in connection with the Merger, including $4,667 of transaction costs at GrubHub Inc. and $4,464 of transaction costs at GrubHub Holdings.

 

(D)     Income taxes

 

The $3,050 pro forma adjustment reflects the estimated income tax benefit that would have been recognized for the year ended December 31, 2013 had the acquisition occurred on January 1, 2013. The pro forma tax expense was determined by using the Company’s historical effective tax rate.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

 

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

 

     Year Ended December 31,  
(In thousands, except per share data)    2011     2012     2013(1)  

Statement of Operations Data:

      

Revenues

   $ 60,611      $ 82,299      $ 137,143   

Costs and expenses:

      

Sales and marketing

     17,198        26,892        37,347   

Operations and support

     13,961        18,165        34,173   

Technology (exclusive of amortization)

     5,651        10,172        15,357   

General and administrative

     9,777        12,249       
21,907
  

Depreciation and amortization

    
4,033
  
   
6,089
  
   
13,470
  
  

 

 

   

 

 

   

 

 

 

Total costs and expenses

     50,620        73,567        122,254   
  

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     9,991        8,732        14,889   

Provision (Benefit) for income taxes

     (5,220     813        8,142   
  

 

 

   

 

 

   

 

 

 

Net income

     15,211        7,919        6,747   

Dividends on Preferred Stock

     (334     (402     (1,073
  

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 14,877      $ 7,517      $ 5,674   
  

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders:

      

Basic

   $ 0.24      $ 0.12      $ 0.07   
  

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.18      $ 0.09      $ 0.06   
  

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net income per share attributable to common stockholders:

      

Basic

     62,639        62,639        81,362   
  

 

 

   

 

 

   

 

 

 

Diluted

     85,010        85,332        113,289   
  

 

 

   

 

 

   

 

 

 

Pro forma net income per share attributable to common stockholders (unaudited)(2):

      

Basic

     $ 0.07      $ 0.06   
    

 

 

   

 

 

 

Diluted

     $ 0.07      $ 0.06   
    

 

 

   

 

 

 

Weighted average shares used to compute pro forma net income per share attributable to common stockholders (unaudited)(2):

      

Basic

       85,010        110,141   
    

 

 

   

 

 

 

Diluted

       85,332        113,289   
    

 

 

   

 

 

 

Other Financial Information:

      

Adjusted EBITDA(3)

   $ 14,827      $ 17,185      $ 38,134   

Cash Flows Data:

      

Net cash from operating activities

   $ 32,094      $ 29,578      $ 40,819   

Net cash from investing activities

     (36,949     10,303        6,245   

Net cash from financing activities

     7,321        (2,218     (1,842

Distribution to stockholders

     (16,690     (1,588     (1,893

 

(1)   Includes results for Seamless Holdings through the Merger, and of GrubHub Inc., for the remainder of the period presented.

 

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(2)   Pro forma net income per share attributable to common stockholders has been calculated assuming the conversion of all outstanding shares of our convertible Preferred Stock into shares of our common stock, as though the conversion had occurred as of the beginning of 2011 or the original date of issue, if later.
(3)   See the section titled “Non-GAAP Financial Measures” below for more information and for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

 

     As of December 31,      As of December 31, 2013  
     2011     2012      Actual(1)      Pro  Forma(2)      Pro Forma  as
Adjusted(3)(4)
 
                  (in thousands)  
                  (unaudited)  

Balance Sheet Data:

       

Cash and cash equivalents

   $ 3,383      $ 41,161       $ 86,542       $                    $                

Property and equipment, net

     11,233        13,341         17,096         

Working capital

     (11,905     3,837         29,568         

Total assets

     184,940        206,255         762,812         

Convertible Preferred Stock

     2        2         4         

Total stockholders’ equity

     131,971        137,888         557,375         

 

(1)   Reflects the actual balances at GrubHub Inc. as of December 31, 2013.
(2)   The pro forma column above reflects the automatic conversion of all outstanding shares of our convertible Preferred Stock as of December 31, 2013 into an aggregate of 38,568,210 shares of common stock, which conversion will occur immediately prior to the closing of this offering, as if such conversion had occurred on December 31, 2013.
(3)   The pro forma as adjusted column above gives effect to the pro forma adjustments set forth above and the sale and issuance by us of             shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(4)   Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the cash and cash equivalents, working capital, total assets and total stockholders’ equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of one million shares in the number of shares offered by us would increase or decrease, as applicable, the cash and cash equivalents, working capital, total assets and total stockholders’ equity by $         million assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us.

 

Key Business Metrics

 

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

 

     Year Ended December 31,  
     2011      2012          2013      
     (unaudited)  

Active Diners(1)

     689,000         986,000         3,421,000   

Daily Average Grubs(2)

     45,700         62,000         107,900   

Gross Food Sales (in millions)(3)

   $ 412.2       $ 568.8       $ 1,014.9   

 

(1)   We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date.
(2)   We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period.
(3)   We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Because we act as an agent of the merchant in the transaction, we recognize as revenues only our commissions from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

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Non-GAAP Financial Measures

 

Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. We define Adjusted EBITDA as net income adjusted to exclude acquisition costs and related severance, incomes taxes, depreciation and amortization and stock-based compensation expense. Below, we have provided a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.

 

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

 

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

 

     Year Ended December 31,  
     2011          2012              2013      
     (in thousands)  
     (unaudited)  

Reconciliation of Adjusted EBITDA:

  

Net income

   $ 15,211      $ 7,919       $ 6,747   

Income taxes(2)

     (5,220     813         8,142   

Depreciation and amortization

     4,033        6,089         13,470   
  

 

 

   

 

 

    

 

 

 

EBITDA

     14,024        14,821         28,359   

Merger and restructuring costs(3)

     —          —           4,842   

Stock-based compensation

     803        2,364         4,933   
  

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 14,827      $ 17,185       $ 38,134   
  

 

 

   

 

 

    

 

 

 

 

(1)   Includes results for Seamless Holdings through August 8, 2013, when we completed the Merger, and of GrubHub Inc., the combined company, for the remainder of the period presented.
(2)   The increase in income tax expense was primarily attributable to a reversal of deferred tax liability of $8.4 million in 2011 associated with the June 2011 sale of preferred stock to SLW Investors, LLC offset by 2011 income tax paid of $2.2 million, which represents the income tax expense from January 1, 2011 through May 31, 2011. For the period January 1, 2012 through October 27, 2012, the Company was a pass-through entity for income tax purposes. Immediately following the Merger Date, 100% of our taxable income is subject to income tax.
(3)   Merger and restructuring costs include transaction and integration related costs, such as legal and accounting costs, associated with the Merger, and restructuring costs.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

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

 

Overview

 

GrubHub is the leading online and mobile platform for restaurant pick-up and delivery orders, which we refer to as takeout. We processed more than 135,000 combined Daily Average Grubs in 2013 and had approximately $1.3 billion of combined Gross Food Sales on our platforms in 2013. We connect local restaurants with hungry diners in more than 600 cities across the United States and are focused on transforming the takeout experience. For restaurants, GrubHub generates higher margin takeout orders at full menu prices. Our platform empowers diners with a “direct line” into the kitchen, avoiding the inefficiencies, inaccuracies and frustrations associated with paper menus and phone orders. We have a powerful two-sided network that creates additional value for both restaurants and diners as it grows.

 

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

 

For restaurants, takeout enables them to grow their business without adding seating capacity or wait staff. Advertising for takeout, typically done through the distribution of menus to local households or advertisements in local publications, is often inefficient and requires upfront payment with no certainty of success. In contrast, we provide the approximately 28,800 restaurants on our platform (as of December 31, 2013) with an efficient way to generate more takeout orders. We enable restaurants to access local diners at the moment when those diners are hungry and ready to purchase takeout. In addition, we do not charge the restaurants in our network any upfront or subscription fees, we do not require any discounts from their full price menus and we only get paid for the orders we generate for them, providing restaurants with a low-risk, high-return solution. We charge restaurants a per-order commission that is primarily percentage-based.

 

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

 

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For diners, the traditional takeout ordering process is often a frustrating experience—from using paper menus to communicating an order by phone to a busy restaurant employee. In contrast, ordering on GrubHub is enjoyable and a dramatic improvement over the “menu drawer.” We provide the 3.4 million Active Diners on our platform (as of December 31, 2013) with an easy-to-use, intuitive and personalized platform that helps them search for and discover local restaurants and then accurately and efficiently place an order from any Internet-connected device. We also provide diners with information and transparency about their orders and status and solve problems that may arise. In addition, we make re-ordering convenient by storing previous orders, preferences and payment information, helping us promote diner frequency and drive strong repeat business.

 

The proliferation of mobile devices over the past few years has significantly increased the value of our platform. With powerful, easy-to-use mobile applications for iPhone, iPad and Android, we enable diners to access GrubHub whenever and wherever they want takeout. All of the discovery and ordering capabilities that are available on our consumer websites are also available through our mobile applications. We monetize the orders placed through our mobile applications using the same rate as orders placed through our websites. Our mobile applications make ordering from GrubHub more accessible and personal, driving increased use of our platform by restaurants and diners. Orders placed on mobile devices increased from approximately 20% of our consumer orders in the quarter ended December 31, 2011 to approximately 43% of our consumer orders in the quarter ended December 31, 2013.

 

Our business has grown rapidly. In 2013, we generated revenue of $137.1 million, representing a 67% increase from 2012. Our revenue growth has been driven primarily by increasing adoption of our platform by restaurants and diners, with 3.4 million Active Diners as of December 31, 2013, and the inclusion of results from the GrubHub Platform. $26.3 million of the increase in revenue and 1.9 million of the increase in Active Diners were due to the inclusion of results from the GrubHub Platform following the Merger Date. In 2013, our net income was $6.7 million and our Adjusted EBITDA was $38.1 million. See “Summary—Summary Historical Consolidated Financial Information” for a discussion and reconciliation of Adjusted EBITDA to net income.

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

 

   

in 2006, the Seamless Platform was acquired by Aramark;

 

   

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

 

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

 

   

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

 

   

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

 

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

 

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

 

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

 

   

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

 

   

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

 

   

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

 

Factors Affecting Our Performance

 

   

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

 

   

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

 

   

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

 

   

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

 

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Key Business Metrics

 

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

 

   

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

 

   

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

 

   

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

 

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

 

     Year Ended December 31,     Year Ended December 31,  
     2011      2012      %
Change
    2012      2013      %
Change
 

Active Diners

     689,000         986,000         43     986,000         3,421,000         247

Daily Average Grubs

     45,700         62,000         36     62,000         107,900         74

Gross Food Sales (in millions)

   $ 412.2       $ 568.8         38   $ 568.8       $ 1,014.9         78

 

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

 

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

 

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

 

During 2012, we grew the number of restaurants in our network from approximately 7,500 to approximately 10,000. During the year ended December 31, 2013, the number of restaurants in our network grew from

 

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approximately 10,000 to approximately 28,800. This includes the addition of approximately 14,000 restaurants from the GrubHub Platform on the Merger Date.

 

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

 

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

 

Basis of Presentation

 

Revenues

 

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

 

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

 

We generate a small amount of revenues directly from companies that participate in our corporate ordering program. During the year ended December 31, 2013, we generated revenues of $5.3 million from companies participating in this program and $0.7 million by selling advertising on our allmenus.com (after the Merger Date through December 31, 2013) and MenuPages websites to third parties. We do not anticipate that corporate fees or advertising will generate a significant portion of our revenues in the foreseeable future.

 

Cost and Expenses

 

Sales and Marketing

 

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

 

Operations and Support

 

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

 

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

 

Technology (exclusive of amortization)

 

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

 

General and Administrative

 

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

 

Depreciation and Amortization

 

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

 

Provision (Benefit) for Income Taxes

 

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

 

Results of Operations

 

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

 

     Year Ended December 31,  

(in thousands)

       2011             2012             2013      
                    

Statement of Operations Information:

      

Revenues

   $ 60,611      $ 82,299      $ 137,143   

Costs and expenses:

      

Sales and marketing

     17,198        26,892        37,347   

Operations and support

     13,961        18,165        34,173   

Technology (exclusive of amortization)

     5,651        10,172        15,357   

General and administrative

    
9,777
  
   
12,249
  
    21,907   

Depreciation and amortization

     4,033        6,089        13,470   
  

 

 

   

 

 

   

 

 

 

Total costs and expenses

     50,620        73,567        122,254   

Income before provision for income taxes

     9,991        8,732        14,889   

Provision (benefit) for income taxes

     (5,220     813        8,142   
  

 

 

   

 

 

   

 

 

 

Net income

     15,211        7,919        6,747   

Dividends on Preferred Stock

     (334     (402     (1,073
  

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 14,877      $ 7,517      $ 5,674   
  

 

 

   

 

 

   

 

 

 

 

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     Year Ended December 31,  
     2011     2012     2013  
     (unaudited)  

Percentage of Revenues:

  

Revenues

     100     100     100

Costs and expenses:

      

Sales and marketing

     28        33        27   

Operations and support

     23        22        25   

Technology (exclusive of amortization)

     9        12        11   

General and administrative

     16        15        16   

Depreciation and amortization

     7        7        10   
  

 

 

   

 

 

   

 

 

 

Total costs and expenses(1)

     84        89        89   

Income before provision for income taxes

     16        11        11   
  

 

 

   

 

 

   

 

 

 

Provision (benefit) for income taxes

     (9     1        6   
  

 

 

   

 

 

   

 

 

 

Net income

     25     10     5
  

 

 

   

 

 

   

 

 

 

 

(1)   Totals may not foot due to rounding.

 

Year Ended December 31, 2012 and 2013

 

Revenues

 

     Year Ended December 31,      % Change  
             2012                      2013             
     (in thousands)         

Revenues

   $ 82,299       $ 137,143         67

 

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

 

Sales and Marketing

 

     Year Ended December 31,     % Change  
             2012                     2013            
     (in thousands)        

Sales and marketing

   $ 26,892      $ 37,347        39

Percentage of revenues

     33     27  

 

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

 

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Operations and Support

 

     Year Ended December 31,     % Change  
             2012                     2013            
     (in thousands)        
     (unaudited)        

Operations and support

   $ 18,165      $ 34,173        88

Percentage of revenues

     22     25  

 

Operations and support expenses increased by $16.0 million, or 88%, for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was primarily attributable to the growth in payment processing costs, headcount and related expense and the inclusion of results from the GrubHub Platform following the Merger Date. Payment processing costs increased $9.0 million, or 93%, for the year ended December 31, 2013 to support the 78% growth in Gross Food Sales. Approximately 38% of the growth in Gross Food Sales was a result of the inclusion of results from the GrubHub Platform following the Merger Date. During the year ended December 31, 2013, headcount and related expenses increased $3.8 million due to the inclusion of operations and support personnel from the GrubHub Platform and $1.3 million as a result of the 29% growth in operations and support personnel on the Seamless Platform.

 

Technology (exclusive of amortization)

 

     Year Ended December 31,     % Change  
             2012                     2013            
     (in thousands)        
     (unaudited)        

Technology (exclusive of amortization)

   $ 10,172      $ 15,357        51

Percentage of revenues

     12     11  

 

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

 

General and Administrative

 

     Year Ended December 31,     % Change  
             2012                     2013            
     (in thousands)        

General and administrative

   $ 12,249      $ 21,907        79

Percentage of revenues

     15     16  

 

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

 

Depreciation and Amortization

 

     Year Ended December 31,     % Change  
             2012                     2013            
     (in thousands)        

Depreciation and amortization

   $ 6,089      $ 13,470        121

Percentage of revenues

     7     10  

 

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

 

Provision (Benefit) for Income Taxes

 

     Year Ended December 31,     % Change  
             2012                     2013            
     (in thousands)        

Provision for income taxes

   $ 813      $ 8,142        *   

Percentage of revenues

     1     6  

 

*   Not meaningful

 

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

 

Years Ended December 31, 2011 and 2012

 

Revenues

 

     Year Ended December 31,      % Change  
         2011              2012         
     (in thousands)         

Revenues

   $ 60,611       $ 82,299         36

 

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

 

Sales and Marketing

 

     Year Ended December 31,     % Change  
         2011             2012        
     (in thousands)        

Sales and marketing

   $ 17,198      $ 26,892        56

Percentage of revenues

     28     33  

 

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

 

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Operations and Support

 

     Year Ended December 31,     % Change  
         2011             2012        
     (in thousands)        

Operations and support

   $ 13,961      $ 18,165        30

Percentage of revenues

     23     22  

 

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

 

Technology (exclusive of amortization)

 

     Year Ended December 31,     % Change  
         2011             2012        
     (in thousands)        

Technology

   $ 5,651      $ 10,172        80

Percentage of revenues

     9     12  

 

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

 

General and Administrative

 

     Year Ended December 31,     % Change  
         2011             2012        
     (in thousands)        

General and administrative

   $ 9,777      $ 12,249        25

Percentage of revenues

     16     15  

 

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

 

Depreciation and Amortization

 

     Year Ended December 31,     % Change  
         2011             2012        
     (in thousands)        

Depreciation and amortization

   $ 4,033      $ 6,089        51

Percentage of revenues

     7     7  

 

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

 

Provision (Benefit) for Income Taxes

 

     Year Ended December 31,     % Change  
         2011             2012        
     (in thousands)        

Provision (benefit) for income taxes

   $ (5,220   $ 813        *   

Percentage of revenues

     (9 )%      1  

 

*   Not meaningful.

 

Income tax expense increased by $6.0 million during the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily attributable to a reversal of deferred tax liability in the amount of $8.4 million in 2011 associated with the June 2011 sale of preferred stock to SLW Investors, LLC offset by 2011 income tax paid of $2.2 million, which represented the income tax expense from January 1, 2011 through May 31, 2011. For the period from January 1, 2012 through October 27, 2012, the Company was a pass-through entity for income tax purposes.

 

Quarterly Results of Operations

 

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

 

    Three Months Ended  
(in thousands) (unaudited)   March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 

Revenues

  $ 19,808      $ 20,119      $ 20,593      $ 21,779      $ 25,801      $ 26,857      $ 35,461      $ 49,024   

Costs and expenses:

               

Sales and marketing

    6,470        6,599        5,645        8,178        10,100        6,064        8,829        12,354   

Operations and support

    4,341        4,436        4,354        5,034        5,977        5,998        9,303        12,895   

Technology (exclusive of amortization)

    2,012        2,703        2,708        2,749        2,647        2,697        4,459        5,554   

General and administrative

    3,244        2,701        3,066        3,238        2,903        5,809        5,884        7,311   

Depreciation and amortization

    1,429        1,512        1,586        1,562        1,796        1,877        3,821        5,976   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    17,496        17,951        17,359        20,761        23,423        22,445        32,296        44,090   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

    2,312        2,168        3,234        1,018        2,378        4,412        3,165        4,934   

Provision (Benefit) for income taxes

    167        206        140        300        1,122        2,589        1,111        3,320   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 2,145      $ 1,962      $ 3,094      $ 718      $ 1,256      $ 1,823      $ 2,054      $ 1,614   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

    Three Months Ended  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 
    (unaudited)  

Active Diners(1)

    783,000        851,000        912,000        986,000        1,087,000        1,171,000        3,050,000        3,421,000   

Daily Average Grubs(2)

    60,400        60,300        60,500        66,900        82,700        83,600        111,500        152,900   

Gross Food Sales (in millions)(3)

  $ 136.8      $ 137.3      $ 138.1      $ 156.6      $ 188.3      $ 193.1      $ 263.5        $370.0   

 

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(1)   We count Active Diners as the number of unique diner accounts from which an order has been placed in the past twelve months through our platform. We began including Active Diners from the GrubHub Platform as of the Merger Date.
(2)   We count Daily Average Grubs as the number of revenue generating orders placed on our platform divided by the number of days for a given period.
(3)   We calculate Gross Food Sales as the total value of food, beverages, taxes, prepaid gratuities, and any delivery fees processed through our platform. We include all revenue generating orders placed on our platform. Because we act as an agent of the merchant in the transaction, we recognize as revenues only our commission from the transaction, which are a percentage of the total Gross Food Sales for such transaction.

 

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

 

Revenues in the fourth quarter of 2012 were negatively affected by an estimated $0.5 million to $1.0 million as a result of the impact of Superstorm Sandy on New York City area businesses and consumers. Sales and marketing costs were higher in the fourth quarter of 2012 and first quarter of 2013 due to a significant marketing campaign during these periods. General and administrative costs were higher in the second quarter of 2013 due to $2.9 million in costs related to the Merger.

 

Adjusted EBITDA

 

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

 

    Three Months Ended  
(In thousands) (unaudited)   March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 

Net income

  $ 2,145      $ 1,962      $ 3,094      $ 718      $ 1,256      $ 1,823      $ 2,054      $ 1,614   

Income taxes

    167        206        140        300        1,122        2,589        1,111        3,320   

Depreciation and amortization

    1,429        1,512        1,586        1,562        1,796        1,877        3,821        5,976   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    3,741        3,680        4,820        2,580        4,174        6,289        6,986        10,910   

Merger and restructuring costs(1)

    —          —          —          —          403        2,940        1,324        175   

Stock-based compensation

    679        529        552        604        621        617        1,786        1,909   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 4,420      $ 4,209      $ 5,372      $ 3,184      $ 5,198      $ 9,846      $ 10,096      $ 12,994   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Merger and restructuring costs include transaction and integration related costs, such as legal and accounting costs, associated with the Merger and restructuring costs.

 

Liquidity and Capital Resources

 

As of December 31, 2013, we had cash and cash equivalents of $86.5 million and no short-term or long-term investments. Cash and cash equivalents consist of cash and money market funds.

 

We believe that our existing cash and cash equivalents will be sufficient to meet our working capital requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors” in this prospectus. We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the

 

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incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to obtain needed additional funds, we will have to reduce our operating costs, which would impair our growth prospects and could otherwise negatively impact our business.

 

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

 

     Year Ended December 31,  
         2011             2012             2013      
(in thousands)                   

Net cash provided by operating activities

   $ 32,094      $ 29,578      $ 40,819   

Net cash provided by / (used in) investing activities

     (36,949     10,303        6,245   

Net cash provided by / (used in) financing activities

     7,321        (2,218     (1,842

 

Cash Flows Provided By Operating Activities

 

For the year ended December 31, 2013, net cash provided by operating activities was $40.8 million. This was driven primarily by net income of $6.7 million, non-cash expenses of $13.5 million related to depreciation and amortization and $4.9 million related to stock-based compensation. In addition, during the year ended December 31, 2013, significant changes in our operating assets and liabilities resulted from the following:

 

   

an increase in our accounts receivables of $8.3 million due to an increase in amounts owed from our payment processors for prepaid orders placed through our platform along with amounts owed from customers of our corporate ordering program;

 

   

an increase in restaurant food liability of $26.5 million due to an increase in overall Gross Food Sales processed through our platform; and

 

   

a decrease in accrued expenses of $2.2 million relating primarily to payments made on assumed merger liabilities, such as legal and accounting costs, related to the Merger.

 

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

 

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

 

Cash Flows Provided By / (Used In) Investing Activities

 

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

 

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

 

For the year ended December 31, 2012, net cash provided by investing activities was $10.3 million. This was primarily the result of the issuance of a $42.4 million note receivable, partially offset by the subsequent

 

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repayment of $26.4 million of the note. In addition, we used $5.7 million for the purchase of property and equipment and capitalized website development.

 

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

 

Cash Flows Provided By / (Used In) Financing Activities

 

Our financing activities during the periods presented consisted primarily of amounts paid for distributions to shareholders along with issuance of note receivables to related parties and subsequent cash collection.

 

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

 

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

 

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

 

Contractual Obligations and Other Commitments

 

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

 

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

 

     Payments Due by Period  
(in thousands)    Less than
1  Year
     1 to 3
Years
     3 to 5
Years
     Total  

Operating lease obligations

   $ 3,737       $ 7,247       $ 4,689       $ 15,673   

 

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

 

Acquisitions

 

MenuPages Acquisition

 

On October 3, 2011, Seamless North America, LLC acquired the stock of Slick City Media, Inc., which owns and operates the MenuPages business, for an initial cash purchase price of $12.2 million and a note payable

 

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of approximately $2.0 million (the “MenuPages Acquisition”). The payments under the note payable were dependent on the seller, New York Media LLC, continuing to provide us with 15 months of website hosting and related services. The note payable was repaid during the year ended December 31, 2012.

 

The Merger

 

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

 

The fair value of the equity issued in connection with the Merger was approximately $421.5 million. The value of the equity was determined using the estimated fair value of GrubHub Holdings’ stock on the Merger Date based on a valuation of GrubHub Holdings, conducted by management. Included as part of the $421.5 million is approximately $11.0 million which represents the fair value of the replacement awards that were attributed to the pre-combination service period for GrubHub Holdings option holders. $12.5 million of post-combination expense is expected to be recognized post-Merger, which represents the unrecognized compensation expense related to GrubHub Holdings stock options. In connection with the Merger, we agreed to indemnify Aramark for negative income tax consequences associated with the October 2012 spin-off of Seamless Holdings that are the result of certain actions taken by us, including our solicitation of acquirers to purchase us prior to October 29, 2014, and in certain other instances subject to a $15 million limitation.

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of December 31, 2013.

 

Quantitative and Qualitative Disclosures about Market Risk

 

We are exposed to certain market risks in the ordinary course of our business. These risks primarily consist of interest rate fluctuations and inflation rate risk as follows:

 

Interest Rate Risk

 

We did not have any long-term borrowings as of December 31, 2013.

 

We invest our excess cash primarily in money market accounts. Our current investment strategy 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.

 

Inflation Risk

 

We do not believe that inflation has had a material effect on our business, results of operations or financial condition.

 

Critical Accounting Polices and Estimates

 

Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,

 

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revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

 

We believe that the assumptions and estimates associated with revenue recognition, website and software development costs, recoverability of intangible assets with definite lives and other long-lived assets and stock-based compensation have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies discussed below, see Note 2 of the accompanying notes to our financial statements.

 

Revenue Recognition

 

In general, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable and (iv) collectability is reasonably assured. We consider a signed agreement, a binding contract with the restaurant or other similar documentation reflecting the terms and conditions under which products or services will be provided to be persuasive evidence of an arrangement.

 

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

 

Revenues from online and phone delivery orders are recognized when orders are placed to the restaurants. The amount of the revenue we record is based on the contractual arrangement with the related restaurant, and is adjusted for any cash credits, including incentive offers provided to restaurants and diners, related to the transaction. We record an amount representing the restaurant food liability for the net balance due the restaurant.

 

Website and Software Development Costs

 

The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized and amortized on a straight-line basis over their estimated useful lives. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the website or software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful lives. Amortization expense related to capitalized website and software development costs is included in depreciation and amortization.

 

Recoverability of Intangible Assets with Finite Lives and Other Long-Lived Assets

 

We evaluate intangible assets and other long-lived assets for impairment whenever events or circumstances indicate they may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated. We group assets for purposes of such review at the lowest level for which identifiable cash flows of the asset group are largely independent of the cash flows of the other groups of assets and liabilities. If this comparison indicates impairment, the amount of impairment to be recognized is calculated as the difference between the carrying value and the fair value of the asset group.

 

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Stock-Based Compensation

 

We measure compensation expense for all stock-based awards at fair value on the date of grant and recognize compensation expense over the service period for awards expected to vest. We use the Black-Scholes option-pricing model to determine the fair-value for awards and recognize compensation expense on a straight-line basis over the awards’ vesting periods. Management has determined the Black-Scholes fair value of our stock option awards and related stock-based compensation expense with the assistance of third-party valuations. Determining the fair value of stock-based awards at the grant date requires judgment. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. In valuing our options, we make assumptions about risk-free interest rates, dividend yields, volatility, and weighted-average expected lives, including estimated forfeiture rates, of the options.

 

The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, including the expected term and the price volatility of the underlying stock, which determine the fair value of stock-based awards. These assumptions include:

 

   

Risk-free rate.    Risk-free interest rates are derived from U.S. Treasury securities as of the option grant date.

 

   

Expected dividend yields.    Expected dividend yields are based on our historical dividend payments, which have been zero to date (excluding the tax distributions made by Seamless Holdings in 2011, 2012 and 2013).

 

   

Volatility.    Absent a public market for our shares, we have historically estimated volatility of our share price based on the published historical volatilities of comparable publicly-traded companies in our vertical markets.

 

   

Expected term.    We estimate the weighted-average expected life of the options as the average of the vesting option schedule and the term of the award, since, due to the limited period of time stock-based awards have been exercisable, we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The term of the award is estimated using the simplified method as the awards granted are plain vanilla stock options.

 

   

Forfeiture rate.    Forfeiture rates are estimated using historical actual forfeiture trends as well as our judgment of future forfeitures. These rates are evaluated at least annually and any change in compensation expense is recognized in the period of the change. The estimation of stock awards that will ultimately vest requires judgment and, to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period in which the estimates are revised. We consider many factors when estimating expected forfeitures, including the types of awards and employee class. Actual results, and future changes in estimates, may differ substantially from management’s current estimates.

 

The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:

 

     Year Ended December 31,  
         2011             2012             2013      
                    

Expected term (in years)

     6.08        6.11        5.20   

Risk-free interest rate

     1.21     0.87     1.41

Dividend yield

     None        None        None   

Volatility rate

     60.40     54.80     50.7

 

Since June 2011, we have obtained periodic valuation analyses prepared by independent third-party valuation firms to assist us with the determination of the fair value of our common stock. The valuation firms

 

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utilized approaches and methodologies consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation and information provided by our management, including historical and projected financial statements, prospects and risks, our performance, various corporate documents, capitalization, and economic and financial market conditions. The third-party valuation firms also utilized other economic, industry, and market information obtained from other resources considered reliable. The valuation analyses were reviewed by management and the board of directors in conjunction with share-based compensation grants. Management and our board of directors have considered these valuation analyses and other qualitative and quantitative factors to determine the best estimate of the fair value of our common stock at each stock option grant date. These factors included:

 

   

key employee hires and terminations;

 

   

seasonality of our business;

 

   

general market conditions in the technology and food order industries;

 

   

our operating performance and competitive position within the online food ordering industry;

 

   

achievement of enterprise milestones;

 

   

financial statement projections;

 

   

our cash burn rate;

 

   

our need for future financing rounds to fund operations;

 

   

market value of companies considered comparable to our Company; and

 

   

likelihood of achieving certain liquidity events, such as a sale or merger or initial public offering (“IPO”), given prevailing market conditions.

 

We obtained contemporaneous independent third-party valuations of our common stock as of June 6, 2011, May 31, 2012, October 26, 2012, March 1, 2013, August 15, 2013, September 30, 2013 and December 31, 2013. Given that option grants were completed periodically between the dates of the valuations prepared by the third-party valuation firms, the fair value of common stock has been interpolated on a monthly basis.

 

The valuation analyses employed market and income approaches to estimate our enterprise value and allocated our enterprise value among our various equity classes utilizing option pricing and probability-weighted expected return (“PWERM”) methods. The valuation analyses were based on contemporaneous information as of each respective valuation date.

 

Under the income approach, specifically the discounted cash flow (“DCF”) method, forecast cash flows are discounted to the present value at a risk-adjusted discount rate. The valuation analyses determine discrete free cash flows over several years based on forecast financial information provided by our management and a terminal value for the residual period beyond the discrete forecast, which are discounted at our estimated weighted average cost of capital to estimate our enterprise value.

 

Under the market approach there are three standard methodologies, the guideline public company method, the guideline transaction method, and subject company transaction method. The guideline public company method involves selecting publicly traded companies with similar financial and operating characteristics as our Company, and calculating valuation multiples based on the guideline public company’s financial information and market data. Based on the observed valuation multiples, an appropriate multiple was selected to apply to our financial statistics. The guideline transaction method involves selecting sale transactions of companies with similar financial and operating characteristics as our Company and calculating valuation multiples based on the acquisition price and the acquired company’s financial information. An appropriate multiple was selected to apply to our financial statistics. The same set of guideline public companies was utilized for both the common stock valuation and the expected volatility estimate for the valuation of the stock-based compensation awards. In

 

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August 2013, the set of guideline public companies was revised to reflect the size, growth and risk of the Company in connection with the Merger. Additionally, we determined it was more appropriate to compare the Company to other Internet service companies, instead of other Internet retail companies, given the Company’s focus on providing online and mobile food ordering services for restaurants and customers. The subject company transaction method involves the utilization of a company’s own relevant stock transactions, such as a preferred stock issuance, to calculate the enterprise value based on the transaction price of the stock.

 

After determining an estimate of the fair value of the enterprise, the valuation analyses allocated the enterprise value among the equity classes outstanding at each valuation date utilizing the option pricing method (“OPM”), specifically the Black-Scholes-Merton option pricing model. The OPM requires inputs for the exercise price, term, expected volatility and risk-free rate. The exercise prices were calculated based on the enterprise values at which the equity classes either begin or stop participating in the next incremental enterprise value, which were determined based on the liquidation preferences and conversion rights of each equity class. The term was the estimated time to a liquidity event, such as a sale or merger or IPO, which was determined based on information provided by our management and outside research. The expected volatility for the enterprise was estimated based on a historical analysis of publicly traded companies with similar financial and operating characteristics as our company and consideration of the relative differences between our company and the selected comparable companies, such as stage of development, earning margins, leverage, and other risk factors. The risk-free rates were based on U.S. treasury securities with terms to maturity consistent with the estimated time to a liquidity event.

 

The PWERM was utilized in the March 1, 2013, August 15, 2013, September 30, 2013 and December 31, 2013 valuation analyses, which was determined to be appropriate given the expectation of a liquidity event in the near-term (approximately zero to two years) and a more discrete distribution of likely liquidity events. Under the PWERM, the fair value of common stock is estimated based on likely liquidity event scenarios. For each identified liquidity scenario it is necessary to estimate the timing to liquidity event, future enterprise value, probability of occurrence, and risk-adjusted discount rate. The valuation analyses estimated the future enterprise values utilizing the guideline public company method and guideline transaction method and information provided by our management. The timing to each liquidity event and the probability of occurrence were estimated based on information provided by our management and outside research. The risk-adjusted discount rates were estimated based on market data and outside research of required rates of return for companies at a similar stage of development and risk factors. The future enterprise values under each scenario were allocated to the various equity classes based on the liquidation preferences and conversion rights of each equity class. The future values for each equity class under each scenario were discounted to a present value at the selected risk-adjusted discount rate. The present values under each scenario were probability-weighted to determine the value of common stock before applicable discounts.

 

After obtaining the value allocated to the common stock under either the OPM or PWERM, several discounts were considered to adjust for the fact that a share of common stock is a minority, non-marketable interest. The discounts are determined based on qualitative and quantitative analyses.

 

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The following table summarizes by grant date the number of shares of our common stock subject to stock options granted since January 1, 2013, the associated per share exercise price and the estimated fair value per share at the date of grant. We derived the estimated fair value per share as of each grant date by applying a linear proration of fair values between the valuation performed immediately prior to each set of grants and the valuation performed after each set of grants. In connection with the Merger, replacement options were issued as of August 8, 2013. We have accounted for these replacement options by revaluing the options after the Merger Date taking into consideration options that were vested as of the Merger Date which were recorded to purchase price consideration, and future options which have not vested and which are to be recorded as an expense post-Merger.

 

Grant Date

   Shares subject to
option grant
    Exercise price per share      Fair value per share  at
Grant Date
     Intrinsic
Value
 

January 2013(1)

     737,500      $ 2.80       $ 3.10       $ 2,987   

August 2013(2)

     17,107        0.03         5.41         117   

August 2013(2)

     4,105        0.04         5.41         28   

August 2013(2)

     191,424        0.04         5.41         1,304   

August 2013(2)

     527        0.04         5.41         4   

August 2013(2)

     202,770        0.22         5.41         1,344   

August 2013(2)

     100,875        0.39         5.41         652   

August 2013(2)

     1,048,691        0.44         5.41         6,722   

August 2013(2)

     2,812,599        1.00         5.41         16,454   

August 2013(2)

     126,496        1.30         5.41         702   

August 2013(2)

     101,197        2.31         5.41         459   

August 2013(2)

     477,217        2.53         5.41         2,062   

August 2013(2)

     335,926        3.09         5.41         1,265   

August 2013(2)

     655,130        4.20         5.41         1,736   

August 2013(1)

     528,000        5.41         5.41         760   

October 2013(1)

     2,500        5.75         6.12         3   

December 2013(1)

     55,000        5.75         6.85         61   

January 2014(1)

     1,765,000        6.85         

 

 

(1)   Options issued in the ordinary course of business.
(2)   Options issued as replacement options in connection with the Merger.

 

No single event caused the valuation of our common stock to increase from January 2013 to December 31 2013. Instead, a combination of the factors described above led to the changes in the fair value of the underlying common stock as determined by our board of directors.

 

As of December 31, 2013, total unrecognized compensation expense, adjusted for estimated forfeitures, related to non-vested stock options was $16.6 million, which is expected to be recognized over the next 2.4 years.

 

Based upon an estimated offering price of $         per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, the options would have an intrinsic value of approximately $         million.

 

Goodwill

 

Goodwill represents the excess of the cost of an acquired business over the fair value of the assets acquired at the date of acquisition. We assess the impairment of goodwill at least annually and also whenever events or changes in circumstances indicate that goodwill may be impaired. Absent any special circumstances that could require an interim test, we have elected to test for goodwill impairment as of September 30th of each year. We test for impairment using a two-step process. The first step of the goodwill impairment test identifies if there is potential goodwill impairment. If step one indicates that an impairment may exist, a second step is performed to measure the amount of the goodwill impairment, if any, by comparing the implied fair value of goodwill to the

 

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carrying amount. If the implied goodwill is less than the carrying amount, a write-down is recorded. We have determined that we have one reporting unit in testing goodwill for impairment.

 

We have reviewed the impairment analyses comparing the fair value of our aggregate equity to our carrying value as of September 30, 2013 to determine whether goodwill impairment exists under Step I of ASC 350. The valuation analyses employed market and income approaches to estimate our equity value utilizing the PWERM. We did not perform an assessment of qualitative factors in evaluating goodwill impairment as of September 30, 2013.

 

The PWERM was selected for the goodwill impairment analyses due to the potential of a liquidity event in the near-term, a more discrete distribution of likely liquidity events and to remain consistent with the valuation of our common stock as of the same date. Under the PWERM, the fair value of aggregate equity is estimated based on likely liquidity event scenarios, and the future values for each equity class under each scenario were discounted to a present value at the selected risk adjusted discount rate. The present values under each scenario were probability-weighted to determine the value of aggregate equity. Finally, the indicated fair value of aggregate equity was then compared to our carrying value as of the impairment test date to assist us in determining whether goodwill impairment existed under Step I of ASC 350. As of September 30, 2013, the indicated fair value of aggregate equity under the PWERM exceeded our carrying value of equity by 80%; therefore, no impairment was indicated at such time.

 

Internal Control Over Financial Reporting

 

Our independent registered public accounting firm has not conducted an audit of Seamless Holdings’, which is now known as GrubHub Inc., internal control over financial reporting. However, in connection with its audit of Seamless Holdings’ consolidated financial statements as of and for the years ended December 31, 2011 and 2012 included elsewhere in this prospectus, our independent registered public accounting firm discovered a material weakness relating to the documentation of journal entry review. Specifically, we had not regularly documented our review of journal entries and, where there was a documented review of account reconciliations, we did not provide a listing of journal entries in such documentation. As a result of these items, we concluded that a material weakness in our internal control over financial reporting existed as of December 31, 2012. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Since discovery of this material weakness, we have taken steps to fully understand the material weakness and to remediate it. We are in the process of designing and implementing improved processes and controls. Additionally, in connection with the Merger, we retained the chief financial officer and controller that served in those roles for the GrubHub Platform. By utilizing their existing accounting and finance expertise, we have built a more experienced accounting and finance organization. While this material weakness was remediated for 2013, our efforts to remedy this material weakness may not prevent future material weaknesses or significant deficiencies in our internal control over financial reporting from occurring. See also “Risk Factors” for additional information on this matter.

 

Recently Issued and Adopted Accounting Pronouncements

 

Under the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. We will remain an “emerging growth company” for up to five years following the completion of this offering or until we achieve total annual gross revenues in excess of $1 billion during a fiscal year or become a large accelerated filer as a result of achieving a public float of at least $700 million as of the end of our second fiscal quarter.

 

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In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820), which amended existing rules covering fair value measurement and disclosure to clarify guidance and minimize differences between GAAP and International Financial Reporting Standards. The guidance requires entities to provide information about valuation techniques and unobservable inputs used in Level III fair value measurements and provide a narrative description of the sensitivity of Level III measurements to changes in unobservable inputs. The guidance is effective during interim and annual periods beginning after December 15, 2011. We adopted this guidance on January 1, 2012. The adoption of this guidance did not have any impact on our financial position, results of operations or cash flows.

 

In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which requires an entity to present total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. We early adopted this guidance on January 1, 2012, retrospectively.

 

In September 2011, FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350). The amended guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required. This pronouncement is effective for fiscal years beginning after December 15, 2011. We adopted this standard on January 1, 2012. The adoption of this accounting standard update did not have any material impact on our results of operations or financial position.

 

In February 2013, FASB issued ASU No. 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the financial footnotes. The new guidance became effective for reporting periods beginning after December 15, 2012 and is applied prospectively. The Company adopted this guidance during the year ended December 31, 2013, and the adoption did not have any impact on its financial position, results of operations or cash flows, as the amounts reclassified out of accumulated other comprehensive income (loss) are not significant.

 

In July 2013, FASB issued a new accounting standard update on the financial statement presentation of unrecognized tax benefits. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance became effective for the Company on January 1, 2014 and it should be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. The Company is currently assessing the impact of this new guidance.

 

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BUSINESS

 

Our Mission

 

Our mission is to make takeout better.

 

Our Company

 

GrubHub is the leading online and mobile platform for restaurant pick-up and delivery orders, which we refer to as takeout. We processed more than 135,000 combined Daily Average Grubs in 2013 and had approximately $1.3 billion of combined Gross Food Sales on our platform in 2013. We connect local restaurants with hungry diners in more than 600 cities across the United States and are focused on transforming the takeout experience. For restaurants, GrubHub generates higher margin takeout orders at full menu prices. Our platform empowers diners with a “direct line” into the kitchen, avoiding the inefficiencies, inaccuracies and frustrations associated with paper menus and phone orders. We have a powerful two-sided network that creates additional value for both restaurants and diners as it grows.

 

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

 

For restaurants, takeout enables them to grow their business without adding seating capacity or wait staff. Advertising for takeout, typically done through the distribution of menus to local households or advertisements in local publications, is often inefficient and requires upfront payment with no certainty of success. In contrast, we provide the approximately 28,800 restaurants on our platform (as of December 31, 2013) with an efficient way to generate more takeout orders. We enable restaurants to access local diners at the moment when those diners are hungry and ready to purchase takeout. In addition, we do not charge the restaurants in our network any upfront or subscription fees, we do not require any discounts from their full price menus and we only get paid for the orders we generate for them, providing restaurants with a low-risk, high-return solution. We charge restaurants a per-order commission that is primarily percentage-based.

 

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

 

For diners, the traditional takeout ordering process is often a frustrating experience—from using paper menus to communicating an order by phone to a busy restaurant employee. In contrast, ordering on GrubHub is enjoyable and a dramatic improvement over the “menu drawer.” We provide the 3.4 million Active Diners on our platform (as of December 31, 2013) with an easy-to-use, intuitive and personalized platform that helps them search for and discover local restaurants and then accurately and efficiently place an order from any Internet-connected device. We also provide diners with information and transparency about their orders and status and solve problems that may arise. In addition, we make re-ordering convenient by storing previous orders, preferences and payment information, helping us promote diner frequency and drive strong repeat business.

 

The proliferation of mobile devices over the past few years has significantly increased the value of our platform. With powerful, easy-to-use mobile applications for iPhone, iPad and Android, we enable diners to access GrubHub whenever and wherever they want takeout. The discovery and ordering capabilities that are available on our consumer websites are also available through our mobile applications. We monetize the orders placed through our mobile applications at the same rate as orders placed through our websites. Our mobile applications make ordering from GrubHub more accessible and personal, driving increased use of our platform by restaurants and diners. Orders placed on mobile devices increased from approximately 20% of our consumer orders in the quarter ended December 31, 2011 to approximately 43% of our consumer orders in the quarter ended December 31, 2013.

 

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Our business has grown rapidly. In 2013, we generated revenue of $137.1 million, representing a 67% increase from 2012. Our revenue growth has been driven primarily by increasing adoption of our platform by restaurants and diners, with 3.4 million Active Diners as of December 31, 2013, and the inclusion of results from the GrubHub Platform. $26.3 million of the increase in revenue and 1.9 million of the increase in Active Diners were due to the inclusion of results from the GrubHub Platform following the Merger Date. In 2013, our net income was $6.7 million and our Adjusted EBITDA was $38.1 million. See “Summary—Summary Historical Consolidated Financial and Other Data” for a discussion and reconciliation of Adjusted EBITDA to net income.

 

The following table details the key business metrics for both the GrubHub Platform and the Seamless Platform on a combined basis:

 

     Year Ended December 31,  
     2011      2012      2013  
     (unaudited)  

Active Diners

     1,579,000         2,321,000         3,421,000   

Daily Average Grubs

     59,200         93,600         135,500   

Gross Food Sales (in millions)

   $ 543.5       $ 871.0       $ 1,285.9   

 

The Takeout Market Opportunity

 

Food is an essential, social and enjoyable aspect of everyday life. However, there is often little time to cook at home or dine out. In addition, diners are increasingly looking for a broader and more diversified choice of cuisines and menu items. Takeout offers a convenient alternative, providing diners with a wide variety of options, wherever they want and whenever they want.

 

Large and Fragmented Market

 

Our primary target market is comprised of approximately 350,000 independent restaurants that account for 61% of all U.S. restaurants, according to Euromonitor. According to Euromonitor, Americans spent $204 billion at these independent restaurants in 2012. We believe that Americans spent approximately $67 billion on takeout at these independent restaurants.

 

The takeout segment is one of the largest consumer markets in the United States. Excluding the large chains, the independent restaurant market remains a local and highly fragmented market, mostly comprised of owner-operated family businesses. Like most small business owners, independent restaurants are highly focused on their core expertise—cooking for and serving food to their on-premise diners. Both entrepreneurial and ambitious, these small business owners tend to be time and resource constrained.

 

Challenges for Independent Restaurants

 

Independent restaurant owners recognize that increasing takeout orders enables them to grow their business because they can service the additional orders by leveraging existing resources, including excess capacity and perishable inventory, without adding seating capacity or wait staff. Advertising for takeout is often done through the distribution of menus to local households or through local publications such as the yellow pages. These traditional methods of advertising are typically inefficient, require upfront payment with no certainty of success and are rapidly becoming obsolete as diners shift to online and mobile solutions for local search and discovery. Most online solutions such as search or display advertising tend to be similar to traditional offline advertising in that they lack targeted reach and impose upfront costs with no certainty of success. In addition, to be visible and effective online, restaurants typically need to invest in a website as well as in new solutions and technologies such as mobile applications. These can be complex, expensive and time-intensive tasks that require consistent updates and are beyond the core competencies of most independent restaurants.

 

Providing a quality experience for takeout diners is also a key challenge for restaurants. Because independent restaurants focus on serving on-premise diners, they typically have a limited ability to attend to the

 

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needs of takeout diners. The traditional takeout ordering process is highly manual and prone to errors and delays. Effectively and efficiently managing order delivery is also a challenge for independent restaurants given the nature of the process as well as their limited resources to handle follow-up calls.

 

Independent restaurants seek a simple and effective solution to expand their takeout business without significant investments or expertise in marketing and technology.

 

Challenges for Diners

 

For diners, ordering takeout is usually a chore and is often a frustrating experience. Typically, ordering takeout starts with the challenge of choosing where to order from and what to order—usually relying on a tired, outdated and limited choice of menus found in the “menu drawer.” Once a diner chooses and calls a restaurant, the ordering process can lead to angst, as the diner is faced with long hold times, distracted order-takers in an already error-prone process, difficulty communicating special requests, incomplete pricing information and the inevitable wait for delivery with limited transparency. Upon delivery, diners only have a few seconds to confirm that what they received is indeed what they ordered, with limited recourse in the event it is not.

 

Diners seek a simple, convenient and transparent takeout ordering solution with a wide variety of restaurant choices that provides them with a “direct line” into the kitchen.

 

The GrubHub Solution

 

At GrubHub, we focus on providing value to both restaurants and diners through our two-sided network. We provide restaurants with more orders, help them serve diners better and enable them to improve the efficiency of their takeout business. For diners, we make takeout accessible, simple and enjoyable, enabling them to discover new restaurants and accurately and easily place their orders anytime and from anywhere.

 

Why Restaurants Love GrubHub

 

With approximately 28,800 restaurants in our network as of December 31, 2013, we believe that we provide restaurants with the following key benefits:

 

   

More Orders.    Through GrubHub, restaurants in our network receive more orders at full menu prices. By storing our diners’ prior orders and payment information, we facilitate convenient re-ordering, driving repeat business for our restaurants.

 

   

Targeted Reach.    Restaurants in our network gain an online and mobile presence with the ability to reach their most valuable target audience—hungry diners in their area.

 

   

Low Risk, High Return.    GrubHub generates higher margin takeout orders for the restaurants in our network by enabling them to leverage their existing fixed costs. We do not charge our restaurants any upfront or subscription fees, we do not require any discounts from their full-price menus and we only get paid for the orders we generate for them.

 

   

Service and Efficiency.    Restaurants in our network can receive and handle a larger volume of takeout orders more accurately, increasing their operational efficiency while providing their takeout diners with a high-quality experience. Our customer service representatives can help resolve issues that arise in a timely and cost-effective manner.

 

   

Insights.    We provide restaurants with actionable insights based on the significant amount of order data we gather, helping them to optimize their delivery footprints, menus, pricing and online profiles.

 

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Why Diners Love GrubHub

 

With 3.4 million Active Diners as of December 31, 2013 and more than 135,000 combined Daily Average Grubs in 2013, we believe that we provide diners with the following key benefits:

 

   

Discovery.    GrubHub aggregates menus and enables ordering from restaurants across more than 600 cities in the United States, in most cases providing diners with more choices than the “menu drawer” and allowing them to discover hidden gems from local restaurants in our network. In addition, with more than 135,000 combined Daily Average Grubs across our platform, we gather a significant amount of order data which enables us to provide valuable information to our diners on popular restaurants and frequently ordered menu items.

 

   

Convenience.    Using GrubHub, diners do not need to place their orders over the phone. We provide diners with an easy-to-use, intuitive and personalized platform that makes ordering simple from any connected device. We make re-ordering even more convenient by storing previous orders, preferences and payment information.

 

   

Control and Transparency.    Our platform empowers diners with a “direct line” into the kitchen, without having to talk to a distracted order-taker in an already error-prone process. Prior to placing an order, diners can review and change their orders, see how their changes affect pricing and include special instructions. In many cases, we send text messages informing diners that their orders are on the way, thus further increasing their visibility and limiting the frustration associated with waiting for a meal while hungry.

 

   

Service.    For diners, GrubHub’s role is similar to that of the waiter in a restaurant, providing a critical layer of customer service that is typically missing in takeout. Our customer service representatives are available by phone to serve our diners both before and after they have placed an order. To provide this customer service, we use our scale to help resolve issues and provide updates and information regarding orders, which ultimately improves our relationship with diners.

 

Our Competitive Advantages

 

Our focus on making takeout better for both restaurants and diners has helped us to develop the following competitive advantages:

 

   

Market Leader with Significant Scale.    We are the largest takeout platform, with approximately $1.3 billion in combined Gross Food Sales on our platform; approximately 28,800 restaurants across 600 cities in the United States; and 3.4 million Active Diners, yielding more than 135,000 combined Daily Average Grubs across our platform.

 

   

Powerful Two-Sided Network Effect.    As we continue to increase the number of restaurants in our network, we become a more compelling platform for diners. As we continue to increase the number of diners on our platform, we generate more orders for and become more compelling to restaurants. The result is a self-reinforcing, mutually beneficial, two-sided network.

 

   

Growing and Recurring Diner Base.    On average, for the quarter ended December 31, 2013, our Active Diners ordered food through our platform approximately 16 times on an annualized basis. We have grown the number of Active Diners using our platform from 0.7 million as of December 31, 2011 to 3.4 million as of December 31, 2013. We believe that our easy-to-use ordering system, restaurant choices and enjoyable user experience all inspire new diners to try GrubHub and encourage existing diners to make GrubHub a way of life, driving repeat and growing use of our platform.

 

   

Product Innovation.    We have a history of introducing new products that make our platform better through our mobile applications and our restaurant-facing products, such as OrderHub and Boost. We help restaurants in our network streamline their operations, which enables us to provide better service to our diners.

 

   

Mobile Engagement and Monetization.    Our mobile applications, including our iPhone, iPad and Android applications, enable diners to place orders from wherever they may be and then get home in time for

 

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delivery or pick up orders on their way home. We benefit from the growing adoption and increased use of our mobile applications, as they significantly increase the number of orders diners place through GrubHub. Orders placed on mobile devices increased from approximately 20% of our consumer orders during the quarter ended December 31, 2011 to approximately 43% of our consumer orders during the quarter ended December 31, 2013. We monetize the orders placed through our mobile applications using the same rate as orders placed through our websites.

 

   

Attractive Business Model.    Our scalable platform enables us to process additional orders at low incremental cost. As our two-sided network of restaurants and diners has grown, many of our restaurants have chosen to pay higher rates to receive better exposure to more diners on our platform, and this has resulted in higher overall commission rates for us.

 

Our Growth Strategy

 

We strive to make GrubHub an integral part of everyday life for our restaurants and diners through the following growth strategies:

 

   

Grow our Two-Sided Network.    We intend to grow the number of restaurants in our existing geographic markets by providing them with opportunities to generate more takeout orders. We intend to grow the number of diners and orders placed on our network primarily through word-of-mouth referrals, marketing that encourages adoption of our mobile applications and increased order frequency.

 

   

Enhance our Platform.    We plan to continue to invest in our websites and mobile products, develop new products and better leverage the significant amount of order data that we collect, helping us generate more takeout orders for restaurants while providing diners with more control and better transparency as we seek to make takeout better.

 

   

Deliver Excellent Customer Service.    We plan to continue to deliver our excellent customer service experience for both restaurants and diners. By meeting and exceeding the expectations of both restaurants and diners through our customer service, we seek to gain their loyalty and support for our platform.

 

   

Pursue Strategic Acquisitions.    In the past we have successfully completed several acquisitions such as MenuPages, DotMenu and FanGo, Inc. (“FanGo”). We intend to continue to pursue expansion opportunities in existing and new markets, as well as in core and adjacent categories through strategic acquisitions.

 

Our Products

 

All of our products are designed with the goal of making takeout better, more efficient and enjoyable.

 

GrubHub and Seamless Websites

 

The primary way diners access our platform is through www.grubhub.com and www.seamless.com, both of which we have consistently improved since inception. To use our websites, diners enter their delivery address and are presented with local restaurants that provide takeout. Diners can further refine their search results using our search capability, enabling them to filter results across cuisine types, restaurant names, menu items, proximity, ratings and other criteria. Once diners have found what they are looking for, they place their orders using our easy-to-use and intuitive menus, enabling them to discover food choices, select options and provide specific instructions on a dish-by-dish basis. Once an order is received, we transmit it to the restaurant, while saving the diners’ preferences for future orders, thus providing diners with a convenient repeat order experience.

 

GrubHub and Seamless Mobile Apps

 

We offer diners access to our network through our mobile applications designed for iPhone, iPad and Android devices. Our mobile applications provide diners with the same functionality as our websites, including restaurant discovery, search and ordering. For restaurants, mobile orders are received in the same way as our website-based orders, and we charge the same commission for both.

 

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Seamless Corporate Program

 

On the Seamless Platform, we provide a corporate program that helps businesses address inefficiencies in food ordering and associated billing. Our corporate program offers employees a wide variety of food and ordering options, including options for individual meals, group ordering and catering, as well as proprietary tools that consolidate all food ordering into a single online account that enables companies to proactively manage food spend by automating the enforcement of budgets and rules. Our corporate tools provide consolidated ordering and invoicing, eliminating the need for employee expense reports and therefore significantly reducing administrative overhead relating to office food ordering.

 

Allmenus and MenuPages

 

Allmenus.com and MenuPages, both of which were acquired in September 2011 by GrubHub Holdings and Seamless North America, LLC, respectively, provide an aggregated database of approximately 275,000 menus from restaurants across all 50 states. The websites are searchable by cuisine type, restaurant name, menu items and other criteria. For those restaurants whose menus are posted on allmenus.com or MenuPages and who are also part of our restaurant network, we provide a link from their menus to our websites, through which diners can then place their orders, providing us with an efficient customer acquisition channel.

 

OrderHub and Boost

 

Restaurants have historically received orders from GrubHub through a facsimile or email and are required to confirm the order over the phone. Though most of our restaurants still use this traditional method, several thousand restaurants use our tablet solutions, OrderHub and Boost. These tools can electronically receive and display orders at the restaurant, providing operators with the capability to acknowledge receipt of the order and update the estimated completion time and status with an easy-to-use application. OrderHub and Boost allow us to monitor orders through the takeout process (receipt, ready for pickup, on the way, etc.). In turn, we can make that information available to hungry diners who are waiting for their orders, thus providing greater transparency, reducing their frustration and making the takeout experience more enjoyable.

 

Restaurant Websites

 

We offer the restaurants in our network a turnkey website design and hosting service powered by template-driven technology, which provides the restaurants in our network with a simple yet effective online presence. We process the orders placed through these websites through our platforms.

 

APIs

 

We have developed an application programming interface for third-party websites to easily incorporate our order delivery platform, driving additional orders for the restaurants in our network. Currently, third-party websites are not a material source of Active Diners for us.

 

Customer Service

 

Customer service is an important element of our value proposition to both restaurants and diners. Like our products, our customer service is designed to make takeout better, more efficient and enjoyable.

 

Restaurants

 

Customer service is an important component of our value proposition for restaurants, enabling them to focus on food preparation and delivery. We provide restaurants with 24/7 service, where our operators are able to assist with problems that may arise. We track and manage restaurant performance on our platform, helping restaurants manage capacity issues while ensuring that our diners receive the service they expect.

 

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In addition to our operations-related services, we offer restaurants actionable insights based on the significant amount of order data we gather, helping restaurants optimize their delivery footprint, menus, pricing and online profiles.

 

Diners

 

The customer service we offer to our diners is also an important component of our value proposition, helping us generate diner satisfaction and positive word-of-mouth referrals. We believe that it is our responsibility to make our diners happy. When diners call our 24/7 customer service line, we typically help them add items to orders that have already been placed and inform them of the status of their orders. While our goal is to ensure that every order is processed through our websites and mobile platforms smoothly, when problems arise, we welcome the chance to engage with our diners and resolve problems to their satisfaction. We believe that our excellent customer service is a driver for our business, enabling us to generate diner referrals, which in turn leads to more frequent ordering and overall loyalty to our platform.

 

Our Geographic Markets

 

Our geographic reach includes more than 600 cities across the United States as well as London. Our primary markets are: Boston, Chicago, Los Angeles, New York, Philadelphia, San Francisco and Washington, D.C.

 

Sales

 

Our sales team adds new restaurants to our network by emphasizing our low risk, high return proposition: we provide more orders, we do not charge any upfront payments or subscription fees, we do not require any discounts from a restaurant’s full price menus and we only get paid on orders we generate for them. We generate many of our leads for new restaurants through our allmenus.com and MenuPages websites, which give us insights into which restaurants are popular with diners and are not yet on our network. We then contact those restaurants either through our inside sales team, based in our Chicago office, or through our local, “feet-on-the-street” sales force. Once restaurants have joined our network, GrubHub representatives continue to work with them to maintain quality control and to increase their order volume. Our sales team also focuses on adding new corporate program clients by emphasizing our value proposition: a wide variety of ordering options for employees and proprietary tools that provide rule-based ordering and consolidated reporting and invoicing for employers.

 

Marketing

 

We believe that our online ordering platform, innovative products and excellent customer service are our best and most effective marketing tools, helping us generate strong word-of-mouth referrals, which have been the primary driver of our diner growth. Our integrated marketing efforts are aimed at driving existing diners to engage more frequently with our platform and encouraging new diners to try our platform. We use both online as well as offline advertising. Our advertisements educate people about GrubHub in an amusing and sometimes irreverent way, generating brand awareness among potential diners and driving overall order growth. Below are representative examples of our advertising:

 

LOGO

 

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LOGO

 

LOGO

 

LOGO

 

LOGO

 

Technology

 

We generally develop additional features for our platform in-house, focusing on quick release cycles and constant improvement. Our web and mobile properties are hosted from three locations in Illinois, Texas and Utah, each of which are owned and operated by a third-party provider of hosting services. Our platform includes a variety of encryption, antivirus, firewall and patch-management technology to protect and maintain the systems and computers across our business. We rely on third-party off-the-shelf technology as well as internally developed and proprietary products and systems to ensure rapid, high-quality customer service, software development, website integration, updates and maintenance. We leverage off-the-shelf hardware and software platforms in order to build and customize our hardware-based products such as our OrderHub tablet, which is based on the Android operating system.

 

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Competition

 

We primarily compete with the traditional offline ordering process used by the vast majority of restaurants and diners involving paper menus that restaurants distribute to diners, as well as advertising that restaurants place in local publications to attract diners. For diners, we compete with the traditional ordering process by aggregating restaurant and menu information in one place online so that it is easier and more convenient to find a desirable restaurant option and place a customized order without having to interact directly with the restaurants. For restaurants, we offer a more targeted marketing opportunity than the yellow pages, billboards or other local advertising mediums since our diners typically access our platform when they are looking to place a takeout order, and GrubHub captures the transaction right when a diner has made a decision.

 

Our online competition consists primarily of local service providers, point-of-sale module vendors that serve some independent restaurants who have their own standalone websites and the online interfaces of larger chain restaurants that also offer takeout. Compared to other online platforms, GrubHub offers diners choices, whereas many online platforms offer only one brand and menu, particularly the chain restaurants. We also compete for diners with these online competitors on the basis of convenience, control and customer service. For restaurants, we compete with other online platforms based on our ability to generate additional orders as well as on our reach, targeted scale and ability to help them improve their operational efficiency, with product innovations like OrderHub and Boost, and diner experience.

 

We believe we compete favorably based on these factors for both restaurants and diners. Although paper menus are still our biggest competition, based on available information regarding the number of diners and restaurants on our platform and the number of orders processed through our platform, we believe we are the largest online provider of takeout orders in the United States.

 

Employees

 

As of December 31, 2013, we had approximately 680 full-time employees. None of our employees is represented by a labor union with respect to his or her employment with us.

 

Intellectual Property

 

We protect our intellectual property through a combination of trademarks, trade dress, domain name registrations, copyrights, trade secrets and patents applications, as well as contractual provisions and restrictions on access to and use of our proprietary information.

 

As of January 31, 2014, we had more than 40 trademarks registered in the United States, including: “GrubHub,” “happy eating,” “Seamless,” “OrderHub” and “Your food is here.” We also have filed other trademark applications in the United States and abroad and may pursue additional trademark registrations to the extent we believe it will be beneficial and cost-effective.

 

As of January 31, 2014, we had three patents issued in the United States and 15 patent applications pending in the United States, which seek to cover proprietary inventions relevant to our products and services. We may pursue additional patent protection to the extent we believe it will be beneficial and cost effective.

 

We are the registered holder of a variety of domestic and international domain names that include the terms “GrubHub,” “Seamless,” “Allmenus,” “MenuPages” and certain of our other trademarks and similar variations of such terms.

 

In addition to the protection provided by our intellectual property rights, we enter into confidentiality agreements with our employees, consultants, contractors and business partners who are given access to our confidential information. Further, our employees and contractors who contribute to the development of material

 

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intellectual property on our behalf are also subject to invention assignment and/or license agreements, as appropriate. We further control the use of our proprietary technology and intellectual property through our general websites and product-specific terms of use and policies.

 

Facilities

 

On September 1, 2012, we commenced a lease effective through August 31, 2017 for approximately 60,000 square feet of office space that houses our principal operations in Chicago, Illinois (the “Chicago Lease”). On December 11, 2013, we amended the Chicago Lease to add approximately 10,500 square feet of additional office space, commencing on March 1, 2014 through February 29, 2016. On August 4, 2011, we commenced a lease effective through June 30, 2022 for approximately 28,700 square feet of office space in New York, New York. We believe these facilities are sufficient for our current needs, but we may need to seek additional facilities if our business continues to grow.

 

Legal Proceedings

 

In August 2011, Ameranth, Inc. (“Ameranth”) filed a patent infringement action against a number of defendants, including GrubHub Holdings in the U.S. District Court for the Southern District of California (the “Court”), Case No. 3:11-cv-1810 (“’1810 action”). In September 2011, Ameranth amended its complaint in the ’1810 action to also accuse Seamless North America, LLC of infringement. Ameranth alleged that the GrubHub Holdings and Seamless North America, LLC ordering systems, products and services infringe claims 12 and 15 of U.S. Patent No. 6,384,850 and claims 11 through 15 of U.S. Patent No. 6,871,325.

 

In March 2012, Ameranth initiated eight additional actions for infringement of a third, related patent, U.S. Patent No. 8,146,077, in the same forum, including separate actions against GrubHub Holdings, Case No. 3:12-cv-739 (“’739 action”), and Seamless, Case No. 3:12-cv-737 (“’737 action”). In August 2012, the Court severed the claims against GrubHub Holdings and Seamless North America, LLC in the ’1810 action and consolidated them with the ’739 and ’737 actions, respectively. Later, the Court consolidated these separate cases against GrubHub Holdings and Seamless North America, LLC, along with the approximately 40 other cases Ameranth filed in the same district, with the original ’1810 action. In their answers, GrubHub Holdings and Seamless North America, LLC denied infringement and interposed various defenses, including non-infringement, invalidity, unenforceability and inequitable conduct.

 

On November 26, 2013, the consolidated case was stayed pending the disposition of petitions for post-grant review of all the patents in suit. These petitions were filed in the United States Patent and Trademark Office (the “PTO”) under the new Transitional Program for Covered Business Method Patents (the “CBM proceedings”). The CBM proceedings could potentially result in the cancellation of the asserted claims as invalid based on lack of a written description, indefiniteness or non-statutory subject matter. Pending the outcome of the CBM proceedings, the court has vacated all discovery deadlines and Early Neutral Evaluation Conferences, with a new schedule to be set after a final decision by the PTO.

 

We believe Ameranth’s assertions lack merit, and we intend to defend ourselves vigorously before the Court and before the PTO. In addition to the matters described above, from time to time, we are involved in various other legal proceedings arising from the normal course of business activities.

 

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MANAGEMENT

 

The following table provides information regarding our executive officers and directors as of February 18, 2014:

 

Name

   Age   

Position(s)

Matthew Maloney

   38    Chief Executive Officer and Director

Jonathan Zabusky

   40    President and Director

Adam DeWitt

   41    Chief Financial Officer and Treasurer

Michael Evans

   36    Chief Operating Officer

Sanjay Tiwary

   49    Chief Information Officer

Margo Drucker

   49    General Counsel and Secretary

Brian McAndrews

   55    Chairman of the Board

David Fisher

   44    Director

Lloyd Frink

   49    Director

J. William Gurley

   47    Director

Justin Sadrian

   41    Director

Benjamin Spero

   38    Director

 

Executive Officers

 

Matthew Maloney.    Matthew Maloney has served, since the Merger Date, as Chief Executive Officer of GrubHub Inc., the leading online and mobile food-ordering company. Prior to the Merger, Mr. Maloney served as Chief Executive Officer of GrubHub Holdings, a company he co-founded in 2004. Mr. Maloney led GrubHub Holdings through five rounds of investment funding, the acquisition of DotMenu, the Merger with the Seamless Platform and the 2012 launch of OrderHub. Mr. Maloney currently serves as an advisory board member for The University of Chicago Booth School of Business and Polsky Center for Entrepreneurship and sits on the board of directors of Merge Healthcare Incorporated (Nasdaq: MRGE). He is a member of ChicagoNEXT, an organization dedicated to driving growth and opportunity in the Chicago business community. He is also the 2012 Built in Chicago Moxie Award winner for CEO of the Year and a regular contributor to The Wall Street Journal’s The Accelerators blog. Mr. Maloney holds an MBA and MSCS from the University of Chicago.

 

We believe that Mr. Maloney is qualified to serve as a member of our board of directors because of his perspective as a co-founder of GrubHub Holdings, his technology development experience and his strategic insight into the Company, gained from his role as Chief Executive Officer.

 

Jonathan Zabusky.    Jonathan Zabusky has served as President of GrubHub Inc., where he oversees Product, Marketing, Business Development, Corporate Accounts and the Restaurant Network, since the Merger Date. From June 2011 until the Merger Date, Mr. Zabusky served as Chief Executive Officer of Seamless North America, LLC. During his tenure at Seamless, Mr. Zabusky led the spin-out/recapitalization from Aramark, the acquisition of MenuPages and the rollout of the mobile product portfolio. From December 2009 to June 2011, Mr. Zabusky served as President of SeamlessWeb Professional Solutions, Inc., and from April 2008 to December 2009, he served as Vice President of SeamlessWeb Professional Solutions, Inc. Mr. Zabusky holds a B.S. in Economics from The Wharton School of the University of Pennsylvania and an MBA from the Haas School of the University of California, Berkeley.

 

We believe that Mr. Zabusky is qualified to serve as a member of our board of directors because of the strategic perspective he brings from his tenure as Chief Executive Officer at Seamless North America, LLC and his operating experience focusing on the consumer market, mobile development and expanding the business into new customer segments and geographies.