10-Q 1 q3fy1610-q.htm 10-Q Document


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2016
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
[x]
Non-accelerated filer
[ ]
(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 October 26, 2016, there were 28,819,449 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.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.
Signatures
 






PART I
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CARE.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
 
September 24, 2016
 
December 26, 2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
55,833

 
$
61,240

Short-term investments
15,000

 

Accounts receivable (net of allowance of $120 and $125, respectively) (1) 
3,577

 
3,107

Unbilled accounts receivable (2) 
4,231

 
3,595

Prepaid expenses and other current assets
4,169

 
2,599

Current assets of discontinued operations
212

 
439

Total current assets
83,022

 
70,980

Property and equipment, net
5,272

 
6,371

Intangible assets, net
1,967

 
3,389

Goodwill
59,056

 
58,631

Other non-current assets
2,548

 
3,098

Non-current assets of discontinued operations

 
9

Total assets
$
151,865

 
$
142,478

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable (3) 
$
2,987

 
$
3,189

Accrued expenses and other current liabilities (4) 
14,856

 
12,413

Deferred revenue (5)
16,956

 
13,435

Current liabilities of discontinued operations
212

 
17,883

Total current liabilities
35,011

 
46,920

Deferred tax liability
4,003

 
3,166

Other non-current liabilities
4,898

 
4,140

Total liabilities
43,912

 
54,226

Contingencies (see Note 6)

 

Series A Redeemable Convertible Preferred Stock - 46 shares designated; 46 shares issued and outstanding at September 24, 2016; aggregate liquidation and redemption value of $46,966 at September 24, 2016
46,966

 

Stockholders' equity
 
 
 
Preferred Stock: $0.001 par value - authorized 5,000 shares at September 24, 2016 and December 26, 2015, respectively

 

Common stock, $0.001 par value; 300,000 shares authorized; 28,770 and 32,276 shares issued and outstanding at September 24, 2016 and December 26, 2015 respectively
29

 
32

Additional paid-in capital
253,692

 
283,669

Accumulated deficit
(192,789
)
 
(194,854
)
Accumulated other comprehensive income (loss)
55

 
(595
)
Total stockholders' equity
60,987

 
88,252

Total liabilities, redeemable convertible preferred stock and stockholders' equity
$
151,865

 
$
142,478


See accompanying notes to the condensed consolidated financial statements
2



(1) Includes accounts receivable due from related party of $175 at September 24, 2016 (Note 14)
(2) Includes unbilled accounts receivable due from related party of $76 at September 24, 2016 (Note 14)
(3) Includes accounts payable due to related party of $1,424 at September 24, 2016 (Note 14)
(4) Includes accrued expenses and other current liabilities due to related party of $1,078 at September 24, 2016 (Note 14)
(5) Includes deferred revenue associated with related party of $241 as of September 24, 2016 (Note 14)

See accompanying notes to the condensed consolidated financial statements
3



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

 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
 
 
 
 
 
 
 
 
Revenue (1)
$
40,791

 
$
36,179

 
$
118,241

 
$
101,131

Cost of revenue
8,396

 
6,894

 
23,257

 
19,796

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing (2)
20,075

 
21,343

 
58,103

 
59,796

Research and development
5,115

 
5,514

 
15,026

 
15,145

General and administrative
7,445

 
7,199

 
23,197

 
22,301

Depreciation and amortization
582

 
1,062

 
2,501

 
3,518

Restructuring charges

 

 
714

 

Total operating expenses
33,217

 
35,118

 
99,541

 
100,760

Operating loss
(822
)
 
(5,833
)
 
(4,557
)
 
(19,425
)
Other expense, net
(67
)
 
(272
)
 
(210
)
 
(976
)
Loss from continuing operations before income taxes
(889
)
 
(6,105
)
 
(4,767
)
 
(20,401
)
Provision for income taxes
332

 
259

 
952

 
1,164

Loss from continuing operations
(1,221
)
 
(6,364
)
 
(5,719
)
 
(21,565
)
(Loss) income from discontinued operations, net of tax (see note 3)
(49
)
 
(10,985
)
 
7,785

 
(15,032
)
Net (loss) income
(1,270
)
 
(17,349
)
 
2,066

 
(36,597
)
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(616
)
 

 
(616
)
 

Net (loss) income attributable to common stockholders
$
(1,886
)
 
$
(17,349
)
 
$
1,450

 
$
(36,597
)
 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic and diluted):
 
 
 
 
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.06
)
 
$
(0.20
)
 
$
(0.20
)
 
$
(0.68
)
(Loss) income from discontinued operations attributable to common stockholders

 
(0.34
)
 
0.25

 
(0.47
)
Net (loss) income per share attributable to common stockholders
$
(0.06
)
 
$
(0.54
)
 
$
0.05

 
$
(1.15
)
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted
28,769

 
32,069

 
31,045

 
31,938


(1) Includes related party revenue of $408 and $965 for the three and nine months ended September 24, 2016, respectively (Note 14)
(2) Includes related party expenses of $4,580 and $11,608 for the three and nine months ended September 24, 2016, respectively (Note 14)

See accompanying notes to the condensed consolidated financial statements
4



CARE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
 
 
 
 
 
 
 
 
Net (loss) income
$
(1,270
)
 
$
(17,349
)
 
$
2,066

 
$
(36,597
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
277

 
150

 
650

 
(782
)
Comprehensive (loss) income
$
(993
)
 
$
(17,199
)
 
$
2,716

 
$
(37,379
)





See accompanying notes to the condensed consolidated financial statements
5



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

 
Nine Months Ended
 
September 24, 2016
 
September 26, 2015
Cash flows from operating activities
 
 
 
Net income (loss)
$
2,066

 
$
(36,597
)
Income (loss) from discontinued operations, net of tax
7,785

 
(15,032
)
Loss from continuing operations
(5,719
)
 
(21,565
)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:
 
 
 
Stock-based compensation
4,765

 
3,769

Depreciation and amortization
3,070

 
4,066

Deferred taxes
837

 
1,053

Foreign currency remeasurement loss
351

 
983

Other non-cash operating income
(120
)
 
(42
)
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(486
)
 
(928
)
Unbilled accounts receivable
(635
)
 
(339
)
Prepaid expenses and other current assets
(1,015
)
 
1,626

Other non-current assets

 
(13
)
Accounts payable
(208
)
 
(2,335
)
Accrued expenses and other current liabilities
2,161

 
7,667

Deferred revenue
3,516

 
3,489

Other non-current liabilities
1,040

 
623

Net cash provided by (used in) operating activities by continuing operations
7,557

 
(1,946
)
Net cash provided by (used in) operating activities by discontinued operations
2,441

 
(4,505
)
Net cash provided by (used in) operating activities
9,998

 
(6,451
)
 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(152
)
 
(4,285
)
Payments for acquisitions, net of cash acquired
(420
)
 

Cash withheld for purchase consideration

 
73

Purchase of short-term investment
(15,000
)
 

Net cash used in investing activities by continuing operations
(15,572
)
 
(4,212
)
Net cash used in investing activities by discontinued operations

 
(2
)
Net cash used in investing activities
(15,572
)
 
(4,214
)
 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from issuance of Series A Redeemable Convertible Preferred Stock, net of issuance costs of $2,124
44,226

 

Proceeds from exercise of common stock options
1,113

 
630

Payments of contingent consideration previously established in purchase accounting

 
(1,840
)
Payment for repurchase of common stock
(30,525
)
 

Net cash provided by (used in) financing activities by continuing operations
14,814

 
(1,210
)

See accompanying notes to the condensed consolidated financial statements
6



Net cash used in financing activities by discontinued operations
(14,510
)
 

Net cash provided by (used in) financing activities
304

 
(1,210
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(137
)
 
(270
)
Net decrease in cash and cash equivalents
(5,407
)
 
(12,145
)
Cash and cash equivalents, beginning of the period
61,240

 
71,881

Cash and cash equivalents, end of the period
$
55,833

 
$
59,736

 
 
 
 
Supplemental disclosure of cash flow activities
 
 
 
Cash paid for taxes
$
177

 
$
26

 
 
 
 
Supplemental disclosure of non-cash operating, investing and financing activities
 
 
 
Unpaid purchases of property and equipment
$
11

 
$
51

Series A Redeemable Convertible Preferred Stock dividend accretion
$
616

 
$

Issuance of common stock in connection with acquisitions
$

 
$
4,878

Fair value of common shares received from legal settlement (Note 3)
$
2,593

 
$




See accompanying notes to the condensed consolidated financial statements
7


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(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.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, our business is affected by a variety of factors. For example, we believe that negative changes in any of the following areas could have a significant negative effect on our future financial position, results of operations or cash flows: rates of revenue growth; member engagement and usage of our existing and new products; protection of our brand; retention of qualified employees and key personnel; management of our growth; scaling and adaptation of existing technology and network infrastructure; competition in our market; performance of acquisitions and investments; protection of our intellectual property; protection of customers’ information and privacy concerns; security measures related to our website; and access to 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 26, 2015, filed on March 1, 2016.
There have been no material changes in our significant accounting policies for the three and nine months ended September 24, 2016 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 26, 2015 with the exception of investments, net (loss) income per share attributable to common stockholders and preferred stock. Please refer to Notes 8 and 9 for our updated accounting policies related to net (loss) income per share attributable to common stockholders and preferred stock, respectively. Our investment policy is as follows:
Investments - Investments consist of certificates of deposit (“CDs”).  CDs having remaining maturities of more than three months at the date of purchase and less than one year from the date of the balance sheet are classified as short-term. We classify our CDs with readily determinable market values as available-for-sale. The CDs are classified as short-term investments on the consolidated balance sheets and are carried at fair market value, with unrealized gains and losses considered to be temporary in nature reported as accumulated other comprehensive loss, a separate component of stockholders’ equity. We review all investments for reductions in fair value that are other-than-temporary. When such reductions occur, the cost of the investment is adjusted to fair value through recording a loss on investments in the consolidated statements of operations. Gains and losses on investments are calculated on the basis of specific identification.     
The condensed consolidated balance sheet as of December 26, 2015, 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 2016 or any future period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, after elimination of all intercompany balances and transactions. We have prepared the accompanying financial statements in conformity with GAAP.

8


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

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 nine months ended September 24, 2016.
Recently Issued and Adopted Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updated guidance requires a retrospective transition method to each period presented. We are currently evaluating the impact of the adoption of ASU 2016-15 on our statements of consolidated operations and cash flows.
In March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation (Topic 718). The guidance changes how companies account for certain aspects of share-based payments to employees. Entities will be required to recognize income tax effects of awards in the income statement when the awards vest or are settled. The guidance also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes providing for withholding at the employee's maximum rate as opposed to the minimum rate without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The updated guidance is effective for annual periods beginning after December 15, 2017, and is applicable to the Company in fiscal 2018. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial position and results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires an entity to recognize a right-of-use asset and a lease liability for virtually all of its leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The guidance is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial position and results of operations.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the requirement for entities to separate deferred income tax liabilities and assets into current and non-current amounts in the balance sheet. Rather, it requires that deferred tax assets and liabilities are classified as non-current in the balance sheet. We adopted this standard prospectively for the year-ended December 26, 2015. The adoption of this standard has no effect on our consolidated statements of operations and cash flows.
In September 2015, the FASB released ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.  ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. There were no measurement period adjustments for which this guidance would apply.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which amends ASC 350. 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 adopted this standard in the first quarter on a prospective basis. The adoption of this standard has no effect on our consolidated statements of operations and cash flows.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810)-Amendments to the Consolidation Analysis, which amends the criteria for determining which entities are considered variable interest entities, or VIEs,

9


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

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. The adoption of this standard has no effect on our consolidated statements of operations and cash flows.
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 effect 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, 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. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption is permitted but not before the original effective date of December 15, 2016. 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 full retrospective or modified retrospective approach. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
2. Fair Value Measurements
The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of September 24, 2016 and December 26, 2015 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):
 
September 24, 2016
 
December 26, 2015
 
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
$
20,465

 
$

 
$

 
$
20,465

 
$
25,420

 
$

 
$

 
$
25,420

Certificates of deposit
$
15,000

 
$

 
$

 
$
15,000

 
$

 
$

 
$

 
$

Total assets
$
35,465

 
$

 
$

 
$
35,465

 
$
25,420

 
$

 
$

 
$
25,420

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent acquisition consideration (included in current liabilities of discontinued operations)
$

 
$

 
$

 
$

 
$
8,163

 
$

 
$
7,878

 
$
16,041

Total liabilities
$

 
$

 
$

 
$

 
$
8,163

 
$

 
$
7,878

 
$
16,041

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):

10


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

 
September 24, 2016
 
Contingent Acquisition
Consideration
 
 
Beginning balance (December 26, 2015)
$
7,878

Decrease in fair value included in earnings
(441
)
Contingent acquisition consideration payments
(7,437
)
Ending balance
$

During the first quarter of fiscal 2016, we entered into a settlement agreement with the previous shareholders of Citrus Lane. The settlement agreement relates to our acquisition of Citrus Lane and the merger agreement pursuant to which the acquisition was consummated. Under the terms of the settlement agreement, we paid the previous shareholders of Citrus Lane $15.6 million of contingent consideration payments that were valued at $16.0 million as of December 26, 2015 ($16.4 million was the undiscounted value at the time of the acquisition) that was otherwise payable to them in the event Citrus Lane achieved certain milestones in 2015 and 2016. Refer to Note 3 for further discussion on the impact of the settlement in the first quarter of 2016.
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 nine months ended September 24, 2016 and September 26, 2015, 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.
3. Discontinued Operations
During the third quarter of fiscal 2015 we made the decision to exit the Citrus Lane business through either a sale or wind-down, as it was no longer a strategic priority. In the fourth quarter of fiscal 2015, we made the decision to shut down the business and had substantially completed our plans for exiting the business. As such, financial results of Citrus Lane have been presented within income (loss) from discontinued operations, net of tax on the consolidated statements of operations for the three and nine months ended September 24, 2016 and September 26, 2015. Assets and liabilities of Citrus Lane to be disposed of are presented as assets from discontinued operations and liabilities from discontinued operations on the consolidated balance sheets as of September 24, 2016 and December 26, 2015.
In February 2016, we entered into a settlement agreement with the previous shareholders of Citrus Lane. The settlement agreement related to our acquisition of Citrus Lane and the merger agreement pursuant to which the acquisition was consummated. Under the terms of the settlement agreement, we paid the previous shareholders of Citrus Lane $15.6 million in contingent consideration payments that were valued at $16.0 million as of December 26, 2015 ($16.4 million was the undiscounted value at the time of the acquisition) that was otherwise payable to them in the event Citrus Lane achieved certain milestones in 2015 and 2016. In exchange, the former shareholders forfeited the $5.0 million in original cash consideration that was being held in an escrow account, as well as the 0.4 million shares of common stock issued at closing (valued at $2.0 million as of the February 2016 settlement date and $3.9 million as of the original closing date) and 0.1 million shares of common stock which was subject to the achievement of certain milestones in 2015 and 2016 (valued at $0.6 million as of the February 2016 settlement date and $1.1 million as of the original closing date) offered as part of the deal consideration. We retired these shares of common stock as of September 24, 2016. As a result of this settlement, and based on our assessment that there was not a clear and direct link to the original consideration transferred at the acquisition date, we have recognized a gain within income (loss) from discontinued operations on the consolidated statements of operations for the nine months ended September 24, 2016 of $8.0 million.
The following table presents financial results of the Citrus Lane business included in income (loss) from discontinued operations, net of tax for the nine months ended September 24, 2016 and September 26, 2015 (in thousands):

11


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
 
 
 
 
 
 
 
 
Revenue
$

 
$
2,714

 
$
101

 
$
8,535

Cost of revenue
4

 
3,432

 
101

 
9,302

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing

 
785

 
54

 
2,096

Research and development

 
295

 
11

 
1,084

General and administrative
45

 
396

 
(7,858
)
 
2,224

Depreciation and amortization

 
25

 
8

 
95

Impairment of goodwill and intangible assets

 
8,766

 

 
8,766

Operating (loss) income
(49
)
 
(10,985
)
 
7,785

 
(15,032
)
Other expense, net

 

 

 

(Loss) income from discontinued operations before income taxes
(49
)
 
(10,985
)
 
7,785

 
(15,032
)
Provision for income tax

 

 

 

Net (loss) income from discontinued operations
$
(49
)
 
$
(10,985
)
 
$
7,785

 
$
(15,032
)
The major components of current assets and current liabilities of the Citrus Lane business were as follows (in thousands):
 
September 24, 2016
 
December 26, 2015
Assets
 
 
 
Accounts receivable
$
152

 
$
92

Prepaid expenses and other current assets
60

 
28

Inventory

 
319

Total current assets
212

 
439

Property and equipment, net

 
9

Total assets
$
212

 
$
448

 
 
 
 
Liabilities
 
 
 
Accounts payable
$

 
$
435

Accrued expenses and other liabilities
212

 
1,325

Deferred revenue

 
82

Current contingent acquisition consideration

 
16,041

Total liabilities
$
212

 
$
17,883



12


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

4. Supplemental Balance Sheet Information
The following table presents the detail of property and equipment, net for the periods presented (in thousands):
 
September 24,
2016
 
December 26,
2015
 
 
 
 
Computer equipment
$
2,349

 
$
2,236

Furniture and fixtures
1,572

 
1,611

Software
1,375

 
1,374

Leasehold improvements
3,857

 
3,847

Total
9,153

 
9,068

Less accumulated depreciation
(3,881
)
 
(2,697
)
Property and equipment, net
$
5,272

 
$
6,371

Depreciation expense for the three months ended September 24, 2016 and September 26, 2015 was $0.4 million and $0.4 million, respectively, and for the nine months ended September 24, 2016 and September 26, 2015 was $1.2 million and $1.2 million, respectively.
The following table presents the detail of accrued expenses and other current liabilities for the periods presented (in thousands):
 
September 24,
2016
 
December 26,
2015
 
 
 
 
Payroll and compensation
$
4,262

 
$
5,167

Marketing expenses
5,913

 
3,451

Other accrued expenses
4,681

 
3,795

Total accrued expenses and other current liabilities
$
14,856

 
$
12,413


5. Goodwill and Intangible Assets
The following table presents the change in goodwill for the periods presented (in thousands):
Balance as of December 26, 2015
$
58,631

Effect of currency translation
425

Balance as of September 24, 2016
$
59,056


13


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

The following table presents the detail of intangible assets for the periods presented (dollars in thousands):
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted-Average Remaining Life (Years)
 
 
 
 
 
 
 
 
September 24, 2016
 
 
 
 
 
 
 
Indefinite lived intangibles
$
242

 
$

 
$
242

 
N/A
Trademarks and trade names
4,431

 
(4,201
)
 
230

 
2.8
Proprietary software
5,211

 
(4,408
)
 
803

 
1.4
Website
50

 
(50
)
 

 
0.0
Training materials
30

 
(30
)
 

 
0.0
Non-compete agreements
131

 
(121
)
 
10

 
0.9
Leasehold interests
170

 
(105
)
 
65

 
2.6
Caregiver relationships
291

 
(291
)
 

 
0.0
Customer relationships
8,798

 
(8,181
)
 
617

 
6.4
Total
$
19,354

 
$
(17,387
)
 
$
1,967

 
 
 
 
 
 
 
 
 
 
December 26, 2015
 
 
 
 
 
 
 
Indefinite lived intangibles
$
242

 
$

 
$
242

 
N/A
Trademarks and trade names
4,417

 
(4,133
)
 
284

 
3.5
Proprietary software
4,751

 
(3,802
)
 
949

 
1.6
Website
50

 
(44
)
 
6

 
0.6
Training materials
30

 
(30
)
 

 
0.0
Non-compete agreements
130

 
(111
)
 
19

 
1.6
Leasehold interests
170

 
(86
)
 
84

 
3.4
Caregiver relationships
285

 
(285
)
 

 
0.0
Customer relationships
8,782

 
(6,977
)
 
1,805

 
3.1
Total
$
18,857

 
$
(15,468
)
 
$
3,389

 
 
Amortization expense was $1.9 million and $2.9 million for the nine months ended September 24, 2016 and September 26, 2015, respectively. Of these amounts, $1.3 million and $2.4 million was classified as a component of depreciation and amortization, and $0.6 million and $0.5 million was classified as a component of cost of revenue in the condensed consolidated statements of operations for the nine months ended September 24, 2016 and September 26, 2015, respectively.
As of September 24, 2016, the estimated future amortization expense related to intangible assets for future fiscal years was as follows (in thousands):
2016 remaining
241

2017
689

2018
344

2019
146

2020
96

Thereafter
209

Total
$
1,725


14


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(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, 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
Stock-Based Compensation
The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 24, 2016
 
September 26, 2015
 
September 24, 2016
 
September 26, 2015
 
 
 
 
 
 
 
 
Cost of revenue
$
79

 
$
75

 
$
233

 
$
171

Selling and marketing
232

 
250

 
646

 
662

Research and development
284

 
260

 
793

 
575

General and administrative
1,156

 
890

 
3,093

 
2,361

(Loss) income from discontinued operations

 
109

 
8

 
410

   Total stock-based compensation
$
1,751

 
$
1,584

 
$
4,773

 
$
4,179

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the nine months ended September 24, 2016, we granted 0.7 million restricted stock units (RSUs) to certain employees, directors, and consultants and 0.5 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 2016. If those targets are reached, the award will vest over a four-year period retroactive to March 2016 as continued services are performed. During the nine months ended September 24, 2016, we determined that the performance based RSUs were improbable of vesting, and as such all expense previously taken on the performance based RSUs was cumulatively reversed.
RSUs are not included in issued and outstanding common stock until the shares are vested and released. The fair value of the RSUs 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 vested RSU share and the total fair value of vested shares from RSU grants was $7.30 and $2.8 million, respectively, for the nine months ended September 24, 2016. During the nine months ended September 26, 2015, 1.6 million RSUs were granted to employees, directors and consultants, and 0.2 million performance based RSUs were granted to certain members of senior management.
During the nine months ended September 24, 2016, we granted 1.4 million stock options to certain employees and directors at a weighted average grant-date fair value per share of $6.88. During the nine months ended September 26, 2015, no stock options were granted to employees.

15


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
Risk-free interest rate
1.19 - 1.63%
 
N/A
Expected term (years)
6.25
 
N/A
Volatility
33.8 - 38.2%
 
N/A
Expected dividend yield
 
N/A
A summary of stock option and RSU activity for the nine months ended September 24, 2016 was as follows (in thousands for shares and intrinsic value):
 
 
 
 
 
 
 
 
 
Restricted Stock Units
 
Shares
 
Weighted-Average Remaining Contractual Term (Years)
 
Weighted-Average Exercise Price
 
Aggregate Intrinsic Value
 
Shares
 
Weighted-Average Grant Date Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding as of December 26, 2015
3,482

 
5.93
 
$
6.52

 
$
8,891

 
1,306

 
$
7.42

Granted(1)
1,410

 
 
 
$
6.88

 
 
 
1,127

 
6.75

Settled (RSUs)

 
 
 

 
 
 
(385
)
 
7.30

Exercised
(278
)
 
 
 
$
4.01

 
 
 

 

Canceled and forfeited
(170
)
 
 
 
$
11.38

 
 
 
(108
)
 
6.89

Outstanding as of September 24, 2016
4,444

 
6.77
 
$
6.60

 
$
21,034

 
1,940

 
$
7.08

Vested and exercisable as of September 24, 2016
2,869

 
5.54
 
$
5.72

 
$
15,995

 
N/A
 
N/A
Vested and expected to vest as of September 24, 2016(2)
4,205

 
6.62
 
$
6.54

 
$
20,230

 
1,252

 
$
7.21

____________________________
(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 September 23, 2016, the final trading day of the nine months ended September 24, 2016, was $10.46. The total intrinsic value of options exercised and RSUs vested was approximately $4.3 million for the nine months ended September 24, 2016. The aggregate fair value of the options that vested during the nine months ended September 24, 2016 was $1.7 million.
As of September 24, 2016, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options and RSUs was approximately $4.4 million and $8.7 million, respectively, which is expected to be recognized over a weighted-average period of 2.9 years and 2.9 years, respectively, to the extent they are probable of vesting. As of September 24, 2016, we had 2.4 million shares available for grant under the 2014 Plan.

16


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

Common Stock
As of September 24, 2016, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):
 
September 24, 2016
Options issued and outstanding
4,444

Restricted stock units issued and outstanding
1,940

Common stock available for stock-based award grants under incentive award plans
2,370

Common stock available for conversion of Series A Redeemable Convertible Preferred Stock
4,473

Total
13,227


On June 27, 2016, we entered into a Stock Repurchase Agreement (the “Stock Repurchase Agreement”) to repurchase an aggregate of 3.7 million shares of common stock at a price of $8.25 per share (the “Stock Repurchase”) from Matrix Partners VII, L.P. and Weston & Co. VII LLC, as Nominee (together, the “Sellers”). The Stock Repurchase closed on June 29, 2016. Pursuant to the Stock Repurchase Agreement, the Sellers are subject to a 90-day lock-up provision related to the remaining shares of common stock they hold following the closing of the Stock Repurchase. The shares were subsequently retired by the board of directors during the third quarter of 2016.
8. Net (Loss) Income per Share Attributable to Common Stockholders
Basic net (loss) income per share is computed by dividing net (loss) income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. We apply the two-class method to calculate basic and diluted net (loss) income per share of common stock, as our Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock) is a participating security. The two-class method is an earnings allocated formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. For the three and nine months ended September 24, 2016 and the three and nine months ended September 26, 2015, we were in a loss position from continuing operations for each of these periods, and the Series A Preferred Stockholders do not contractually participate in losses, as such, we added the Series A Preferred Stock dividends to the loss from continuing operations to calculate the loss attributable to common stockholders in order to calculate the numerator used in the net (loss) income per share. We compute diluted net (loss) income per common share using income (loss) from continuing operations as the “control number” in determining whether potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options, unvested restricted stock outstanding during the period and potential issuance of stock upon the conversion of the our Series A Preferred Stock, including accrued dividends, outstanding during the period, except where the effect of such securities would be antidilutive. For the three and nine months ended September 24, 2016 and September 26, 2015, we incurred a loss from continuing operations, and as such, there are no potential common shares with a dilutive impact.
The calculations of basic and diluted net (loss) income per share and basic and dilutive weighted-average shares outstanding for the three and nine months ended September 24, 2016 and September 26, 2015 were as follows (in thousands, except per share data):

17


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 24, 2016
 
September 26, 2015
 
September 24, 2016
 
September 26, 2015
Numerators:
 
 
 
 
 
 
 
Loss from continuing operations
$
(1,221
)
 
$
(6,364
)
 
$
(5,719
)
 
$
(21,565
)
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(616
)
 

 
(616
)
 

Net loss from continuing operations attributable to common stockholders - basic and diluted
(1,837
)
 
(6,364
)
 
(6,335
)
 
(21,565
)
(Loss) income from discontinued operations attributable to common stockholders - basic and diluted
(49
)
 
(10,985
)
 
7,785

 
(15,032
)
Net (loss) income attributable to common stockholders
$
(1,886
)
 
$
(17,349
)
 
$
1,450

 
$
(36,597
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic and diluted
28,769

 
32,069

 
31,045

 
31,938

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic and diluted):
 
 
 
 
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.06
)
 
$
(0.20
)
 
$
(0.20
)
 
$
(0.68
)
(Loss) income from discontinued operations attributable to common stockholders

 
(0.34
)
 
0.25

 
(0.47
)
Net (loss) income per share attributable to common stockholders
$
(0.06
)
 
$
(0.54
)
 
$
0.05

 
$
(1.15
)
The following equity shares were excluded from the calculation of diluted net loss per share from continuing operations and discontinued operations because their effect would have been anti-dilutive for the periods presented (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
Stock options
4,444

 
3,804

 
4,444

 
3,804

Restricted stock units
1,940

 
1,667

 
1,940

 
1,667

Contingent consideration

 
106

 

 
106

Series A Redeemable Convertible Preferred Stock (as converted to common stock)
4,473

 

 
4,473

 


9. Preferred Stock
Preferred Stock consists of the following at September 24, 2016 (in thousands, except shares):
 
Preferred Stock Authorized
 
Issuance Date
 
Issued and Outstanding
 
Liquidation Preference (as of June 29, 2023)
 
Carrying Value
 
Common Stock Issuable Upon Conversion (as of June 29, 2023)
Series A
46,350

 
June 29, 2016
 
46,350

 
$67,763
 
$46,966
 
6,453,660


18


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

There was no Preferred Stock outstanding at December 26, 2015.
Please refer to the Certificate of Designations filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on June 29, 2016, for definitions of all capitalized terms not otherwise defined below.

Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock)
On June 29, 2016 (the “Closing Date”), we announced the entry into an Investment Agreement, dated as of June 29, 2016 with Google Capital relating to the issuance and sale to Google Capital of 46.4 thousand shares of our Series A Redeemable Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), for an aggregate purchase price of $46.4 million, or $1,000 per share. We incurred issuance costs of $2.1 million. We elected to accrete all issuance costs that were netted against the proceeds upon issuance of the Series A Preferred Stock.
The Series A Preferred Stock has the following rights and preferences:
Voting
The holders of Series A Preferred Stock have full voting rights and powers equal to the rights and powers of holders of shares of Common Stock, with respect to any matters upon which holders of shares of Common Stock have the right to vote. Holders of Series A Preferred Stock are entitled to the number of votes equal to the number of whole shares of Common Stock into which such share of Series A Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters.
Additionally, at any time when at least 50% of the shares of the Series A Preferred Stock purchased from the Company pursuant to the Investment Agreement are outstanding, the Company cannot, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of preferred stock, (a) amend the Certificate of Incorporation in a manner that adversely affects the preferences or rights of the preferred stock; (b) authorize or issue capital stock unless it ranks equal to or junior to the preferred stock, or increase the authorized number of shares of preferred stock; or (c) reclassify or amend any existing security of the Company that is equal to or junior to the preferred stock to render such security senior to the Series A Preferred Stock.
Dividends
The Series A Preferred Stock ranks senior to the shares of our Common Stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at a rate of 5.50% per annum during the period from the Closing Date to the seventh anniversary of the Closing Date, payable semi-annually in arrears. Dividends are paid in additional Liquidation Preference per share of Series A Preferred Stock.
Liquidation Preference
The Series A Preferred Stock has a Liquidation Preference of $1,000 per share plus all Accrued and Unpaid Dividends. The Series A Preferred Stock ranks senior to the Common Stock with respect to rights upon liquidation, winding-up and dissolution.
Conversion     
The Series A Preferred Stock is convertible at the option of the holders at any time into shares of Common Stock at an initial Conversion Price of $10.50 per share, which rate is subject to adjustment upon the occurrence of certain events. At any time after the seventh anniversary of the Closing Date, and if between the fifth anniversary and the seventh anniversary of the Closing Date, the consolidated closing price of the Common Stock equals or exceeds 150% of the then prevailing Conversion Price for at least 20 trading days in any period of 30 consecutive trading days, including the last trading day of such 30-day period, then following such time, all or some of the Series A Preferred Stock may be converted, at our election, into the relevant number of shares of Common Stock.
Redemption
At our option, at any time after the seventh anniversary of the Closing Date, all of the Series A Preferred Stock may be redeemed by us at the then current Liquidation Preference plus Accrued and Unpaid Dividends after giving the holders of Series A Preferred Stock the ability to convert their shares into Common Stock. At any point after the seventh anniversary of the Closing Date, each holder of the Series A Preferred Stock may cause us to redeem all of such holder’s Series A Preferred Stock

19


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

at the then current Liquidation Preference plus Accrued and Unpaid Dividends. We elected to accrete all issuance costs that were netted against the proceeds upon issuance of the Series A Preferred Stock. We will accrete the carrying value of the Series A Preferred Stock to the redemption value through June 29, 2023, which is the seventh anniversary of the Closing Date, at a rate of 5.50% per annum, which represents the cumulative dividends owed on the Series A Preferred Stock, using the interest rate method.
Change in Control Events
Upon certain change of control events involving the Company, holders of Series A Preferred Stock can elect to either (1) convert the Series A Preferred Stock to Common Stock at the then current Conversion Price or (2) require us to redeem the Series A Preferred Stock for 150% of the then current Liquidation Preference plus Accrued and Unpaid Dividends, provided that in the case of a change of control event in which the Common Stock is converted into or canceled for cash or publicly traded securities, such conversion or redemption will be mandatory, with the selection deemed to be in favor of the alternative that would result in holders of Series A Preferred Stock receiving the greatest consideration.
Board of Directors Seat
Pursuant to the Investment Agreement and the Certificate of Designations, we have agreed that, so long as Google Capital or its affiliates beneficially own at least 50% of the shares of Series A Preferred Stock purchased in the transaction, the holders of Series A Preferred Stock shall have the right to elect one member of the board of directors, and Google Capital has the right to designate the nominee for such position.
Standstill Restrictions
Pursuant to the Investment Agreement, Google Capital is subject to certain standstill restrictions, including, among other things, that Google Capital is restricted from acquiring additional securities of the Company until the later of (a) the 18 month anniversary of the Closing Date and (b) the date that no Google Capital designee serves on the Company’s board of directors. Subject to certain customary exceptions, Google Capital is restricted from transferring the Series A Preferred Stock or, if converted, any shares of Common Stock underlying the Series A Preferred Stock until the earlier of the 18 month anniversary of the Closing Date or immediately prior to a change of control of the Company.

10. Income Taxes
We recorded income tax expense of $0.3 million and $0.3 million for the three months ended September 24, 2016 and September 26, 2015, respectively, and $1.0 million and $1.2 million for the nine months ended September 24, 2016 and September 26, 2015, respectively. The tax provision recorded for the three and nine months ended September 24, 2016 related to the amortization of goodwill associated with the acquisition of Care.com HomePay 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 tax loss carryforwards. Our tax provision for the three and nine months ended September 26, 2015 related to the amortization of Care.com HomePay 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.
11. 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. The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Prior to our decision to exit the Citrus Lane business in fiscal 2015, we had determined that we had two operating and reporting segments, CRCM Businesses, Excluding Citrus Lane, and Citrus Lane. Subsequent to our decision to exit the Citrus Lane business, we have concluded that we have a single operating and reportable segment.
No country outside of the United States provided greater than 10% of our total revenue. Revenue is classified by the major geographic areas in which our customers are located. The following table summarizes total revenue generated by our geographic locations (dollars in thousands):


20


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
United States
$
37,293

 
$
33,340

 
$
107,993

 
$
92,835

International
3,498

 
2,839

 
10,248

 
8,296

Total revenue
$
40,791

 
$
36,179

 
$
118,241

 
$
101,131


 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
 
(As a percentage of revenue)
United States
91
%
 
92
%
 
91
%
 
92
%
International
9
%
 
8
%
 
9
%
 
8
%
Total revenue
100
%
 
100
%
 
100
%
 
100
%
Our long-lived assets are primarily located in the United States and are not allocated to any specific region. Therefore, geographic information is presented only for total revenue.
12. Restructuring Charges
On April 14, 2016, we entered into a sublease agreement to lease approximately 10,362 square feet of our 108,743 square foot headquarters facility located in Waltham, Massachusetts.
During the quarter ended June 25, 2016, we recorded a $0.5 million sublease loss liability and related expenses of $0.2 million for the expected loss on the sublease, in accordance with ASC 840-20 Leases, because the monthly payments we expect to receive under the sublease are less than the amounts that we will owe the lessor for the sublease space. The sublease term is less than the remaining term under the original lease, and thus we do not believe we have met a cease use date as we may re-enter the space following the sublease. The fair value of the liability was determined using the estimated future net cash flows, consisting of the minimum lease payments to the lessor for the sublease space and payments we will receive under the sublease. The sublease loss was recorded as part of restructuring expense in the consolidated statement of operations. The following table presents the change in restructuring liability from December 26, 2015 to September 24, 2016 (in thousands):
 
September 24, 2016
 
Restructuring Liability
Balance as of December 26, 2015
$

Restructuring charges
714

Payments
(258
)
Changes in estimate
(10
)
Accretion of sublease liability
(51
)
Balance as of September 24, 2016
$
395



21


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 24, 2016
(unaudited)

13. Other Expense, Net
Other expense, net consisted of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
Interest income
$
80

 
$

 
$
151

 
$
86

Interest expense
(1
)
 
19

 
(3
)
 
(63
)
Gain (loss) on exchange
(147
)
 
(287
)
 
(358
)
 
(992
)
Other income (expense), net
1

 
(4
)
 

 
(7
)
Total expense, net
$
(67
)
 
$
(272
)
 
$
(210
)
 
$
(976
)

14. Related Party Transactions

We had the following transactions with related parties during the period:
Series A Preferred Stock Issuance to Google Capital 2016, L.P.
On June 29, 2016, we issued Series A Preferred Stock to Google Capital 2016, L.P., as described in Note 9. As a result of this transaction, Alphabet Inc., the ultimate parent of Google Capital 2016, L.P., and all related affiliates of Alphabet Inc. are considered to be related parties. During the nine months ended September 24, 2016, we had recorded $1.0 million of revenue from Care@Work arrangements with Alphabet Inc. and its affiliates. During the nine months ended September 24, 2016, we incurred $11.6 million of selling and marketing expenses for internet based marketing services with Alphabet Inc. and its affiliates. As of September 24, 2016, we had $0.2 million and $0.1 million of accounts receivable and unbilled accounts receivable, respectively, recorded with Alphabet Inc. and its affiliates. As of September 24, 2016, we had $0.2 million, $1.4 million, and $1.1 million of deferred revenue, accounts payable, and accrued expenses and other current liabilities, respectively, recorded with Alphabet Inc. and its affiliates.
Repurchase of Common Stock from Matrix Partners VII, L.P. and Weston & Co. VII LLC
On June 27, 2016, we entered into a Stock Repurchase Agreement (the “Stock Repurchase Agreement”) to repurchase an aggregate of 3.7 million shares of common stock at a price of $8.25 per share (the “Stock Repurchase”) from Matrix Partners VII, L.P. and Weston & Co. VII LLC, as Nominee (together, the “Sellers”). The Stock Repurchase closed on June 29, 2016. Pursuant to the Stock Repurchase Agreement, the Sellers were subject to a 90-day lock-up provision related to the remaining shares of common stock they held following the closing of the Stock Repurchase.

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 26, 2015, filed on March 1, 2016. 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

22


We are the world’s largest online marketplace for finding and managing family care. We have more than 22.0 million members, including 12.4 million families and 9.6 million caregivers, spanning 19 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.
Our consumer matching solutions allow families to search for, qualify, vet, connect with and ultimately select caregivers in a low-cost, reliable and easy way. We also provide caregivers with solutions to create personal profiles, describe their unique skills and experience, and otherwise differentiate and market themselves in a highly fragmented marketplace.
In addition to our consumer matching solutions, we offer our members innovative products and services to facilitate their interaction with caregivers. We provide solutions intended to improve both the ease and reliability of the care relationship in the home. One product area we are particularly focused on is consumer payments solutions. Through Care.com HomePay, families can subscribe to payroll and tax preparation services for domestic employees. This offering deepens our relationship with our members and could enhance the lifetime value associated with each member.
We also serve employers 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.
We have experienced steady growth in revenue and members. Our members increased to 22.0 million as of September 24, 2016 from 17.8 million as of September 26, 2015, representing a 23% annual growth rate. Our revenue has increased to $118.2 million for the nine months ended September 24, 2016 from $101.1 million for the nine months ended September 26, 2015. We experienced net losses from continuing operations of $4.8 million and $20.4 million in the nine months ended September 24, 2016 and September 26, 2015, respectively. We experienced net income from discontinued operations of $7.8 million in the nine months ended September 24, 2016 and net losses from discontinued operations of $15.0 million in the nine months ended September 26, 2015.
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 Business):
 
As of
 
September 24,
2016
 
September 26,
2015
Total members
21,968

 
17,827

Total families
12,383

 
10,112

Total caregivers
9,585

 
7,715

Paying families - U.S. Consumer Business
291

 
296

Monthly average revenue per paying family - U.S. Consumer Business
$
39

 
$
37

Total Members. We define total members as the sum of paying families, non-paying families, and caregivers worldwide who have registered through our websites and mobile apps since the launch of our marketplace in 2007. Total members also includes subscribers of our Care.com HomePay service. We believe this metric is significant to our business because it represents the universe of families and caregivers who are more likely than the general population to drive revenue because our members are more familiar with our brand and the services we offer and are interested enough in them to have registered. Our total members increased 23% as of September 24, 2016, compared to the corresponding period in the prior fiscal year.
Total Families. We define total families as the number of paying families and non-paying families who have registered through our websites and mobile apps since the launch of our marketplace in 2007. Total families also includes subscribers of our Care.com HomePay service. Our total families increased 22% as of September 24, 2016, compared to the corresponding period in the prior fiscal year.
Total Caregivers. We define total caregivers as the number of caregivers who have registered through our websites and mobile apps since the launch of our marketplace in 2007. Our total caregivers increased 24% as of September 24, 2016, compared to the corresponding period in the prior fiscal year.
Paying Families - U.S. Consumer Business. We define paying families - U.S. Consumer Business as the number of families located in the United States who have registered through our U.S.-based websites and mobile apps and who are paying

23


subscribers of our U.S.-based matching services or our Care.com HomePay services as of the end of the fiscal period. The number of paying families in our U.S. Consumer Business decreased 2% as of September 24, 2016, compared to the corresponding period in the prior fiscal year.
Monthly Average Revenue per Paying Family - U.S. Consumer Business. We define monthly average revenue per paying family, or ARPPF, for our U.S. Consumer Business as total U.S. Consumer Business revenue, including revenue from subscriptions and products, divided by the average number of paying families of our U.S.-based matching services and Care.com HomePay services in a given fiscal period, expressed on a monthly basis. We believe ARPPF is significant to our business because it represents how successful we have been at monetizing the subset of members who we have converted into paying families. The numerator of this metric includes revenue that comes from caregivers in addition to revenue that comes from families - while the denominator includes only paying families. We believe this is the most meaningful presentation because we do not consider the caregiver component of our business to be separate and distinct; rather, we believe revenue generated from caregivers is a byproduct of the families that have registered on our site. Our U.S. Consumer Business ARPPF as of September 24, 2016 increased 5% 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 in the table below and within this Quarterly Report on Form 10-Q 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 consolidated operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business.
Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted EBITDA does not reflect discontinued operations;
• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not include accretion of Series A Redeemable Convertible Preferred Stock dividends;
• 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 our GAAP financial results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):

24


 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
Loss from continuing operations
$
(1,221
)
 
$
(6,364
)
 
$
(5,719
)
 
$
(21,565
)
 
 
 
 
 
 
 
 
Federal, state and franchise taxes
395

 
310

 
1,211

 
1,302

Other expense, net
67

 
272

 
210

 
976

Depreciation and amortization
756

 
1,229

 
3,070

 
4,066

EBITDA
(3
)
 
(4,553
)
 
(1,228
)
 
(15,221
)
 
 
 
 
 
 
 
 
Stock-based compensation
1,751

 
1,475

 
4,765

 
3,769

Merger and acquisition related costs
26

 
32

 
100

 
135

Restructuring related costs

 

 
714

 

Adjusted EBITDA
$
1,774

 
$
(3,046
)
 
$
4,351

 
$
(11,317
)
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;
• 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 26, 2015 filed on March 1, 2016 with the exception of investments, net (loss) income per share attributable to common stockholders and preferred stock. Please refer to Note 1 for further detail.
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.

25



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

 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
 
 
 
 
 
 
 
 
Revenue
$
40,791

 
$
36,179

 
$
118,241

 
$
101,131

Cost of revenue
8,396

 
6,894

 
23,257

 
19,796

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing
20,075

 
21,343

 
58,103

 
59,796

Research and development
5,115

 
5,514

 
15,026

 
15,145

General and administrative
7,445

 
7,199

 
23,197

 
22,301

Depreciation and amortization
582

 
1,062

 
2,501

 
3,518

Restructuring charges

 

 
714

 

Total operating expenses
33,217

 
35,118

 
99,541

 
100,760

Operating loss
(822
)
 
(5,833
)
 
(4,557
)
 
(19,425
)
Other expense, net
(67
)
 
(272
)
 
(210
)
 
(976
)
Loss from continuing operations before income taxes
(889
)
 
(6,105
)
 
(4,767
)
 
(20,401
)
Provision for income taxes
332

 
259

 
952

 
1,164

Loss from continuing operations
(1,221
)
 
(6,364
)
 
(5,719
)
 
(21,565
)
(Loss) income from discontinued operations, net of tax
(49
)
 
(10,985
)
 
7,785

 
(15,032
)
Net (loss) income
(1,270
)
 
(17,349
)
 
2,066

 
(36,597
)
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(616
)
 

 
(616
)
 

Net (loss) income attributable to common stockholders
$
(1,886
)
 
$
(17,349
)
 
$
1,450

 
$
(36,597
)
Net (loss) income per share attributable to common stockholders (Basic and diluted):
 
 
 
 
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.06
)
 
$
(0.20
)
 
$
(0.20
)
 
$
(0.68
)
(Loss) income from discontinued operations attributable to common stockholders

 
(0.34
)
 
0.25

 
(0.47
)
Net (loss) income per share attributable to common stockholders
$
(0.06
)
 
$
(0.54
)
 
$
0.05

 
$
(1.15
)
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic and diluted
28,769

 
32,069

 
31,045

 
31,938

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

26


 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
 
 
 
 
 
 
 
 
Cost of revenue
$
79

 
$
75

 
$
233

 
$
171

Selling and marketing
232

 
250

 
646

 
662

Research and development
284

 
260

 
793

 
575

General and administrative
1,156

 
890

 
3,093

 
2,361

(Loss) income from discontinued operations

 
109

 
8

 
410

Total stock-based compensation
$
1,751

 
$
1,584

 
$
4,773

 
$
4,179

The following tables set forth our condensed consolidated results of operations for the periods presented as a percentage of revenue for those periods (certain items may not foot due to rounding).
 
Three Months Ended
 
Nine Months Ended
 
September 24,
2016
 
September 26,
2015
 
September 24,
2016
 
September 26,
2015
Revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Cost of revenue
21
 %
 
19
 %
 
20
 %
 
20
 %
Operating expenses:
 
 
 
 
 
 
 
Selling and marketing
49
 %
 
59
 %
 
49
 %
 
59
 %
Research and development
13
 %
 
15
 %
 
13
 %
 
15
 %
General and administrative
18
 %
 
20
 %
 
20
 %
 
22
 %
Depreciation and amortization
1
 %
 
3
 %
 
2
 %
 
3
 %
Restructuring charges
 %
 
 %
 
1
 %
 
 %
Total operating expenses
81
 %
 
97
 %
 
84
 %
 
100
 %
Operating loss
(2
)%
 
(16
)%
 
(4
)%
 
(19
)%
Other expense, net
 %
 
(1
)%
 
 %
 
(1
)%
Loss from continuing operations before income taxes
(2
)%
 
(17
)%
 
(4
)%
 
(20
)%
Provision for income taxes
1
 %
 
1
 %
 
1
 %
 
1
 %
Loss from continuing operations
(3
)%
 
(18
)%
 
(5
)%
 
(21
)%
(Loss) income from discontinued operations, net of tax
 %
 
(30
)%
 
7
 %
 
(15
)%
Net (loss) income
(3
)%
 
(48
)%
 
2
 %
 
(36
)%
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(2
)%
 
 %
 
(1
)%
 
 %
Net (loss) income attributable to common stockholders
(5
)%
 
(48
)%
 
1
 %
 
(36
)%
Revenue
We generate revenue primarily through (a) subscription fees to our suite of products and services, which enable families to manage their diverse and evolving care needs and caregivers to describe their unique skills and experience, and otherwise differentiate and market themselves in a highly fragmented marketplace; and (b) annual contracts with corporate employers - providing access to our suite of products and services as an employee benefit and through contractual obligations with businesses through which the business can recruit employees and advertise their business profiles. Substantially all of our revenue earned is recognized on a ratable basis over the period the service is provided, with the exception of revenue from background checks, which is recognized when the services are delivered to the end customer.
The following are our sources of revenue:
U.S. Consumer Business
Our U.S. Consumer Business consists of our U.S. matching solutions and our payments solutions.

27


Our U.S. matching solutions provide families access to job posting features, search features, caregiver profiles and content and are offered directly to consumers. Access to this platform is free of charge for basic members. Paying family members pay a monthly, quarterly or annual subscription fee to connect directly with caregivers and to utilize enhanced tools such as third-party background checks. Paying caregiver members pay a subscription fee for priority notification of jobs, messaging services and to perform third-party background checks on themselves. Subscription payments are received from all paying members at the time of sign-up and are recognized on a daily basis over the subscription term as the services are delivered once the revenue recognition criteria are met (see ‘‘Critical Accounting Policies and Estimates’’ in our Annual Report on Form 10-K for the fiscal year ended December 26, 2015, filed on March 1, 2016 for a description of the revenue recognition criteria).
Our payments solutions provide families several options to manage their financial relationship with their caregiver through the use of household employer payroll and tax services. Revenue related to Care.com HomePay, our household payroll and tax service, is primarily generated through quarterly subscriptions and recognized on a daily ratable basis over the period the services are provided.
Other Revenue
Other revenue includes revenue generated 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, as well as, on-demand back-up care through our Care@Work solution. This product offering is typically sold through the use of an annual contract with an automatic renewal clause. Revenue related to this offering is recognized on a daily basis over the 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.
 
Three Months Ended
 
Period-to-Period Change
 
Nine Months Ended
 
Period-to-Period Change
 
September 24,
2016
 
September 26,
2015
 
$ Change
 
% Change
 
September 24,
2016
 
September 26,
2015
 
$ Change
 
% Change
 
(in thousands, except percentages)
Revenue
$
40,791

 
$
36,179

 
$
4,612

 
13
%
 
$
118,241

 
$
101,131

 
$
17,110

 
17
%
Comparison of the Three Months Ended September 24, 2016 and September 26, 2015
The change was primarily attributed to an increase of $2.1 million in our consumer matching business, principally related to a higher number of paying families and caregivers and higher average revenue per paying family. Additionally, there were increases in Care@Work, consumer payment solutions, and marketing and recruiting solutions offerings of $1.0 million, $0.8 million, and $0.4 million, respectively.
Comparison of the Nine Months Ended September 24, 2016 and September 26, 2015
The change was primarily attributed to an increase of $10.4 million in our consumer matching business, principally related to a higher number of paying families and caregivers and higher average revenue per paying family. Additionally, there were increases in consumer payment solutions, Care@Work, and background checks of $2.7 million, $2.3 million, and $0.9 million, respectively.
Cost of Revenue
Our cost of revenue primarily consists of expenses that are directly related, or closely correlated, to revenue generation, including matching and payments member variable servicing costs such as personnel costs for customer support, transaction fees related to credit card payments, the cost of background checks run on both families and caregivers and costs associated with back-up care. 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. 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.

28


 
Three Months Ended
 
Period-to-Period Change
 
Nine Months Ended
 
Period-to-Period Change
 
September 24,
2016
 
September 26,
2015
 
$ Change
 
% Change
 
September 24,
2016
 
September 26,
2015
 
$ Change
 
% Change
 
(in thousands, except percentages)
Cost of revenue
$