10-Q 1 a2015q210-qcarecom.htm CARE.COM 10-Q Q2 FY 2015 2015 Q2 10-Q Care.com


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2015
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
   
Commission File Number: 000-24821
 
 
 
Care.com, Inc.
 
(Exact name of registrant as specified in its charter)
Delaware
20-578-5879
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
77 Fourth Avenue, Fifth Floor
Waltham, MA
02451
(Address of principal executive offices)
(Zip Code)
(781) 642-5900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of exchange on which registered
Common Stock, par value $0.001
 
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
 
None
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [x]    No  [ ]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [x ]    No  [ ]
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.
Large accelerated filer
[ ]
 
Accelerated filer
[ ]
Non-accelerated filer
[x]
(Do not check if a smaller reporting company)
Smaller reporting company
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]
As of July 28, 2015, there were 32,055,791 shares of the registrant's common stock, $0.001 par value, outstanding.





CARE.COM, INC.
FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Page
 
 
 
Item 1.
Financial Statements (Unaudited)
 
Condensed Consolidated Balance Sheets as of June 27, 2015 and December 27, 2014
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 27, 2015 and June 28, 2014
 
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 27, 2015 and June 28, 2014
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 27, 2015 and June 28, 2014
 
Notes to Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
Signatures
 






PART I
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CARE.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
 
June 27,
2015
 
December 27,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
56,495

 
$
71,881

Accounts receivable
2,958

 
2,592

Unbilled accounts receivable
3,755

 
3,541

Prepaid expenses and other current assets
7,049

 
8,046

Total current assets
70,257

 
86,060

Property and equipment, net
6,876

 
6,323

Intangible assets, net
6,692

 
8,965

Goodwill
67,020

 
68,685

Other non-current assets
3,068

 
3,071

Total assets
$
153,913

 
$
173,104

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
664

 
$
5,463

Accrued expenses and other current liabilities
15,350

 
12,732

Current contingent acquisition consideration
8,162

 
10,685

Deferred revenue
14,626

 
13,346

Total current liabilities
38,802

 
42,226

Contingent acquisition consideration
7,567

 
7,267

Deferred tax liability
2,886

 
2,119

Other non-current liabilities
3,789

 
3,442

Total liabilities
53,044

 
55,054

 
 
 
 
Contingencies (see note 6)

 

 
 
 
 
Stockholders' equity

 

Common stock, $0.001 par value; 300,000 shares authorized; 32,052 and 31,615 shares issued and outstanding, respectively
32

 
32

Additional paid-in capital
280,581

 
277,583

Accumulated deficit
(179,106
)
 
(159,859
)
Accumulated other comprehensive (loss) income
(638
)
 
294

Total stockholders' equity
100,869

 
118,050

Total liabilities and stockholders' equity
$
153,913

 
$
173,104


See accompanying notes to the condensed consolidated financial statements
2



CARE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
 
 
 
 
 
 
 
 
Revenue
$
35,653

 
$
25,836

 
$
70,773

 
$
51,107

Cost of revenue
9,224

 
5,713

 
18,772

 
11,484

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing
18,721

 
18,022

 
39,763

 
38,471

Research and development
5,406

 
4,078

 
10,421

 
8,142

General and administrative
8,428

 
6,588

 
16,929

 
12,820

Depreciation and amortization
1,251

 
1,068

 
2,526

 
2,136

Total operating expenses
33,806

 
29,756

 
69,639

 
61,569

Operating loss
(7,377
)
 
(9,633
)
 
(17,638
)
 
(21,946
)
Other income (expense), net
487

 
67

 
(704
)
 
(2,679
)
Loss before income taxes
(6,890
)
 
(9,566
)
 
(18,342
)
 
(24,625
)
Provision for income taxes
345

 
309

 
905

 
794

Net loss
(7,235
)
 
(9,875
)
 
(19,247
)
 
(25,419
)
Accretion of preferred stock

 

 

 
(4
)
Net loss attributable to common stockholders
$
(7,235
)
 
$
(9,875
)
 
$
(19,247
)
 
$
(25,423
)
Net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted
$
(0.23
)
 
$
(0.32
)
 
$
(0.60
)
 
$
(0.96
)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted
31,981

 
30,980

 
31,872

 
26,439



See accompanying notes to the condensed consolidated financial statements
3



CARE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
 
 
 
 
 
 
 
 
Net loss
$
(7,235
)
 
$
(9,875
)
 
$
(19,247
)
 
$
(25,419
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
72

 
(255
)
 
(932
)
 
(403
)
Comprehensive loss
$
(7,163
)
 
$
(10,130
)
 
$
(20,179
)
 
$
(25,822
)





See accompanying notes to the condensed consolidated financial statements
4



CARE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
Six Months Ended
 
June 27, 2015
 
June 28, 2014
Cash flows from operating activities
 
 
 
Net loss
$
(19,247
)
 
$
(25,419
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Stock-based compensation
2,595

 
2,082

Depreciation and amortization
2,978

 
2,520

Deferred taxes
801

 
672

Contingent consideration expense
622

 
147

Change in fair value of contingent consideration payable in preferred stock

 
2,258

Change in fair value of stock warrants

 
606

Other non-operating expenses
7

 

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(378
)
 
(611
)
Unbilled accounts receivable
(451
)
 
(622
)
Prepaid expenses and other current assets
699

 
(1,257
)
Other non-current assets
(13
)
 
(5
)
Accounts payable
(4,235
)
 
1,540

Accrued expenses and other current liabilities
3,662

 
6,671

Deferred revenue
1,593

 
2,613

Other non-current liabilities
400

 
(36
)
Net cash used in operating activities
(10,967
)
 
(8,841
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(3,981
)
 
(400
)
Payments for acquisitions, net of cash acquired

 
(489
)
Cash withheld for purchase consideration
73

 
(73
)
Net cash used in investing activities
(3,908
)
 
(962
)
Cash flows from financing activities
 
 
 
Proceeds from initial public offering net of offering costs

 
96,011

Proceeds from exercise of common stock options
611

 
245

Payments of contingent consideration previously established in purchase accounting
(1,840
)
 
(2,845
)
Net cash (used in) provided by financing activities
(1,229
)
 
93,411

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
718

 
(169
)
Net (decrease) increase in cash and cash equivalents
(15,386
)
 
83,439

Cash and cash equivalents, beginning of the period
71,881

 
29,959

Cash and cash equivalents, end of the period
$
56,495

 
$
113,398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See accompanying notes to the condensed consolidated financial statements
5



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow activities
 
 
 
Cash paid for taxes
$
26

 
$
94

Supplemental disclosure of non-cash investing and financing activities
 
 
 
Non-cash purchases of property and equipment
$
33

 
$

Issuance of preferred and common stock in connection with acquisitions
$
4,878

 
$
2,622

Accretion of preferred stock to redemption value
$

 
$
4

Conversion of preferred stock to common stock
$

 
$
154,856

Reclassification of warrant liability to additional paid-in capital
$

 
$
968

Reclassification of contingent consideration payable in common shares
$

 
$
4,878

Unpaid deferred offering costs
$

 
$
123




See accompanying notes to the condensed consolidated financial statements
6


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)


1. Description of Business and Summary of Significant Accounting Policies
Care.com, Inc. (the “Company”, “we”, “us”, and “our”), a Delaware corporation, was incorporated on October 27, 2006. We are the world’s largest online marketplace for finding and managing family care. Our consumer matching solutions enable families to connect to caregivers and caregiving services in a reliable and easy way and our payment solutions enable families to pay caregivers electronically online or via their mobile device and to manage their household payroll and tax matters with Care.com HomePay. In addition, we serve employers by providing access to our platform to employer-sponsored families and care-related businesses-such as day care centers, nanny agencies and home care agencies-who wish to market their services to our care-seeking families and recruit our caregiver members. We also operate a social commerce service selling curated third-party products designed for families. This service generates revenue through the sale of subscriptions and other products to customers in the United States.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, our business is affected by a variety of factors. For example, we believe that unfavorable changes in any of the following areas could have a significant negative effect on our future financial position, results of operations or cash flows: rates of revenue growth; member acquisition costs; member engagement and usage of our new and existing products; our ability to scale and adapt our existing technology and network infrastructure; competition in our market; management of our growth; our acquisitions and investments; our ability to retain qualified employees and key personnel; protection of our brand and intellectual property; protection of customers’ information and privacy concerns; security measures related to our website; our ability to access capital at acceptable terms, among other things.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2014, filed on March 27, 2015.
There have been no material changes in our significant accounting policies for the three and six months ended June 27, 2015 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 27, 2014.
The condensed consolidated balance sheet as of December 27, 2014, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, and are not necessarily indicative of the results of operations to be anticipated for Fiscal 2015 or any future period.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, after elimination of all intercompany balances and transactions.
Fiscal Year-End
We operate and report using a 52 or 53 week fiscal year ending on the Saturday in December closest and prior to December 31. Accordingly, our fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter.
Subsequent Events Consideration
We consider events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized subsequent events recorded in the condensed consolidated financial statements as of and for the three and six months ended June 27, 2015.

7


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

Recently Issued and Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which amends Accounting Standards Codification, or ASC, 350, Intangibles - Goodwill and Other. The amendments provide guidance as to whether a cloud computing arrangement (e.g., software as a service, platform as a service, infrastructure as a service, and other similar arrangements) includes a software license, and based on that determination, how to account for such arrangements. ASU 2015-05 is effective for fiscal years, and interim periods therein, beginning after December 15, 2015 and may be applied on either a prospective or retrospective basis. Early adoption is not permitted. We are currently evaluating the impact the adoption of ASU 2015-05 will have on our financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810)-Amendments to the Consolidation Analysis (“ASU 2015-02”), which amends the criteria for determining which entities are considered variable interest entities, or VIEs, amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. ASU 2015-02 is effective for annual periods, and interim periods therein, beginning after December 15, 2015. We are currently evaluating the impact the adoption of Topic 810 will have on our financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items ("ASU 2015-01”), which eliminates the requirement of Extraordinary Items to be separately classified on the income statement.  ASU 2015-01 is effective for annual periods ending after December 15, 2015 and for annual and interim periods thereafter.  Early application is permitted.  The adoption of ASU 2015-01 is not expected to have a material effect on our condensed consolidated financial statements or disclosures.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and earlier application is permitted. We are currently evaluating the impact of the adoption of ASU 2014-15, but the adoption is not expected to have a material effect on our consolidated financial statements or disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. On July 9, 2015, the FASB voted in favor of delaying the effective date of the new standard by one year, with early adoption permitted as of the original effective date. ASU-2014-09 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which is fiscal 2018 for the Company. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. The standard permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

8


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

2. Fair Value Measurements
The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of June 27, 2015 and December 27, 2014 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):
 
June 27, 2015
 
December 27, 2014
 
Fair Value Measurements Using Input Types
 

 
Fair Value Measurements Using Input Types
 

 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:

 

 

 

 

 

 

 

Money market mutual funds and certificates of deposit
$
20,388

 
$

 
$

 
$
20,388

 
$
15,656

 
$

 
$

 
$
15,656

Total assets
$
20,388

 
$

 
$

 
$
20,388

 
$
15,656

 
$

 
$

 
$
15,656

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:


 


 


 


 


 


 


 


Contingent acquisition consideration
$

 
$

 
$
15,729

 
$
15,729

 
$

 
$

 
$
17,952

 
$
17,952

Total liabilities
$

 
$

 
$
15,729

 
$
15,729

 
$

 
$

 
$
17,952

 
$
17,952

The following table sets forth a summary of changes in the fair value of our contingent acquisition consideration which represents recurring measurements that are classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs (in thousands):
 
June 27, 2015
 
Contingent Acquisition
Consideration
Beginning balance
$
17,952

Increase in fair value included in earnings
622

Contingent acquisition consideration payments
(2,845
)
Ending balance
$
15,729

Non-Recurring Fair Value Measurements
We re-measure the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets are comprised of long-lived assets, including property and equipment, intangible assets and goodwill. In the three and six months ended June 27, 2015 and June 28, 2014, no significant remeasurements were necessary. Other financial instruments not measured or recorded at fair value in the accompanying condensed consolidated balance sheets principally consist of accounts receivable, accounts payable, and accrued liabilities. The estimated fair values of these instruments approximate their carrying values due to their short-term nature.

9


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

3. Business Acquisitions
Citrus Lane
On July 17, 2014, we acquired Citrus Lane, a social commerce service selling curated third-party products designed for families, for total consideration of $22.9 million in cash and 0.4 million shares of common stock (valued at $3.8 million). In addition, up to $16.4 million in cash (valued at $14.5 million) and up to an additional 0.1 million shares of common stock (valued at $1.1 million) will be payable in the event Citrus Lane achieves certain milestones in 2015 and 2016. The results of operations for Citrus Lane have been included in our consolidated financial statements since the date of acquisition.
Pro Forma Information
The following unaudited pro forma financial information presents the combined results of operations of Care.com and Citrus Lane as if the acquisition had occurred on January 1, 2013, after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Citrus Lane acquisition, factually supportable, and expected to have a continuing impact on us. Actual 2014 impairment charges were excluded from the pro forma results below. The pro forma financial information does not reflect any adjustments for anticipated synergies resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on January 1, 2013.
 
Pro Forma
 
Three Months Ended
 
Six Months Ended
(in thousands)
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Revenue
35,653

 
28,344

 
70,773

 
56,122

Net loss
(7,244
)
 
(11,183
)
 
(19,269
)
 
(28,821
)
Consmr
On March 3, 2014, we entered into an agreement with Consmr, Inc. (“Consmr”), the developer of a mobile application for ratings and reviews of consumer products, pursuant to which we acquired the right to hire all employees of Consmr for total consideration of $0.6 million. Approximately $0.1 million of the purchase price was held back and is payable in one year subject to the continuing employment of the employees. Such amount has been recognized as compensation expense over the required employment period. The transaction is presented as an acquisition of a business and the consideration transferred, except for the amount held back, was recorded as goodwill.
4. Supplemental Balance Sheet Information
The following table presents the detail of property and equipment, net for the periods presented (in thousands):
 
June 27,
2015
 
December 27,
2014
Computer equipment
$
2,054

 
$
2,476

Furniture and fixtures
1,668

 
1,708

Software
1,280

 
1,066

Leasehold improvements
3,820

 
3,137

Total
8,822

 
8,387

Less accumulated depreciation
(1,946
)
 
(2,064
)
Property and equipment, net
$
6,876

 
$
6,323

Depreciation expense for the three months ended June 27, 2015 and June 28, 2014 was $0.4 million and $0.2 million, respectively, and for the six months ended June 27, 2015 and June 28, 2014 was $0.8 million and $0.4 million, respectively.

10


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

The following table presents the detail of accrued expenses and other current liabilities for the periods presented (in thousands):
 
June 27,
2015
 
December 27,
2014
Payroll and compensation
$
4,951

 
$
2,388

Tax-related expense
918

 
843

Marketing expenses
5,728

 
3,385

Other accrued expenses
3,753

 
6,116

Total accrued expenses and other current liabilities
$
15,350

 
$
12,732

5. Goodwill and Intangible Assets
The following table presents the change in goodwill for the periods presented (in thousands):
 
CRCM Businesses, Excluding Citrus Lane
 
Citrus Lane
 
Total
Balance as of December 27, 2014
$
60,635

 
$
8,050

 
$
68,685

Effect of currency translation and other
(1,643
)
 
(22
)
 
(1,665
)
Balance as of June 27, 2015
$
58,992

 
$
8,028

 
$
67,020

 
 
 
 
 
 
Total impairment recognized to date
$

 
$
36,227

 
$
36,227


11


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

The following table presents the detail of intangible assets for the periods presented (dollars in thousands):
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted-Average Remaining Life (Years)
June 27, 2015
 
 
 
 
 
 
 
Indefinite lived intangibles
$
242

 
$

 
$
242

 
N/A
Trademarks and trade names
5,229

 
(4,047
)
 
1,182

 
6.9
Proprietary software
4,785

 
(3,515
)
 
1,270

 
2.1
Website
1,150

 
(123
)
 
1,027

 
6.0
Training materials
30

 
(25
)
 
5

 
0.5
Non-compete agreements
131

 
(106
)
 
25

 
2.1
Leasehold interests
170

 
(73
)
 
97

 
3.9
Caregiver relationships
290

 
(282
)
 
8

 
0.5
Customer relationships
8,795

 
(5,959
)
 
2,836

 
2.8
Total
$
20,822

 
$
(14,130
)
 
$
6,692

 

 
 
 
 
 
 
 
 
December 27, 2014
 
 
 
 
 
 
 
Indefinite lived intangibles
$
242

 
$

 
$
242

 
N/A
Trademarks and trade names
5,281

 
(3,377
)
 
1,904

 
5.2
Proprietary software
4,942

 
(3,351
)
 
1,591

 
2.5
Website
1,150

 
(34
)
 
1,116

 
6.5
Training materials
30

 
(20
)
 
10

 
1.0
Non-compete agreements
137

 
(94
)
 
43

 
2.0
Leasehold interests
170

 
(61
)
 
109

 
4.4
Caregiver relationships
312

 
(252
)
 
60

 
0.7
Customer relationships
8,857

 
(4,967
)
 
3,890

 
2.9
Total
$
21,121

 
$
(12,156
)
 
$
8,965

 
 
Amortization expense was $2.2 million and $2.1 million for the six months ended June 27, 2015 and June 28, 2014, respectively. Of these amounts, $1.8 million and $1.7 million was classified as a component of depreciation and amortization, and $0.4 million and $0.4 million was classified as a component of cost of revenue in the condensed consolidated statements of operations for the six months ended June 27, 2015 and June 28, 2014, respectively.
As of June 27, 2015, the estimated future amortization expense related to intangible assets for future fiscal years was as follows (in thousands):
2015 remaining
$
1,647

2016
2,205

2017
800

2018
454

2019
396

Thereafter
948

Total
$
6,450


12


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

6. Contingencies
Legal matters
From time to time, we have or may become party to litigation incident to the ordinary course of business. We assess the likelihood of any adverse judgments or outcomes with respect to these matters and determine loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, we consider other relevant factors that could impact our ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. Our reserve may change in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of all pending matters will not have a material adverse effect on our business, condensed consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can adversely impact us due to defense and settlement costs, diversion of management resources, and other factors.
7. Stockholders’ Equity
Initial Public Offering (IPO)
On January 29, 2014, we closed our IPO in which we sold and issued 6,152,500 shares of common stock, including 802,500 shares of common stock pursuant to the exercise of the underwriters’ option to purchase additional shares, which were sold to the public at a price of $17.00 per share. We received net proceeds of approximately $94.8 million from the IPO, including the exercise of the underwriters’ over-allotment option, net of underwriters’ discounts and commissions, and after deducting offering expenses of approximately $2.4 million.
Upon the closing of the IPO, all shares of our outstanding redeemable convertible preferred stock automatically converted into 21,490,656 shares of common stock and our outstanding warrant to purchase redeemable convertible preferred stock automatically converted into a warrant to purchase 40,697 shares of common stock at $1.72 per share, which were subsequently exercised during the first quarter of 2014.
Stock-Based Compensation
The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Cost of revenue
$
77

 
$
47

 
$
125

 
$
94

Selling and marketing
286

 
163

 
447

 
309

Research and development
267

 
115

 
349

 
204

General and administrative
1,027

 
658

 
1,674

 
1,475

   Total stock-based compensation
$
1,657

 
$
983

 
$
2,595

 
$
2,082

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the six months ended June 27, 2015, we granted 1.5 million restricted stock units (RSUs) to certain employees and directors and 0.2 million performance based RSUs to certain members of senior management. Each recipient of performance based RSUs is eligible to receive up to 100% of the shares granted on the achievement of certain financial targets for fiscal 2015 and which will vest over a four -year period retroactive to March 2015. Management is recognizing expense straight-line over the required service period based on its estimate of number of shares that will vest. If there is a change in the estimate of the number of shares that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made.
RSUs are not included in issued and outstanding common stock until the shares are vested and released. The fair value of the RSU is measured based on the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share. The weighted average grant-date fair value per share and the total fair value of vested shares from the RSU grants was $7.70 and $0.6 million, respectively, for the six months ended June 27, 2015. No RSUs were granted during the six months ended June 28, 2014.
During the six months ended June 27, 2015, no stock options were granted. During the six months ended June 28, 2014, we granted 0.7 million stock options with weighted-average exercise price per share of $17.63.

13


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
Risk-free interest rate
N/A
 
1.54 - 2.88%
Expected term (years)
N/A
 
6.25
Volatility
N/A
 
47.1 - 55.3%
Expected dividend yield
N/A
 
A summary of stock option and RSU activity for the six months ended June 27, 2015 was as follows (in thousands for shares and intrinsic value):
 
Stock Options
 
Restricted Stock Units
 
Shares
 
Weighted-Average Remaining Contractual Term (Years)
 
Weighted-Average Exercise Price
 
Aggregate Intrinsic Value
 
Shares
 
Weighted-Average Grant Date Fair Value
Outstanding at December 27, 2014
4,270

 
7.17
 
$
6.47

 
$
14,373

 

 
$

Granted (1)

 
 
 

 
 
 
1,708

 
7.70

Settled (RSUs)
 
 
 
 
 
 
 
 
(71
)
 
7.78

Exercised
(176
)
 
 
 
2.30

 
 
 
 
 
 
Canceled and forfeited
(259
)
 
 
 
7.01

 
 
 
(4
)
 
7.78

Outstanding at June 27, 2015
3,835

 
6.99
 
6.62

 
$
6,387

 
1,633

 
$
7.70

Vested and exercisable at June 27, 2015
2,519

 
6.30
 
4.71

 
$
5,902

 

 
$

Vested and expected to vest as of June 27, 2015 (2)
3,692

 
6.93
 
6.44

 
$
6,347

 
1,127

 
$
7.69

____________________________
(1) For RSUs, includes both time-based and performance-based restricted stock units
(2) Options and RSUs expected to vest reflect an estimated forfeiture rate
Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on the New York Stock Exchange as of June 27, 2015 was $6.16. The total intrinsic value of options exercised and RSUs vested was approximately $0.7 million and $1.5 million for the three and six months ended June 27, 2015, respectively. The aggregate fair value of the options that vested during the three and six months ended June 27, 2015 was $0.8 million and $1.9 million respectively.
As of June 27, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options and RSUs was approximately $5.9 million and $8.4 million, respectively, which is expected to be recognized over a weighted-average period of 2.2 years and 3.7 years, respectively. As of June 27, 2015, we had 2,880,470 shares available for grant under the 2014 Plan.

14


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

Common Stock
As of June 27, 2015, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):
 
June 27, 2015
 
Contingent consideration payable in common stock
106

 
Options issued and outstanding
3,835

 
Restricted stock units issued and outstanding
1,633

 
Common stock available for stock-based award grants under incentive award plans
2,880

 
Total
8,454

 
8. Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common shareholders is computed by dividing net loss attributable to common shareholders 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 common stock equivalent would be anti-dilutive. Potential common stock equivalents consist of common stock issuable upon exercise of stock options as well as shares issuable under outstanding contingent consideration arrangements.
The following equity shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Stock options and RSUs
5,215

 
4,053

 
5,215

 
4,053

Contingent consideration
106

 

 
106

 

9. Income Taxes
We recorded income tax expense of $0.3 million and $0.3 million for the three months ended June 27, 2015 and June 28, 2014, respectively. We recorded income tax expense of $0.9 million and $0.8 million for the six months ended June 27, 2015 and June 28, 2014, respectively. The tax provision recorded in the three-and-six months ended June 27, 2015 and June 28, 2014, relates to the amortization of certain goodwill for tax purposes for which there is no corresponding book deduction and certain state taxes based on operating income that are payable without regard to our tax loss carry forwards.
10. Segment and Geographical Information
We consider operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the CEO. Prior to the first quarter of Fiscal 2015, the CEO reviewed financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Beginning with the first quarter of Fiscal 2015, the CEO began to review the financial information of Citrus Lane separately from the Company’s other businesses. Accordingly, effective for the first quarter of Fiscal 2015, we have determined that we have two operating and reportable segments, CRCM Businesses, Excluding Citrus Lane and Citrus Lane. The descriptions of the resulting reportable segments are included below and all financial information presented herein related to the resulting reportable segments has been presented retrospectively as though these segments existed as of the earliest period presented.

15


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

CRCM Businesses, Excluding Citrus Lane
CRCM Businesses, Excluding Citrus Lane is comprised primarily of consumer matching solutions, which provides families access to search for, qualify, vet, connect with and ultimately select caregivers; consumer payments solutions, which provide families options to manage their financial relationship with their caregiver through the use of household employer payroll and tax services; and our employer offering, which provides corporate employers access to certain of our products and services that can be offered as an employee benefit. This reportable segment represents an aggregation of operating units within the segment.
Citrus Lane
Citrus Lane represents sales of merchandise through the sales of curated third-party products designed for families. The majority of revenue is generated through the sale of subscription discovery boxes, whereby customers prepay to receive monthly shipments of a box containing children’s merchandise. We also offer individual products on an a-la-carte basis.
We measure and evaluate our reportable segments based on segment revenues and segment adjusted EBITDA, which is defined as net loss, plus: (1) federal, state and franchise taxes; (2) other expense, net; (3) depreciation and amortization; (4) stock based compensation; (5) accretion of contingent consideration; (6) merger and acquisition related costs; and (7) other unusual or non-cash significant adjustments.
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (refer to Note 2 of our Annual Report on Form 10-K for the fiscal year ended December 27, 2014). We fully allocate depreciation expense to our two reportable segments. We do not report our assets or capital expenditures by segment as it would not be meaningful. Segment information for the three and six months ended June 27, 2015 and June 28, 2014 was as follows (in thousands):
 
 
Three Months Ended
 
Three Months Ended
 
 
June 27, 2015
 
June 28, 2014
 
 
CRCM Businesses, Excluding Citrus Lane
 
Citrus Lane
 
Total
 
CRCM Businesses, Excluding Citrus Lane
 
Citrus Lane
 
Total
Revenue
 
$
32,903

 
$
2,750

 
$
35,653

 
$
25,836

 
$

 
$
25,836

Adjusted EBITDA
 
(2,664
)
 
(1,001
)
 
(3,665
)
 
(6,602
)
 

 
(6,602
)
Depreciation and amortization
 
(1,412
)
 
(69
)
 
(1,481
)
 
(1,259
)
 

 
(1,259
)
Stock-based compensation
 
(1,472
)
 
(185
)
 
(1,657
)
 
(983
)
 

 
(983
)
Other charges
 
2

 
(576
)
 
(574
)
 
(789
)
 

 
(789
)
Operating loss
 
$
(5,546
)
 
$
(1,831
)
 
(7,377
)
 
$
(9,633
)
 
$

 
(9,633
)
Other income, net
 
 
 
 
 
487

 
 
 
 
 
67

Loss before income taxes
 
 
 
 
 
(6,890
)
 
 
 
 
 
(9,566
)
Provision for income taxes
 
 
 
 
 
345

 
 
 
 
 
309

Net Loss
 
 
 
 
 
$
(7,235
)
 
 
 
 
 
$
(9,875
)


16


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 27, 2015
(unaudited)

 
 
Six Months Ended
 
Six Months Ended
 
 
June 27, 2015
 
June 28, 2014
 
 
CRCM Businesses, Excluding Citrus Lane
 
Citrus Lane
 
Total
 
CRCM Businesses, Excluding Citrus Lane
 
Citrus Lane
 
Total
Revenue
 
$
64,952

 
$
5,821

 
$
70,773

 
$
51,107

 
$

 
$
51,107

Adjusted EBITDA
 
(8,268
)
 
(2,459
)
 
(10,727
)
 
(16,203
)
 

 
(16,203
)
Depreciation and amortization
 
(2,837
)
 
(141
)
 
(2,978
)
 
(2,520
)
 

 
(2,520
)
Stock-based compensation
 
(2,294
)
 
(301
)
 
(2,595
)
 
(2,082
)
 

 
(2,082
)
Other charges
 
(192
)
 
(1,146
)
 
(1,338
)
 
(1,141
)
 

 
(1,141
)
Operating loss
 
$
(13,591
)
 
$
(4,047
)
 
(17,638
)
 
$
(21,946
)
 
$

 
(21,946
)
Other expense, net
 
 
 
 
 
(704
)
 
 
 
 
 
(2,679
)
Loss before income taxes
 
 
 
 
 
(18,342
)
 
 
 
 
 
(24,625
)
Provision for income taxes
 
 
 
 
 
905

 
 
 
 
 
794

Net Loss
 
 
 
 
 
$
(19,247
)
 
 
 
 
 
$
(25,419
)
Total assets for the CRCM Businesses, Excluding Citrus Lane and Citrus Lane as of June 27, 2015 were $145.8 million and $8.1 million, respectively. Total assets for the CRCM Businesses, Excluding Citrus Lane and Citrus Lane as of December 27, 2014 were $163.1 million and $10.0 million, respectively.
No country outside of the United States provided greater than 10% of our total revenue. Revenue is classified by the major geographic areas in which our customers are located. The following table summarizes total revenue generated by our geographic locations (dollars in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
United States
$
33,179

 
$
23,559

 
$
66,034

 
$
46,773

International
2,474

 
2,277

 
4,739

 
4,334

Total revenue
$
35,653

 
$
25,836

 
$
70,773

 
$
51,107

Our long-lived assets are primarily located in the United States and are not allocated to any specific region. Therefore, geographic information is presented only for total revenue.
11. Other Income (Expense), Net
Other income (expense), net consisted of the following (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Interest income
$
52

 
$
26

 
$
86

 
$
46

Interest expense
(54
)
 
(10
)
 
(82
)
 
(17
)
Other income (expense), net
489

 
51

 
(708
)
 
(2,708
)
Total other income (expense), net
$
487

 
$
67

 
$
(704
)
 
$
(2,679
)


17



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 27, 2014, filed on March 27, 2015. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from our expectations.
Overview
We are the world’s largest online marketplace for finding and managing family care as well as a leading subscription-based social commerce service selling curated third-party products designed for families. We have more than 16.5 million members, including 9.3 million families and 7.2 million caregivers, spanning 16 countries. We help families address their particular lifecycle of care needs, which includes child care, senior care, special needs care and other non-medical family care needs such as pet care, tutoring and housekeeping. In the process, we also help caregivers find rewarding full-time and part-time employment opportunities.
In addition to our consumer matching solutions, we offer our members innovative products and services to facilitate their interaction with caregivers. We provide solutions intended to improve both the ease and reliability of the care relationship in the home. One product area we are particularly focused on is consumer payments. Through Care.com HomePay, families can subscribe to payroll and tax preparation services for domestic employees. This offering deepens our relationship with our members and could enhance the lifetime value associated with each member.
We also serve employers by providing access to certain of our products and services to employer-sponsored families. In addition, we serve care-related businesses—such as day care centers, nanny agencies and home care agencies—who wish to market their services to our care-seeking families and recruit our caregiver members. These businesses improve our member experience by providing additional caregiving choices for families and employment opportunities for caregivers.
In July 2014, we completed our Citrus Lane acquisition, adding social commerce capabilities to our platform, including the sales of curated third-party products designed for families. Citrus Lane generates revenue through the sale of subscriptions and other products to customers in the United States.
We have experienced rapid growth in revenue and members. Our members increased to 16.5 million as of June 27, 2015 from 11.8 million as of June 28, 2014, representing a 40% annual growth rate. Our revenue has increased to $70.8 million for the six months ended June 27, 2015 from $51.1 million for the six months ended June 28, 2014, representing a 38% annual growth rate, primarily driven by our consumer matching solutions, consumer payment solutions, and to a lesser extent to our Citrus Lane acquisition. We experienced net losses of $19.2 million and $25.4 million for the six months ended June 27, 2015 and June 28, 2014, respectively.
Key Business Metrics
In addition to traditional financial and operational metrics, we use the following business metrics to monitor and evaluate results (in thousands, except monthly average revenue per member - U.S. consumer matching & payments):
 
As of
 
June 27,
2015
 
June 28,
2014
Total members
16,472

 
11,826

Total families
9,284

 
6,437

Total caregivers
7,188

 
5,389

* Paying members - U.S. consumer matching & payments
254

 
205

* Monthly average revenue per member - U.S. consumer
   matching & payments
$
38

 
$
37

_________________________________
* We have changed the business metrics we use to monitor and evaluate our results. We believe that these metrics better reflect the underlying trends in our U.S. Matching and Payments business.

18


Total Members. We define total members as the number of paying and non-paying families, including those who have registered through employer programs, and caregivers who have registered through our websites and mobile apps since the launch of our marketplace in 2007, as well as subscribers of our Care.com HomePay and social commerce services. Our total members increased 39% as of June 27, 2015, compared to the corresponding period in the prior fiscal year.
Total Families. We define total families as the number of paying and non-paying families who have registered through our websites and mobile apps, including those who have registered through employer programs, since the launch of our marketplace in 2007, as well as subscribers of our Care.com HomePay and social commerce services. Our total families increased 44% as of June 27, 2015, compared to the corresponding period in the prior fiscal year.
Total Caregivers. We define total caregivers as the number of paying and non-paying caregivers who have registered through our websites and mobile apps since the launch of our marketplace in 2007. Our total caregivers increased 33% as of June 27, 2015, compared to the corresponding period in the prior fiscal year.
Paying Members - U.S. Consumer Matching & Payments. We define paying members - U.S. consumer matching & payments as the number of families located in the United States who have registered through our U.S.-based websites and mobile apps and who are paying subscribers of our U.S.-based matching services or our Care.com HomePay services as of the end of the fiscal period. The number of paying members in our U.S. consumer matching & payments business increased 24% as of June 27, 2015, compared to the corresponding period in the prior fiscal year.
Monthly Average Revenue per Member - U.S. Consumer Matching & Payments. We define monthly average revenue per member, or ARPM, for our U.S. consumer matching & payments business as total U.S. consumer matching and payments revenue, including revenue from subscriptions and products, divided by the average number of U.S. consumer matching & payments paying members in a given fiscal period, expressed on a monthly basis. Our U.S. consumer matching & payments ARPM increased 3% as of June 27, 2015, compared to the corresponding period in the prior fiscal year.
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed adjusted EBITDA, a non-GAAP financial measure. The table below represents a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business.
Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted EBITDA does not reflect the impairment of certain acquired goodwill and intangible assets;
• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
• adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
• other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss, and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):

19


 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Net loss
$
(7,235
)
 
$
(9,875
)
 
$
(19,247
)
 
$
(25,419
)
 
 
 
 
 
 
 
 
Federal, state and franchise taxes
306

 
439

 
995

 
972

Other (income) expense, net
(487
)
 
(67
)
 
704

 
2,679

Depreciation and amortization
1,481

 
1,259

 
2,978

 
2,520

 
 
 
 
 
 
 
 
EBITDA
(5,935
)
 
(8,244
)
 
(14,570
)
 
(19,248
)
 
 
 
 
 
 
 
 
Stock-based compensation
1,657

 
983

 
2,595

 
2,082

Accretion of contingent consideration
314

 
74

 
622

 
147

Merger and acquisition related costs
299

 
575

 
626

 
652

IPO related costs

 
10

 

 
164

Adjusted EBITDA
$
(3,665
)
 
$
(6,602
)
 
$
(10,727
)
 
$
(16,203
)
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the assumptions and estimates associated with the following critical accounting policies have the greatest potential impact on our condensed consolidated financial statements:
• Revenue recognition;
• Business combinations;
• Software development costs;
• Goodwill;
• Amortization and impairment of intangible assets;
• Income taxes; and
• Stock-based compensation.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 27, 2014 filed on March 27, 2015.
Recently Issued and Adopted Accounting Pronouncements
For information on recent accounting pronouncements, see Recently Issued and Adopted Accounting Standards in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.


20



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

 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
 
 
 
 
 
 
 
 
Revenue
$
35,653

 
$
25,836

 
$
70,773

 
$
51,107

Cost of revenue
9,224

 
5,713

 
18,772

 
11,484

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing
18,721

 
18,022

 
39,763

 
38,471

Research and development
5,406

 
4,078

 
10,421

 
8,142

General and administrative
8,428

 
6,588

 
16,929

 
12,820

Depreciation and amortization
1,251

 
1,068

 
2,526

 
2,136

Total operating expenses
33,806

 
29,756

 
69,639

 
61,569

Operating loss
(7,377
)
 
(9,633
)
 
(17,638
)
 
(21,946
)
Other income (expense), net
487

 
67

 
(704
)
 
(2,679
)
Loss before income taxes
(6,890
)
 
(9,566
)
 
(18,342
)
 
(24,625
)
Provision for income taxes
345

 
309

 
905

 
794

Net loss
(7,235
)
 
(9,875
)
 
(19,247
)
 
(25,419
)
Accretion of preferred stock

 

 

 
(4
)
Net loss attributable to common stockholders
$
(7,235
)
 
$
(9,875
)
 
$
(19,247
)
 
$
(25,423
)
Net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted
$
(0.23
)
 
$
(0.32
)
 
$
(0.60
)
 
$
(0.96
)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted
31,981

 
30,980

 
31,872

 
26,439

Stock-based compensation included in the results of operations data above was as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Cost of revenue
$
77

 
$
47

 
$
125

 
$
94

Selling and marketing
286

 
163

 
447

 
309

Research and development
267

 
115

 
349

 
204

General and administrative
1,027

 
658

 
1,674

 
1,475

Total stock-based compensation
$
1,657

 
$
983

 
$
2,595

 
$
2,082


21


The following tables set forth our condensed consolidated results of operations for the periods presented as a percentage of revenue for those periods (certain items may not foot due to rounding).
 
Three Months Ended
 
Six Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Cost of revenue
26

 
22

 
27

 
22

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing
53

 
70

 
56

 
75

Research and development
15

 
16

 
15

 
16

General and administrative
24

 
25

 
24

 
25

Depreciation and amortization
4

 
4

 
4

 
4

Total operating expenses
95

 
115

 
98

 
120

Operating loss
(21
)
 
(37
)
 
(25
)
 
(43
)
Other income (expense), net
(2
)
 

 
(1
)
 
(5
)
Loss before income taxes
(19
)
 
(37
)
 
(26
)
 
(48
)
Provision for income taxes
1

 
1

 
1

 
2

Net loss
(20
)%
 
(38
)%
 
(27
)%
 
(50
)%
Revenue
CRCM Businesses, Excluding Citrus Lane
The following sources of revenue are from our operating segment CRCM Businesses, Excluding Citrus Lane:
Consumer Matching Solutions. Our consumer matching solutions provide families access to job posting features, search features, caregiver profiles and content and is offered directly to consumers. Access to this platform is free of charge for basic members. Paying family members pay a monthly, quarterly or annual subscription fee to connect directly with caregivers and to utilize enhanced tools such as third-party background checks. Paying caregiver members pay a subscription fee for priority notification of jobs, messaging services and to perform third-party background checks on themselves. Subscription payments are received from all paying members at the time of sign-up and are recognized on a daily basis over the subscription term as the services are delivered once the revenue recognition criteria are met (see ‘‘Critical Accounting Policies and Estimates’’ for a description of the revenue recognition criteria).
Consumer Payments Solutions. Our consumer payments solutions provide families several options to manage their financial relationship with their caregiver through the use of household employer payroll and tax services. Revenue related to Care.com HomePay, our household payroll and tax service, is primarily generated through quarterly subscriptions and recognized on a daily ratable basis over the period the services are provided.
Other Revenue. Other revenue includes revenue generated from international markets. This revenue is typically recognized on a daily basis over the term of a member’s subscription. Other revenue also includes revenue generated through contracts that provide corporate employers access to certain of our products and services. This product offering is typically sold through the use of an annual contract with an automatic renewal clause. Revenue related to this offering is recognized on a daily basis over the subscription term. Additionally, we generate revenue through our marketing solutions offering, which is designed to provide care-related businesses an efficient and cost-effective way to target qualified families seeking care services, and through our recruiting solutions offering, which allows care-related businesses to recruit caregivers for full-time and part-time employment. Revenue related to these product offerings is typically recognized in the period earned.

22


Citrus Lane
Sales of Merchandise. Sales of merchandise revenue relates to the revenue we generate through the sales of curated third-party products designed for families. The majority of sales are through the sale of subscription discovery boxes, whereby customers prepay to receive monthly shipments of a box containing children’s merchandise. The subscriptions offered to our customers are for one, three, six or twelve month terms. The contents of the boxes are changed each month and include four to five different products such as toys, books, snacks and household products. Sales of merchandise are considered to qualify for the proportional performance model, whereby revenue is recognized on a pro rata basis as the boxes are delivered over the term of the subscription. We also offer individual products on an a-la-carte basis through an “add-to-box” and commerce shop offerings. “Add-to-box” sales are extra items that customers can add to be shipped with their subscription box or purchased separately from the subscription sales. Shipping and handling charges are included in revenue on a gross basis. Taxes that are collected from customers and remitted to government authorities are presented on a net basis and are excluded from revenue.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRCM Businesses, Excluding Citrus Lane
$
32,903

 
$
25,836

 
$
7,067

 
27
%
 
$
64,952

 
$
51,107

 
$
13,845

 
27
%
Citrus Lane
2,750

 

 
2,750

 
100
%
 
5,821

 

 
5,821

 
100
%
 
$
35,653

 
$
25,836

 
$
9,817

 
38
%
 
$
70,773

 
$
51,107

 
$
19,666

 
38
%
Comparison of the Three Months Ended June 27, 2015 and June 28, 2014
The change was primarily attributed to an increase of $4.5 million in our consumer matching business, principally related to a higher number of paying members and higher average revenue per paying member driven by a longer average length of paying subscriptions. Additionally, there was an increase in consumer payment solutions and background checks revenue of $0.9 million and $0.9 million, respectively. The acquisition of Citrus Lane was completed during the third quarter of 2014, which contributed $2.7 million of the increase in revenue in 2015.
Comparison of the Six Months Ended June 27, 2015 and June 28, 2014
The change was primarily attributed to an increase of $8.8 million in our consumer matching business, principally related to a higher number of paying members and higher average revenue per paying member driven by a longer average length of paying subscriptions. Additionally, there was an increase in consumer payment solutions and background checks revenue of $2.2 million and $1.4 million, respectively. The acquisition of Citrus Lane was completed during the third quarter of 2014, which contributed $5.8 million of the increase in revenue in 2015.
Cost of Revenue
Our cost of revenue primarily consists of expenses that are directly related, or closely correlated, to revenue generation, including matching and payments member variable servicing costs such as personnel costs for customer support, transaction fees related to credit card payments and the cost of background checks run on both families and caregivers. Additionally, cost of revenue includes website hosting fees and amortization expense related to caregiver relationships, proprietary software acquired as part of acquisitions and website intangible assets. In addition, we have product fulfillment costs, largely consisting of product and costs associated with our third-party fulfillment providers. We currently expect cost of revenue to increase on an absolute basis in the near term as we continue to expand our related customer base.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
Cost of revenue
$
9,224

 
$
5,713

 
$
3,511

 
61
%
 
$
18,772

 
$
11,484

 
$
7,288

 
63
%
Percentage of revenue
26
%
 
22
%
 
 
 
 
 
27
%
 
22
%
 
 
 
 

23


Comparison of the Three Months Ended June 27, 2015 and June 28, 2014
The change was primarily related to product fulfillment costs of $2.3 million associated with Citrus Lane subscriptions. Additionally, we incurred higher member servicing costs, background check screening fees and compensation expenses of $0.5 million, $0.3 million and $0.3 million, respectively.
Comparison of the Six Months Ended June 27, 2015 and June 28, 2014
The change was primarily related to product fulfillment costs of $5.0 million associated with Citrus Lane subscriptions. Additionally, we incurred higher member servicing costs, background check screening fees, compensation and credit card processing fees of $0.8 million, $0.4 million, $0.3 million and $0.3 million, respectively.
Selling and Marketing
Our selling and marketing expenses primarily consist of customer acquisition marketing, including television advertising, branding, other advertising and public relations costs, as well as allocated facilities and other supporting overhead costs. In addition, sales and marketing expenses include salaries, benefits, stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. We plan to continue to invest in sales and marketing to grow our current customer base, continue building brand awareness, and expand our international footprint. In the near term, we expect sales and marketing expenses to increase on an absolute basis and to be our largest expense on an absolute basis but decline as a percentage of revenue over time.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
Selling and marketing
$
18,721

 
$
18,022

 
$
699

 
4
%
 
$
39,763

 
$
38,471

 
$
1,292

 
3
%
Percentage of revenue
53
%
 
70
%
 
 
 
 
 
56
%
 
75
%
 
 
 
 
Comparison of the Three Months Ended June 27, 2015 and June 28, 2014
The change principally related to an increase in compensation and related costs of $1.2 million partially due to the Citrus Lane acquisition. These increases were partially offset by lower spending on acquisition marketing of $0.5 million.
Comparison of the Six Months Ended June 27, 2015 and June 28, 2014
The change principally related to an increase in compensation and related costs of $2.6 million, partially offset by lower spending on acquisition marketing of $1.7 million.
Research and Development
Our research and development expenses primarily consist of salaries, benefits and stock-based compensation for our software engineers and product managers. In addition, research and development expenses include third-party resources, as well as allocated facilities and other supporting overhead costs. We believe that continued investment in features and software development is important to attaining our strategic objectives and, as a result, we expect product development expense to increase on an absolute basis in the near term, but to remain consistent as a percentage of revenue.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
Research and development
$
5,406

 
$
4,078

 
$
1,328

 
33
%
 
$
10,421

 
$
8,142

 
$
2,279

 
28
%
Percentage of revenue
15
%
 
16
%
 
 
 
 
 
15
%
 
16
%
 
 
 
 

24


Comparison of the Three Months Ended June 27, 2015 and June 28, 2014
The change was primarily related to higher compensation and related expenses of $1.1 million, largely due to an increase in headcount and $0.1 million of increased third-party resources. The increase in headcount was the result of our focus on developing new features and products, including work on our mobile applications, to encourage member growth and engagement as well as the impact for the acquisition of Citrus Lane.
Comparison of the Six Months Ended June 27, 2015 and June 28, 2014
The change was primarily related to higher compensation and related expenses of $2.0 million, largely due to an increase in headcount. The increase in headcount was the result of our focus on developing new features and products, including work on our mobile applications, to encourage member growth and engagement.
General and Administrative
Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include: third-party resources; legal and accounting services; acquisition-related costs; and other overhead related expenses. We expect that our general and administrative expenses will increase on an absolute basis in the near term as we continue to expand our business, including expenses related to audit, legal, regulatory and tax-related services.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
General and administrative
$
8,428

 
$
6,588

 
$
1,840

 
28
%
 
$
16,929

 
$
12,820

 
$
4,109

 
32
%
Percentage of revenue
24
%
 
25
%
 
 
 
 
 
24
%
 
25
%
 
 
 
 
Comparison of the Three Months Ended June 27, 2015 and June 28, 2014
The change was primarily related to higher compensation related expenses of $1.2 million primarily due to stock-based compensation and an increase in occupancy related expenses of $0.5 million. Additionally, there was increased accretion expense related to contingent consideration liabilities of $0.3 million as a result of the Citrus Lane acquisition.
Comparison of the Six Months Ended June 27, 2015 and June 28, 2014
The change was primarily related to higher compensation related expenses of $1.8 million primarily due to stock-based compensation and an increase in occupancy costs of $1.0 million. Additionally, there was increased accretion expense related to contingent consideration liabilities of $0.6 million as a result of the Citrus Lane acquisition.
Depreciation and Amortization
Depreciation and amortization expenses primarily consist of depreciation of computer equipment and software and amortization of leasehold improvements and acquired intangibles. We expect that depreciation and amortization expenses will increase on an absolute basis as we continue to expand our technology infrastructure.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
Depreciation and amortization
$
1,251

 
$
1,068

 
$
183

 
17
%
 
$
2,526

 
$
2,136

 
$
390

 
18
%
Percentage of revenue
4
%
 
4
%
 
 
 
 
 
4
%
 
4
%
 
 
 
 

25


Comparison of the Three and Six Months Ended June 27, 2015 and June 28, 2014
The change was primarily attributed with the move to our new office space, and to a lesser extent, amortization of the Citrus Lane intangible assets. Over the next five years, we expect to incur total annual amortization expense associated with previous acquisitions of $5.7 million.
Other Income (Expense), net
Other expense, net consists primarily of the interest income earned on our cash and cash equivalents, restricted cash and investments, net of changes in the fair value of redeemable convertible preferred stock warrants, changes in the fair value of contingent consideration payable in preferred stock and foreign exchange gains and losses.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
(in thousands, except percentages)
 
(in thousands, except percentages)
Other income (expense), net
$
487

 
$
67

 
$
420

 
627
%
 
$
(704
)
 
$
(2,679
)
 
$
1,975

 
(74
)%
Percentage of revenue
(2
)%
 
%
 
 
 
 
 
(1
)%
 
(5
)%
 
 
 
 
Comparison of the Three Months Ended June 27, 2015 and June 28, 2014
The change in other income was primarily driven by the favorable movement of foreign exchange rates, primarily due to the weakening of the US dollar against the Euro and the British Pound Sterling.
Comparison of the Six Months Ended June 27, 2015 and June 28, 2014
The change was primarily driven by the mark-to-market adjustment of $2.9 million related to the change in the fair value of the redeemable convertible preferred stock associated with contingent acquisition consideration and the preferred stock warrants that occurred during the first quarter of Fiscal 2014. No such item was recorded in the current period. This was partially offset by $0.5 million from the movement of foreign exchange rates, primarily due to the strengthening of the US dollar against the Euro.
Provision 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.
 
Three Months Ended
 
Period-to-Period Change
 
Six Months Ended
 
Period-to-Period Change
 
June 27,
2015
 
June 28,
2014
 
$
Change
 
%
Change
 
June 27,
2015