10-K 1 a2018q410-kcarecom.htm 10-K Document


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-K
 
 
[x]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2018
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x]  No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]  No [x]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [x]    No  [ ]
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  [x ]    No  [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[ ]
 
Accelerated filer
[X]
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
 
 
 
Emerging growth company
[X]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [x]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]
The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the common stock was last sold on the New York Stock Exchange on June 29, 2018 (the last business day of the registrant’s second fiscal quarter of 2018) was $569,590,302.
As of March 1, 2019, there were 32,193,392 shares of the registrant's common stock, $0.001 par value, outstanding.




Portions of the Registrant’s proxy statement for its 2019 Annual Meeting of Stockholders are incorporated by reference into Part III herein. Such proxy statement will be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year ended December 29, 2018.





CARE.COM, INC.
FORM 10-K

TABLE OF CONTENTS

PART I
Page
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
 
Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017
 
Consolidated Statements of Operations for the years ended December 29, 2018, December 30, 2017, and December 31, 2016
 
Consolidated Statements of Comprehensive Income for the years ended December 29, 2018, December 30, 2017, and December 31, 2016
 
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the years ended December 29, 2018, December 30, 2017, and December 31, 2016
 
Consolidated Statements of Cash Flows for the years ended December 29, 2018, December 30, 2017, and December 31, 2016
 
Notes to Consolidated Financial Statements
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accounting Fees and Services
 
 
 
PART IV
 
Item 15.
Exhibits, Financial Statement Schedules






PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “could,” “expects,” “may,” “likely,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “probable,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things: our results of operations, financial condition, liquidity and prospects; revenue, expenses, adjusted EBITDA and other financial metrics; the industries in which we and our partners operate; industry, geographic and demographic trends; market and leadership position; performance and growth factors; demand for services; seasonality; competitive strengths and differentiators; growth strategies and opportunities for expansion, investment, acquisitions and integration; marketing strategies; intellectual property; regulatory compliance; changes in headcount; employee and labor relationships; investments in existing or new lines of business; ability to attract new members and retain existing members; revenue from our paying members; ability to attract and retain key employees; dividend policy; the position of our brand; our investments in marketing; outcome of litigation and legal matters and proceedings; depreciation and amortization expense, cash flow and use of cash; operating and capital expenditures; exchange rates; impact of the Tax Cuts and Jobs Act of 2017 and adjustments, tax benefits, tax rates, tax audits and settlements; and impact of new accounting pronouncements.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described under “Risk Factors” and elsewhere in this Annual Report and in our other public filings with the Securities and Exchange Commission.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate, are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Annual Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by law.


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ITEM 1.    BUSINESS

Our Mission
Our mission is to improve the lives of families and caregivers by helping them connect in a reliable and easy way. Our solutions help families make informed decisions in one of the most important and highly considered aspects of their family life- finding and managing quality care for their family, their children, parents, pets and other loved ones. In providing families a comprehensive marketplace for care, we are building the largest destination for quality caregivers to find fulfilling employment and career opportunities globally. We strive to help our family and caregiver members pursue their passions and fulfill the basic human need of caring for each other.
Our Company
We are the world’s largest online marketplace for finding and managing family care. As of December 29, 2018, we had 31.7 million members, including 18.3 million families and 13.4 million caregivers, spanning more than 20 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 2018, 54% of all job postings were for part-time care services, with the remaining 46% seeking full-time care. Examples of the various types of care services families find in our marketplace, depending on their diverse and evolving needs, include:
An experienced nanny to care for a new-born child and help with laundry;
A daycare professional seeking to earn additional income by babysitting on occasional ‘‘date nights’’;
A college student helping to pay tuition by watching a 7- and 10-year old and assisting with after-school pick-ups, driving to activities, homework and meal preparation;
A retired nurse to drive an aging parent to routine medical appointments and assist with personal hygiene; and
A pet lover to take the family dog for her daily walk and care for her during family vacations.
We believe the scale and breadth of our services, combined with our commitment to delivering the best possible member experience for families and caregivers, have made us the most trusted and leading brand for finding and managing family care.
Our consumer matching solutions allow families to search for, connect with, qualify, vet 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 our 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 enhances the lifetime value associated with our members.
We also serve employers through our Care@Work offering by providing access to certain of our products and services, including back-up care for children and seniors, to employer-sponsored families. In addition, we serve care-related businesses- such as day care centers, nanny agencies and home care agencies- 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.
Our primary target market is women, who typically take the responsibility of making care decisions for their families -either as mothers or adult daughters - and are a majority of our caregivers. Women represent 94% of our caregivers and 81% of our care-seeking members. As a result of the shared characteristics of both sides of our marketplace, we are able to leverage our marketing investments targeted at families to also attract caregivers.
We have experienced steady growth in revenue and members. Our members increased to 31.7 million as of December 29, 2018 from 27.3 million as of December 30, 2017, representing a 16% annual growth rate. Our revenue has increased to $192.3 million in fiscal year 2018 from $174.1 million in fiscal year 2017, representing an 10% annual growth rate, primarily driven by our consumer matching solutions and consumer payment solutions, which we refer to as our U.S. Consumer Business, as well as our Care@Work employer solution. We experienced net income of $52.9 million and $10.7 million in fiscal year 2018 and fiscal year 2017, respectively, and net losses from continuing operations of $0.7 million in fiscal 2016. Adjusted EBITDA, a non-GAAP financial measure that we define as income from continuing operations, which excludes the accretion of preferred stock dividends and issuance costs, as well as: federal, state and franchise taxes, other income (expense), net, depreciation and

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amortization, stock-based compensation, accretion of contingent consideration, merger and acquisition related costs, and other unusual or non-cash significant adjustments, such as impairment and restructuring charges, increased to $32.2 million from $23.3 million as of December 29, 2018 and December 30, 2017, respectively. See “Item 6, Selected Consolidated Financial Data” for a reconciliation of net income to Adjusted EBITDA, a discussion of management’s use of this non-GAAP measure and the limitations of its use.
Our Market Opportunity
The market for care is large and highly fragmented. According to IBISWorld market research, in 2018, an aggregate of over $335 billion was spent in the United States on care, including day care, in-home care providers, housekeepers, nursing care facilities, tutoring and pet care. We believe that our target market includes all households with income greater than $50,000 and 15% of households with income less than $50,000, in each case with either a child under the age of 18 or a senior over the age of 65. According to the U.S. Census Bureau, there were 49 million such households in the United States in 2018. The needs of families seeking care are diverse, taking many different forms depending on the circumstances and life stage of the family. These needs include childcare, such as nannies and babysitters, in-home senior care, such as assistance with personal hygiene, meal preparation and transportation, and other family care needs, such as pet care, tutoring and housekeeping.
We believe that the following key trends contribute to the large and growing total addressable market for online care marketplaces:
Significant percentage of dual-income and single-parent households with children;
Aging population with a high preference for in-home care;
The growth in employer sponsored care services; and
Consumers increasingly using the internet and mobile devices for important and highly personal decisions and transactions.
Despite the size and growth of the care market, until the launch of Care.com, there had historically been no proven, efficient and cost-effective way for families to connect with quality caregivers and for caregivers or care-related businesses to target a large number of families.
Our Solutions
Our Platform
Our platform features a portfolio of family care-related products and services for our members, including consumer matching services and consumer payments services. This breadth of offerings enables us to provide synergistic care-related solutions to our members, which we believe results in greater frequency of member engagement and higher lifetime value.
Our platform also enables caregivers to find jobs and manage their careers, employers to offer their employees valuable family care-related benefits that promote increased productivity, loyalty and reduced family care-related absences, and businesses to recruit employees and advertise their business profiles.
Efficient, Reliable and Affordable Way for Families and Caregivers to Connect and Manage Their Care and Career Needs
Our comprehensive and differentiated platform provides significant benefits to families seeking caregivers and caregivers seeking quality jobs, including:
Comprehensive solutions. We are the largest online marketplace for finding and managing family care. Through our platform, families have access to a broad range of solutions to address their diverse and evolving care needs, including childcare, housekeeping, pet care, senior care and tutoring. In addition, families can use our solutions for back-up care when primary care arrangements fall through. Similarly, caregivers can apply to jobs in any category of care posted by families or by care-related businesses.
Efficient and reliable way for families to find quality caregivers. Our members have access to easy-to-use job posting tools, powerful search features and detailed caregiver profiles that are designed to allow them to efficiently navigate our vast database of individual caregivers and assess which caregivers best suit their needs. We also provide families with a comprehensive suite of tools and resources to help them make more informed decisions throughout the search and hiring process, including reviews, social connections, rate calculators, articles, an online safety center and access to a range of background checking services.
Efficient way for caregivers to target large, qualified audiences and professionalize their careers. Caregivers can easily create detailed profiles that include work history, education, credentials, reviews, social connections, third-party background check results and information about the specific care services they provide. In addition, we provide caregivers with services, educational resources and content to professionalize and manage their careers, as well as the

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opportunity to establish their professional reputation and enhance their profile through the reviews and ratings they receive from families.
Cost-effective alternative. Families are provided access to search, post a job and preview detailed caregiver profiles. After an initial review of profiles, families have the option of selecting from a variety of affordable subscription plans to contact caregivers and access background checks. These subscriptions allow families to contact caregivers through our platform during the term of the subscription, including nannies, babysitters, pet sitters and tutors. Our caregiver members can apply to jobs through our platform and target families and care-related businesses. Caregivers have the option to pay for additional features such as priority notification of newly posted jobs. We are testing additional pricing and packaging offerings for families and caregivers that are designed to better meet the needs of the various segments that use Care.com and further monetize our services.
Secure access anytime, anywhere. We provide a cross-platform suite of communication tools to enable easy and efficient communication between families and caregivers. Our services are available across multiple platforms and mobile devices to ensure that our members access Care.com easily and conveniently wherever they go. We provide our services through mobile apps on iOS and Android devices. We also make our website experience available on personal computers and mobile web browsers. Across these platforms, members are able to access our features for finding care and jobs and for paying caregivers.
Easy-to-Use Payment Offerings
We provide Care.com HomePay, a suite of payroll and tax services for families that employ household workers. Unlike most other payroll and tax companies, Care.com HomePay caters only to households, whose needs are typically very different than those of businesses. As a result, our entire service is designed to meet the unique needs of family employers and has natural synergies with our consumer matching services. Care.com HomePay is not only designed to facilitate the management of a family’s financial relationship with a caregiver, but also to enable a caregiver to establish the compliance framework to qualify for important household employee benefits. We also provide a peer-to-peer payments service that enables families to make electronic payments to caregivers from a computer or mobile device.
Comprehensive Care Solution for Employers
We provide a comprehensive suite of care services for employers to offer to their employees, including our consumer matching solutions, payment offerings, back-up care services and care concierge services. In addition to helping employees better manage the balance between work and home life, these services are designed to benefit employers by promoting increased productivity, engagement, loyalty and reduced care-related absences.
Efficient Marketing and Recruiting Channel for Care-Related Businesses
We provide a highly targeted suite of marketing and recruiting solutions for care-related businesses. These solutions enable care-related businesses to advertise their business profiles to families seeking care and to post care jobs and search our database of caregivers seeking employment.
Our Competitive Strengths
We believe the following strengths differentiate us from our competitors and contribute to our success:
Largest Global Marketplace Focused on Care
We are the world’s largest online marketplace for finding and managing family care with 31.7 million members, including 18.3 million families and 13.4 million caregivers, spanning more than 20 countries. Since the launch of our marketplace in 2007, we estimate, based on internal member data, that over 1.7 million matches between families and caregivers have taken place through our service in the areas of child care, senior care, special needs care, tutoring, pet care and housekeeping.
High Member Satisfaction Rates
We believe that the breadth of our market and the quality of our matching algorithms enhance the effectiveness of our marketplace and the value we offer to both families and caregivers. Furthermore, our surveys indicate that families who hire caregivers using our consumer matching solutions have a high degree of satisfaction with the caregivers they find.
Powerful Network Effects
We benefit from significant network effects as the market leader in the highly fragmented and growing market for finding family care online. As more families use our services, we attract more caregivers seeking a large pool of families in need of caregiver services. Similarly, the increasing number of caregivers using our services has attracted more families. This cycle has driven more and more people to use our services and has resulted in a significant percentage of our new members coming from unpaid sources.

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Growing and Engaged Membership
Over the last ten years, we have expanded from 500,000 members to 31.7 million members. As we grow our membership, improve the member experience and offer additional products and features, more members are using our services for longer periods of time. This highly engaged membership helps improve the effectiveness of our services and increases the lifetime value of our members.
Trusted and Recognized Brand
We have invested in building a differentiated member experience for finding and managing care. This investment includes the ongoing prioritization of features and processes that we believe contribute to the quality of our marketplace. Examples of these investments include the review of all job and profile postings for suspicious or inappropriate content, tools for members to review and report other members, a monitored messaging system that allows members to communicate without sharing their personal contact information, the proactive screening of certain member information against various databases and other sources for criminal or other inappropriate activity, the use of technology to help identify and prevent inappropriate activity through our platform and a safety center that provides resources and information designed to help families and caregivers make more informed hiring and job selection decisions
We believe these product investments, combined with our investments in national brand advertising and our domain name itself, have established the Care.com brand as a leading and trusted brand for finding care.
Our Growth Strategy
Attract More Members to Our Platform
In order to grow our membership, we intend to increase the visibility of our services, platform and brand awareness among families and caregivers through our investments in various marketing channels, such as television, online advertising and direct marketing. These investments also include initiatives such as search engine optimization (“SEO”) and content development, which are designed to increase the visibility of our services in organic search result listings and social media channels. We’re also increasing our investments in non-child care verticals, such as senior care. In addition, we intend to attract more members to our platform, through our continuous investments in improving product experience.
Increase Revenue
As we improve our user experience and expand our product and service offerings, we have seen an increase in revenue from our member base. We intend to further increase revenue from our member base by continuing these investments in user experience and new products and services, as well as optimizing the monetization of our products and services, especially on mobile devices. In addition, we intend to further engage our non-paying members by expanding our community and content features, so that we remain top of mind when these non-paying members have a need for our products and services.  We believe increasing engagement of our members will drive higher conversion of non-paying members to paying members, longer average length of paid time, and greater adoption of new products and services.
Expand and Increase Adoption of Our Care@Work and Payments Offerings
We believe there is significant opportunity for us to continue to grow our Care@Work offering.  We intend to do this by continuing to promote a comprehensive suite of services to the growing number of employers who are providing family care-related benefits to their employees, including back-up care services for children and elder-care when primary care falls through, and by product and service innovation.
We also believe there is significant opportunity for us to grow our consumer payments solutions.  An increasing number of Care.com members are using our household employer payroll and tax product, Care.com HomePay.  We expect this trend to continue by, among other things, further integrating our consumer matching and payment solutions.
Grow Our International Business
We believe the global secular trends of an increasing number of dual-income households with children, and an aging population, provide significant growth opportunities outside the United States. The majority of our international business today occurs in Western Europe, the market served by our Berlin-based subsidiary Care.com Europe GmbH or Care.com Europe. We are currently operating in more than 20 countries. We intend to grow our international business by leveraging our learnings from our U.S. consumer matching solutions, such as investing in organic marketing and other efficient marketing channels, expanding our product and service offerings, optimizing the monetization of our products and services and selective expansion to new countries.

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Selectively Pursue Acquisitions and Strategic Relationships
We will continue to explore opportunities to acquire companies that complement our existing business, enhance the user experience of our services, represent a strong cultural fit and are consistent with our overall growth strategy. In addition, we may enter into various strategic relationships to provide a more comprehensive offering to our members.
Our Products and Services
Our consumer products and services are designed to make it easier for families to find and manage quality caregivers and for caregivers to find satisfying jobs and manage their careers. We also offer products and services that allow families to share experiences and request advice. Additionally, we offer services to employers and care-related businesses that are designed to benefit those organizations as well as our family and caregiver members.
U.S. Consumer Business
Consumer Matching Solutions
Matching the right caregiver with the right family can create tremendous value for our members. Our innovative consumer matching solutions and large member base facilitate quality matches for the diverse and evolving needs of our members. Some of the features and tools we offer to families and caregivers are offered at no cost, others are bundled into one or more subscription packages. In addition, some features and tools are offered on an à la carte basis. Most of our tools and features are accessible on both mobile devices and personal computers.
Tools and Features for Families
Job Posting. Families quickly and easily post a detailed job description specifying their care need (e.g., nanny, babysitter, senior care support, tutor, housekeeper, pet sitter, etc.), the frequency, hourly rate, responsibilities and other requirements for the job and any other relevant information they choose to provide.
Search. Families search for potential caregivers based on specific search criteria such as type of care provided, location, hourly rate, whether the caregiver has their own transportation or smokes, comfort with pets and willingness to accept non-cash payments and/or have taxes withheld. The initial search results are based on an algorithm we designed to highlight the most relevant caregivers, but a family can also sort the search results by additional criteria, such as distance from the family, experience, availability, membership length or age.
Detailed Caregiver Profiles. Families review detailed information about the caregivers who apply to their jobs or appear in their search results. This detailed information includes a bio, work history and reviews, the type of care they provide, any additional services they provide (such as laundry, grocery shopping and errands), their experience, certifications and qualifications (such as college degree and CPR training or other languages spoken), their availability and hourly rate, the types of payments they accept, whether they are willing to have taxes withheld, caregiver reviews from other members, a caregiver’s verifications, any shared social connections, and any other relevant information the caregiver chooses to provide. Caregivers also have the option of including a photo or a video with their profile.
Messaging. Members may use our messaging system to contact caregivers who have applied to their jobs or appeared in their search results. Because this messaging system is internal to Care.com, members do not have to disclose personal contact or other information to communicate through this system. When a family sends a message to a caregiver through our messaging system, we also send an email to the caregiver’s personal email and an alert to their mobile device (if they have installed our mobile app) to notify them that a family has sent them a message.
Background Check Services. We currently offer multiple levels of background checks from consumer credit reporting agencies that families may request on caregivers they are interested in hiring. Caregivers must accept the background checks request from a family before the background check is performed.
Tools and Features for Caregivers
Profile. Caregivers create and post detailed profiles that include their bio, work history and reviews, the type of care they provide, any additional services they provide (such as laundry, grocery shopping and errands), their experience, certifications and qualifications (such as college degree and CPR training or other languages spoken), their availability and hourly rate, the types of payments they accept, whether they are willing to have taxes withheld and any other relevant information they choose to provide. To build their credibility with families, caregivers may elect to verify their phone number and email addresses with us and connect to other members. Caregivers also have the option of including a photo or a video with their profile.

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Search. Caregivers search for specific jobs posted by families, as well as for families based on specific search criteria such as type of care needed, location, hourly rate and number and age of children.
Apply. Caregivers can review and apply to jobs that interest them. When a caregiver applies to a job, the family is notified of the new applicant by email, SMS text message or a mobile alert.
Messaging. Caregivers can respond to messages from families using our internal messaging system. Based on the caregiver’s subscription package, the caregiver may also initiate contact with a family.
Background Check Services. Caregivers may elect to have multiple levels of background checks run on themselves, the results of which may be made available to families seeking to hire the caregiver.
Additional Tools and Features for Families and Caregivers
Mobile Apps. Families and caregivers can download our free mobile apps for iOS and Android. These apps provide families and caregivers the same job posting, profile creation, search and messaging features described above.
Safety Center. Our service features a safety center that provides resources and information designed to help families and caregivers make safer and more informed hiring and job selection decisions, including recommendations to families for screening, interviewing and ongoing monitoring of caregivers and recommendations to caregivers for avoiding scams. Members may also contact our member care department directly by phone or email if they have concerns about other members. We also offer an online tool that allows families and caregivers to report other members.
Email Notifications. Families may receive weekly emails highlighting new caregivers near them, and caregivers may receive daily emails notifying them of new jobs in their area. We send families and caregivers additional email communications to help them maximize their use of our consumer matching solutions and to inform them of additional products or services that may be appropriate for them.
Access to professional benefits for caregivers. We provide a peer-to-peer benefits platform between families and caregivers, which enables families to contribute to their caregiver’s benefits just as traditional corporate employers do for their employees. When a family pays a caregiver through Care.com, a percentage of the transaction is added to the payment, which helps the caregiver pay for essential family expenses, such as healthcare and transportation.
Post-Match Features. We provide features on both sides of the marketplace with the goal of helping families and caregivers manage their relationships over time. For example, we provide tools to help families and caregivers prepare for the start of their care engagement. In addition, we provide time tracking support as part of our enhanced scheduling tools to help families and caregivers keep track of daily schedules.
Consumer Payments Solutions
Our consumer payments solutions provide families several options to manage their financial relationship with their caregiver. These products also help caregivers professionalize and manage their careers.
Household Employer Payroll and Tax Services. Care.com HomePay is our payroll and tax product for families that employ nannies, housekeepers or other domestic employees. Care.com HomePay is a technology-based, turnkey service that includes automated payroll processing and household employer-related tax filings at the federal, state and local levels. In addition, caregivers who are paid through Care.com HomePay may qualify for important benefits such as unemployment insurance and social security. These products are available to anyone, not just paying members of our consumer matching solutions.
Peer-to-peer Payments. This offering enables families to make electronic payments to their caregivers using our website or mobile apps. This solution is particularly applicable for families who pay their caregivers at irregular intervals, such as babysitters, after-school caregivers or tutors, or in varying amounts each time services are performed.
Solutions for Employers via Care@Work
We provide a comprehensive suite of services that employers can offer their employees as an employee benefit. Currently, employers can choose from a number of services, including:
Our consumer matching solutions;
Back-up care services for employees needing alternative care arrangements for their child or senior due to events such as school closure or the illness of their child or regular caregiver;

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Care concierge services, which include senior care planning services to assist employees struggling to understand their options for an aging family member, as well as hands-on assistance with the caregiver search process; and
Our consumer payment solutions.
Employers generally pay for these services on a per employee per year basis and have access to features that allow them to manage employee access and track aggregate usage. Depending on the service and the employer’s preference, the employer may subsidize all, a portion, or none of the service cost for the employee.
Solutions for Care-Related Businesses
We offer care-related businesses a recruiting solution to help them more effectively recruit caregivers and a marketing solution to help them target families at scale. These solutions also provide additional caregiving choices for families and employment opportunities for caregivers.
Recruiting Solutions. Through this offering, businesses can either post jobs or search for candidates directly from our base of caregivers. Businesses pay us either a per job listing fee for each job posted each month or purchase a monthly or annual subscription fee that ranges in duration from monthly to annual.
Marketing Solutions. Through this offering, businesses can list their services on our website, receive referrals and apply to jobs posted by families. Businesses typically pay us either a referral fee for each lead generated through our site or a subscription.
Our Technology
Our technology platform is designed to provide an efficient marketplace experience across our website and mobile apps. Our solution is based on stable and mature technology frameworks that allow us to rapidly scale as our business grows. Key elements of our technology solution include:
Powerful Search and Ranking. Our search technology has been designed to handle rapid and continuous growth in search queries and members. Our technology enables families and caregivers to run faceted and free-form search queries and receive results ranked by relevance using our sorting algorithm. Members can run searches based on a variety of parameters, including location, type of care, hours of availability and hourly rate.
Targeting. We employ statistical models and algorithms to ensure that we are managing the efficiency of our marketplace and optimizing the experience for both families and caregivers. These models are used to improve our customer acquisition efforts as well as our product experience and leverage our rich and growing data set. For example, we prioritize the order in which caregivers are presented to a family to give more prominence to caregivers we believe are more appropriate for the family based on their profile, job postings, and/or usage of our services. Similarly, we present caregivers with job opportunities that we feel are best suited to their qualifications and interests. We also employ targeting technology to personalize the content that we display for members as they use our website and mobile apps. We refine the techniques we use for targeting on an ongoing basis.
Mobile Solutions. We offer mobile apps designed specifically for the iOS and Android operating systems. In addition, we also provide a mobile optimized website. These mobile solutions are built on an interface layer that exposes the core features of our service. We use the same interface layer across all of our mobile solutions and believe this architecture will allow us to easily expand our services to new devices and mobile platforms in the future.
Testing and Optimization. We have developed a solution for testing and optimizing the user experience and member engagement on our websites and in our email communications. This solution allows us to run multiple variations of a service feature or email tactic simultaneously and is supported by robust data collection and reporting. Based on our analysis of the user response to a given test, we are able to dynamically send more users to the experience that produces a better result.
Infrastructure Management. We have developed a proprietary suite of tools for managing, administering and monitoring our production website and mobile app platforms. These tools are used to streamline the deployment of releases and to help ensure high availability of our consumer-facing service.
Our Customers
Our customers are our family and caregiver members, including members who utilize our HomePay services, employers who offer our services as an employee benefit and care-related businesses who subscribe to our marketing and/or our recruiting solutions offerings.
The typical care seeker for our U.S. Consumer Business is female (81%), has an average household income of $80,000, and has at least one child under 18 in the house (68%). Our typical caregiver is also female (94%) and well educated (62%

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indicating they have at least some college education). Currently, we have 31.7 million members of which 58% represents families and 42% represents caregivers. We have families in approximately 96% of U.S. zip codes and caregivers in approximately 91% of U.S. zip codes. Our members are in every state, and the geographic distribution of our members by state is roughly equal to the overall population distribution by state.
In addition, we have a diverse range of employers who offer our services as a benefit to their employees, including technology companies, educational institutions, professional services firms and Fortune 500 companies. As of December 29, 2018, these employers employed over 1.7 million employees who have full access to some or all of our services.
Additionally, we have a diverse set of local, regional and national child care, senior care and other care-related businesses that use our services to help either find people who need the care they provide or find caregivers to work at their organization.
Our Competition
With respect to our consumer matching solutions, we compete for members with traditional offline consumer resources, online job boards and other online care marketplaces. We also compete for a share of the overall recruiting and advertising budgets of care-related businesses with traditional, offline media companies and other Internet marketing providers. The principal competitive factors in this market include:
network size and quality of caregivers and families;
product reliability, features, effectiveness and efficiency;
the quality and completeness of family job postings and caregiver profiles;
product line breadth and applicability;
affordability and value of the products provided;
reliability of safety and security measures;
the performance and reliability of a mobile solution;
international footprint; and
brand awareness and reputation.
Our principal competitors in this market are other online care marketplaces, such as Sittercity and UrbanSitter, and online classifieds, such as Craigslist. Our principal competitor in our employer channel is Bright Horizons. In the consumer payments market, Care.com HomePay competes with similar products offered by HomeWork Solutions, Inc. and GTM Payroll Services. We believe we generally compete favorably with our competitors on the basis of our scale, trusted brand or member experience.
Marketing and Sales
Our marketing strategy is focused on attracting families and caregivers to our marketplace. Our marketing efforts are designed to increase brand awareness, maximize reach and penetration and grow our member base. Marketing activities include demand generation, advertising, conferences, press relations and customer awareness.
Our target market is primarily women on both sides of the marketplace. Women are typically the primary care decision makers for their family-either as mothers or adult daughters-and represent 94% of our caregivers and 81% of our families. As a result of the shared characteristics of both sides of our marketplace, we are able to leverage our marketing investments targeted at families to also attract caregivers, resulting in lower acquisition costs for caregivers.
We acquire consumers through a diverse mix of paid and unpaid acquisition channels. As a result of our strong focus on our member experience and engagement to ensure a successful match for families and caregivers, the majority of our new subscribers come from unpaid channels, including word-of-mouth referrals, SEO, online communities and forums and repeat users.
Our paid direct marketing efforts for both families and caregivers comprise both offline channels such as network cable TV, local radio and direct mail and online channels, such as search engine marketing (“SEM”), paid social display ads, affiliates and select paid job board sites. Our marketing spend is weighted towards our high seasons based on the timing of demand from families seeking care.
Our sales organization is responsible for attracting and retaining employers and care-related businesses to grow adoption of our services and offerings to those organizations. We expect to continue to grow our sales headcount to grow these channels.
Research and Development

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Research and development expenses totaled $34.6 million, $25.4 million, and $20.4 million for fiscal year 2018, fiscal year 2017 and fiscal 2016, respectively. Please refer to Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” for further detail on our research and development expenses.
Government Regulation
We are subject to numerous U.S. federal, state, local and foreign laws and regulations that affect consumer-based businesses and companies that conduct business on the Internet. Because our services are accessible worldwide, we are also subject to laws and regulations in jurisdictions, both in the United States and internationally, in which we have no operations. Many of these laws and regulations are still evolving and being tested in courts, and could be interpreted in ways that could harm our business. These may involve user privacy, information security and data protection, consumer protection, obtaining and use of consumer background information, intellectual property, electronic contracts, marketing and advertising, telecommunications, taxation, securities law compliance, and online payment services, among other things.
Information security and data privacy are areas of increasing public attention and government regulation. Many jurisdictions have passed laws, such as the General Data Protection Regulation, or the GDPR, and the California Privacy Act of 2018, or the CCPA, that impose new restrictions and obligations in connection with the collection, storage, use, transmittal and retention of consumer data, and other jurisdictions are considering such laws. These laws require the adoption of operating standards that can be vaguely defined and difficult, expensive and time consuming to implement. Many of these laws are new and remain untested. As a result, the costs of complying with these laws may increase in the future as they are interpreted and standards coalesce around their implementation. These laws have imposed, and will continue to impose, substantial new compliance burdens, and will expand our litigation and regulatory enforcement risks.
Beyond information security and data privacy, we are subject to U.S. federal, state, local and foreign consumer protection laws and regulations that affect, and in many cases restrict, the manner in which we are permitted to operate. Our compliance with these laws and regulations is monitored by governmental authorities, many of which have the power to launch investigations, or to cause legal proceedings to be commenced against us. For example, we offer members a paid subscription service that auto-renews until downgraded to a non-paying membership. Many states have enacted laws specific to auto-renewing contracts and other states are considering such laws. Among other things, these laws may require specific notifications to consumers prior to and/or after a consumer agrees to an auto-renewing contract, including reminder notifications prior to a subscription renewing, and may specify the manner in which such notifications are given. Violation of a state auto-renew law can result in civil penalties and in many instances renders the contract unenforceable, which could result in a refund of all fees paid under the contract. Likewise, we are subject to laws and regulations regarding unfair or deceptive trade practices. These laws and regulations can be interpreted to apply to content on our website, communications we make to our members and marketing materials we place with third parties or transmit to prospective or current members. We have been and are subject to regulatory investigations in connection with our auto-renew practices and compliance with unfair and deceptive trade practices laws. Changes to our practices in these or other areas that are required by law, or that we deem are advisable in light of the business and regulatory environments in which we operate, may have a negative effect on our results of operations.
Similarly, in the United States we acquire information about some of our members from consumer credit reporting agencies, which subjects us to the Fair Credit Reporting Act, or the FCRA. The FCRA limits the distribution and use of consumer credit reports and establishes consumer rights to access and dispute their own credit files, among other rights and obligations. Violation of the FCRA can result in civil and criminal penalties. Many states have enacted laws with requirements similar to the FCRA, and some of these laws impose additional, or more stringent, requirements than the FCRA.
In addition, our operations subject us to certain payment card association operating rules, certification requirements and rules, including the Payment Card Industry Data Security Standard, or PCI DSS, a security standard with which companies that collect, store or transmit certain data regarding credit and debit cards, credit and debit card holders, and credit and debit card transactions are required to comply. Our failure to comply fully with the PCI DSS may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors, merchant banks or other parties.
The U.S. federal and state and foreign laws and regulations that we are subject to, or may in the future become subject to, are constantly evolving and can be subject to significant change. In addition, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly-evolving industries in which we operate. If we are not in compliance with existing or new laws or regulations that are applicable to our business or if new or existing laws or regulations are interpreted and applied inconsistently with our current policies and practices, our business could be harmed, and we may be forced to modify our policies and practices.
Intellectual Property

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Our success depends in part upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as contractual restrictions. We enter into confidentiality and assignment of invention agreements with our employees and certain consultants and confidentiality agreements with other third parties. We do not have any patents or pending patent applications.
We pursue the registration of our domain names, trademarks and service marks in the United States and in certain locations outside the United States when we deem such registration to be beneficial and appropriate.
The efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, Internet, technology and social media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. We have received in the past and may in the future receive notices asserting that we have infringed, misappropriated or otherwise violated a third party’s intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows.
Employees
We believe we have assembled a talented group of employees and strive to hire the best employees. As of December 29, 2018, we had 515 full-time employees and 163 part-time employees, not including approximately 1,698 part-time caregiver employees of our subsidiaries Care Concierge, Inc. (“Care Concierge”), Town & Country Resources, Inc. (“Town & Country”), and Trusted Labs, Inc. (“Trusted”), who provide back-up care from time to time. None of our employees is represented by a labor organization or is a party to any collective bargaining arrangement. We have never had a work stoppage, and we consider our relationship with our employees to be good.
Operating Segments and Geographic Areas
We manage our business under one operating segment. The majority of our revenue in the year-ended December 29, 2018 was from paying members in the United States. Additional information required by this item can be found in “Item 8. Financial Statements and Supplementary Data - Note 13 of the Consolidated Financial Statements of this Annual Report on Form 10-K, and is incorporated by reference herein.
Available Information
We were incorporated in Delaware on October 27, 2006. Our principal executive offices are located at 77 Fourth Avenue, 5th Floor, Waltham, MA 02451, and our telephone number is (781) 642-5900.
Our website is located at www.care.com and our “Investor Relations” website is located at investors.care.com.
We file reports with the Securities and Exchange Commission, or SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any other filings required by the SEC. We are an electronic filer, and the SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of the SEC electronic filing website is http://www.sec.gov. We also make available on our “Investor Relations” website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. References to our website and our “Investor Relations” website in this report are intended to be inactive textual references only, and none of the information contained on our website or our “Investor Relations” website is part of this report or incorporated in this report by reference.

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ITEM 1A.    RISK FACTORS
Risks Related to Our Business
We may not maintain our current rate of revenue growth.
Our revenues have grown steadily, increasing to $192.3 million in fiscal year 2018 from $174.1 million in fiscal year 2017, representing an annual growth rate of 10%. Our continued revenue growth and the rate of our revenue growth depend largely on our ability to effectively and efficiently grow our membership, increase the number of families who pay for our products and services, increase the average revenue per paying families and lengthen the time period existing and new families continue to pay for our products and services. We cannot assure you that we will be successful in continuing to expand our paying family base at historical rates, or at all. In addition, our revenue growth rate may decline if we are not able to increase the number of paying families while managing our acquisition costs within our targeted return on investment range or if we are unsuccessful in cross-selling new and existing products and services to our members, such as our consumer payments solutions, or in continuing to develop and innovate with new products, services and solutions that members consider valuable, such as our mobile solutions. Furthermore, our revenue growth rate may decline if we are unable to expand our Care@Work client basis.
You should not rely on our historical rate of revenue growth as an indication of our future performance. If our growth rates were to decline significantly or become negative, it could adversely affect our financial condition and results of operations.
We expect our revenue and operating results to fluctuate on a quarterly and annual basis, which may result in a decline in our stock price.
Our revenue and operating results have historically fluctuated from quarter-to-quarter and year-to-year and we expect these fluctuations to continue in the future. Such fluctuations may be significant and unpredictable and may fail to match our projections or the expectations of securities analysts due to a variety of factors, many of which are outside of our control. Any of these events could cause the market price of our stock to fluctuate.
In addition, we generally experience some seasonal fluctuations in our financial results due to heightened demand for caregivers from families at the beginning of the school year and at the beginning of the calendar year. Accordingly, purchases of subscriptions for our consumer matching solutions are generally higher in the first and third quarters than they are in the second and fourth quarters. In addition, other seasonal trends may develop, and the seasonality of consumer behavior that we have observed in the past may change.
We have based our current and projected future expense levels on our operating plans and sales forecasts, and our operating costs are relatively fixed in the short term. As a result, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenue, and even a small shortfall in revenue could disproportionately and adversely affect our financial results for a given quarter.

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In addition to the other risk factors listed in this section, our operating results may be affected by a number of factors, including:
our ability to attract and retain paying families;
fluctuations in demand for our products and services;
fluctuations in sales cycles for our products and services;
the timing of revenue recognition as a result of guidance under accounting principles generally accepted in the United States;
general economic conditions in our domestic and international markets and fluctuations in exchange rates;
our ability to develop and introduce new products and product enhancements that are attractive to our members;
the mix of monthly memberships and annual memberships, as the amount of revenue recognized per month on an annual membership is less than a monthly membership;
member acceptance of new product introductions;
the timing and success of changes in our pricing strategies and our competitor’s pricing strategies;
our ability to sell our services to employers and care-related businesses;
costs related to acquisitions of other businesses and our ability to successfully integrate, manage and grow those businesses;
costs associated with actual and threatened lawsuits and government investigations;
any significant changes in the dynamics of the markets in which we compete, including new entrants or substantial discounting of competitive products;
any decision to increase or decrease operating expenses in response to changes in the marketplace or perceived marketplace opportunities;
our ability to derive benefits from our investments in sales, marketing, engineering or other activities;
changes in the regulatory environment for our products domestically and internationally;
volatility in our stock price, which may lead to higher stock compensation expenses; and
unpredictable fluctuations in our effective tax rate due to disqualifying dispositions of stock from our stock incentive plan, changes in the valuation of our deferred tax assets or liabilities, changes in actual results versus our estimates or changes in tax laws, regulations, accounting principles or interpretations thereof.
We operate in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
The market for accessing family care online is rapidly evolving and has not yet reached widespread adoption, making it difficult for us to predict our future operating results. Our business and prospects may be significantly affected by the risks and difficulties we may encounter in this rapidly evolving market. These risks and difficulties include those described in this Annual Report on Form 10-K and our ability to, among other things:
attract and retain members and maintain an appropriate family to caregiver ratio of active members;
encourage paying families to stay longer and return as paying families sooner after their paid membership lapses;
cross-sell our products and services to our new and existing members;
continue to develop and diversify our product offerings for members;
innovate more quickly than our competition to maintain and expand our position as a market lead;
anticipate and react to changes in technology such as the shift from personal computers to mobile devices;
sell our services to employers and care-related businesses;
provide our members with superior user experiences;
motivate members to contribute additional, timely and accurate content to our marketplace;
anticipate and react to challenges from existing and new competitors;

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maintain the strength and increase awareness of our brand;
integrate and grow the businesses we acquire as anticipated; and
manage and grow our international operations in existing and new markets.
Failure to adequately address these risks and difficulties could harm our business, impact our ability to maintain positive net income. In addition, if the demand for online care does not develop as we expect, or if we fail to address the needs of this demand, our business will be harmed.
If the revenue generated by paying families differs significantly from our expectations, or if our membership acquisition costs differ significantly from our expectations, we may not be able to recover our membership acquisition costs or generate profits from these investments.
We had $60.5 million in sales and marketing expenses in fiscal year 2018 and $66.9 million in sales and marketing expenses in fiscal year 2017. While we intend to further leverage unpaid marketing channels, we expect to continue to make significant investments to acquire additional members, including advertising through television, online, social media and other advertising campaigns. Our decisions regarding these investments are based on our anticipated marketing cost to acquire each additional paying family, the success of our unpaid marketing initiatives, and our analysis of the revenue we believe we can generate per paying family over the expected lifetime of such membership.
In addition, most of our paying families are currently enrolled in monthly memberships, and the average total paid membership length for our consumer matching solutions is approximately 11.3 months. As a result, to maintain our revenue we must continually replace paying families who allow their membership to lapse with new paying families either by converting existing non-paying families or by attracting new paying families to our service. Our anticipated member acquisition costs and our analysis of the revenue that we expect new paying families to generate over the life of the membership depends upon estimates and assumptions, regarding, among other things, paid membership lengths and renewal rates, conversion rates of existing families to paying families, future membership fees and our success in cross-selling existing and new products and services to members.
If our estimates and assumptions regarding either our costs to acquire paying families or the revenue we can generate from those memberships over their lifetime prove incorrect, we may be unable to recover our member acquisition costs and our net income may decrease. Similarly, if our member acquisition costs increase, or if the revenue we generate from new members decreases, the return on our investment in acquiring new members may be lower than we anticipate. If we cannot generate profits from this investment, we may need to alter our growth strategy, and our growth rate and results of operations may be adversely affected.
We continue to focus on profitable growth; however, we have a history of cumulative losses and may have operating losses as we continue to grow our business.
We experienced net losses from continuing operations of $0.7 million in fiscal 2016. Although we had net income of $52.9 million and $10.7 million in fiscal year 2018 and fiscal year 2017, respectively, and positive adjusted EBITDA in fiscal year 2018, there is no assurance that this will continue into the future. We expect our operating expenses to increase over the next several years, which may diminish our profitability or lead to losses in the future. In particular, we intend to continue to invest substantial resources in marketing to acquire new, paying members. We also intend to hire additional personnel in product, operations, sales and other areas of our business and to introduce new products, services and features, each of which will increase our expenses with no assurance that we will generate sufficient revenue to maintain positive net income. If we are unable to maintain profitability, we may adjust our strategic focus and investments, which could have a negative effect on our results of operations or our assessment that it is more likely than not that our deferred tax assets related to historic net operating losses will be realized.
If we are unable to introduce new and diversified products, services or features that families and caregivers find valuable, we may not be able to attract and retain families and caregivers on our online marketplace or expand our paying family base. Our efforts to develop new and diversified products and services could require us to incur significant costs.
In order to continue to attract and retain families and caregivers on our online marketplace and expand our paying family base, we will need to continue to invest in the innovation and development of new and diversified products, services and features that add value for families and caregivers. The success of new and diversified products, services and features depends on several factors, including the timely completion, introduction and market acceptance of the product, service or feature. If families and caregivers do not recognize the value of our new or diversified products, services or features, they may choose not to use our online marketplace or pay for our services.
Attempting to develop and deliver new or diversified products, services or features involves inherent risks and difficulties, and is costly. We cannot guarantee that we will be able to successfully manage these product developments or that they will work as intended or provide value to families and caregivers. In addition, some new or diversified products, services or features

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may be difficult for us to market and may also involve unfavorable pricing. Even if we succeed, we cannot guarantee that our members will respond favorably.
Many individuals use mobile devices to access online services. If we are unable to effectively operate or monetize on mobile devices, our business could be adversely affected.
The number of people who access online services through mobile devices, such as smart phones, handheld tablets and mobile telephones, as opposed to personal computers, has increased dramatically in the past few years and is projected to continue to increase. In fiscal year 2018, we had an average of over 9.4 million unique visitors to our platform each month, 61% of whom visited our site from mobile devices. In fiscal 2019, we expect the percentage of visitors from mobile devices to increase. If the mobile solutions we have developed do not continue to meet the needs of prospective members or current members, they may not register for our services, they may not become paying members of our services and/or they may reduce their usage of our services and our business could suffer. Additionally, we are dependent on the interoperability of Care.com with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems and terms of service that degrade our solutions’ functionality, give preferential treatment to competitive products, prevent our ability to promote our services, or impact how we monetize our services could adversely affect our revenue or operating results.
Our business depends on the strength of our brand. If we are the subject of negative publicity, if the services we provide fail to meet our members’ expectations, or if inappropriate actions by certain of our members are attributed to us, or if we are the target of lawsuits or investigations, our brand may be damaged, and we may be unable to maintain or expand our base of members and paying families.
The strength of our brand is essential to our business. Member awareness, and the perceived value, of our brand depends largely on the success of our marketing efforts and the ability of our members to have a consistent, high-quality experience with our service. As a result, we must ensure that our new and existing members are satisfied with our products and services. Negative publicity, complaints or negative views regarding our products or services, irrespective of their validity, could diminish members’ and prospective members’ confidence in and the use of our platform and adversely impact our brand. For example, we have in the past been, and may in the future be, the subject of media reports that cast our business practices or the products and services we provide in a negative light. We have been the subject of media reports that have criticized our ability to detect and remove bad actors from our site. There have also been news reports of alleged criminal conduct by caregivers against families they met through our site, including sexual abuse and conduct resulting in death, and in some cases lawsuits have been filed against Care.com relating to such conduct. In addition, in recent years there has been an increase in fraud perpetrated against caregivers who seek employment opportunities on sites such as ours, and Care.com has been featured in news reports regarding these scams. Regardless of the accuracy of these reports, the validity of their claims or our response, such reports may have the effect of undermining confidence in our brand or increasing the perceived risk of using our services, which could affect our ability to attract and retain paying members and, as a result, negatively impact our results of operations. Even if the effect of such reports on our results of operations is limited, the perception that they could negatively impact our business could cause a decline in the price of our stock disproportionate to the actual harm caused.
In addition to news reports, we may be subjected to negative publicity in connection with threatened or ongoing litigation or governmental investigations. Even if such claims or investigations do not have merit, and even if we are able to successfully defend, settle or otherwise resolve them, the publicity they generate, including press releases issued by or statements from our counterparties in the applicable dispute, may be perceived negatively, and may have the effect of harming our brand, negatively affecting our business or causing our stock price to decline.
The strength of our brand, and our ability to attract and retain paying members, depends significantly on the experience our members have with one another at the point of service, which we do not control. Conduct by our members may be attributed to us, and as a result inappropriate, illegal or otherwise harmful acts by caregivers or families, even if only by a small number of our members and even if such acts are outside of our control, could result in negative publicity or legal action that could have a significant negative impact on our brand. If our efforts to promote and maintain our brand are not successful or if our member experience is not otherwise positive, our operating results and our ability to attract and retain paying members may be adversely affected and our results of operations may be harmed.
Furthermore, an adverse, public event resulting from the actions of a caregiver on a competitor’s platform could increase the perceived risk of seeking care or employment through an online platform, and cause our members or prospective members to lose confidence in our services. Such an event could result in harm to our brand even if the member has no relationship with our platform, and as a result could adversely affect our business.
We depend on highly skilled personnel to grow and operate our business and if we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.
Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly-skilled personnel. Our ability to execute efficiently depends upon contributions from all of our employees, in particular our senior

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management team and employees from key business areas such as product, engineering and analytics. Key institutional knowledge remains with a small group of long-term employees whom we may not be able to retain. We do not have employment agreements other than offer letters with any of our key employees, including our chief executive officer, and we do not currently maintain key person life insurance for any employee. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed. Our growth strategy also depends on our ability to expand and retain our talent pool. Identifying, recruiting, training and integrating qualified individuals require significant time, expense and attention. In addition to hiring new employees, we must continue to focus on retaining our best talent. Competition for these resources, particularly in Boston, Austin and the San Francisco Bay area, three areas where we have offices, is intense. If we are not able to effectively increase and retain our talent, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.
We believe that our culture has the potential to be a key contributor to our success. As we grow, if we do not continue to develop our corporate culture it could harm our ability to foster the innovation, creativity and teamwork we believe we need to support our growth.
Finally, we rely on the resources of third parties over whom we have limited control to assist us in developing certain products and features. If any of these third parties terminates its relationship with us or fails to provide adequate services, it could cause delays in our release of new product offerings and/or features and harm our business.
If we fail to manage our growth effectively, our business, operating and financial results may suffer.
We have recently experienced, and expect to continue to experience, significant growth, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We expect that our growth strategy will require us to commit substantial financial, operational and technical resources. It is important that we appropriately prioritize our efforts and allocate our limited resources effectively. Continued growth also could strain our ability to maintain reliable service levels for our members, to enhance our product offerings, to develop and improve our operational, financial and management controls, to continue to strengthen our reporting systems and procedures and to recruit, train and retain highly skilled personnel. As our operations grow in size, scope and complexity, we will need to scale our systems and infrastructure accordingly and may determine we need to open additional offices, add more network capacity and make other capital investments, which will require significant expenditures and allocation of valuable management resources. For example, in fiscal 2017 to access additional personnel talent, we made the decision to increase our staffing and resources in the Bay Area, a market which is more expensive and competitive than other markets in which we operate.  If we continue to see the need to enter or increase personnel in markets to access specific types of talent, this may increase our expenses going forward. Additionally, if we fail to maintain the necessary level of discipline and efficiency, or if we fail to appropriately prioritize our efforts and allocate limited resources effectively in our organization as it grows, our business, operating results and financial condition may suffer.
If we fail to adapt our operations to meet the increased legal and operational demands of our Care@Work clients, our brand and results of operations may be negatively impacted.
The significance of our Care@Work offering to commercial clients has grown as we have entered into agreements with large organizations with operations throughout the United States. Meeting our contractual obligations to such organizations has demanded significant management attention, and has required us to undertake a rapid expansion of the scale and complexity of our Care@Work operations. If we fail to meet our contractual obligations to our Care@Work clients, they may be able to terminate their contracts with us or seek damages, which would have a negative effect on our results of operations. In addition, such failure could result in negative publicity and reputational harm, hurting our brand and making it more difficult for us to keep our current clients and attract new ones. Even if we are successful meeting our obligations under existing contracts with our Care@Work clients, there is no guarantee that such clients will continue their relationships with us through or beyond the initial contractual term. Any termination of a contract by our Care@Work clients would have a negative effect on our results of operations, and could result in negative publicity and reputational harm, hurting our brand and making it more difficult for us to keep our current clients and to engage new clients such that our investments in our Care@Work offering will generate the targeted return.
If evolving consumer behavior in the era of mobile devices and messaging/social networking apps hinders our ability to effectively market to and communicate with members and potential members, our business, financial condition and results of operations could be adversely affected.
Evolving consumer behavior can affect the availability of profitable marketing opportunities. For example, as traditional television viewership declines and as consumers spend more time on mobile devices rather than desktop computers, the reach of many of our traditional advertising channels may contract.  To continue to reach potential members and grow our businesses, we must identify and devote more of our overall marketing expenditures to newer advertising channels, such as mobile and

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online video platforms as well as targeted campaigns in which we communicate directly with potential, former and current members via new virtual means.  Generally, the opportunities in and sophistication of newer advertising channels are relatively undeveloped and unproven, and there can be no assurance that we will be able to continue to appropriately manage and fine-tune our marketing efforts in response to these and other trends in the advertising industry.  Any failure to do so could adversely affect our business, financial condition and results of operations.
In addition, as consumers communicate less via email and more via text messaging and other virtual means, the reach of our email campaigns may be adversely impacted.  One of our primary means of communicating with our members and keeping them engaged with our products is via email.  Our ability to communicate via email enables us to keep our members updated on activity with respect to their job postings or profile, inform them of new members they may be interested in connecting with, introduce them to new products or services they may be interested in using, and present discount and free trial offers, among other things.  Any erosion in our ability to communicate successfully with our members via email could have an adverse impact on member experience and the rate at which non-paying members become paid members.
If we fail to expand and increase adoption of our Care@Work and consumer payments solutions, our future growth could suffer.
As part of our growth strategy, we intend to grow our Care@Work solutions. Although we have continued to acquire new customers, our growth could be adversely affected if we are unable to acquire new customers at the same rate or volume as we have in the past. Additionally, our growth could be impacted if we are unable to scale our internal enterprise sales team. As our Care@Work solutions grow, we are increasing the scale of our in-home and in-center back-up care network, as well as the operations required to deliver these services, and we will need to continue to do so in the future. We may also need to further differentiate our Care@Work products and services to effectively compete with our competition. If we fail to continue to acquire new customers, scale our internal enterprise sales team and operations, scale our in-home and in-center back-up care network and differentiate our Care@Work products and services, then our growth may be adversely impacted. For more information about risks related to the growth of our Care@Work solutions, see “-If we fail to adapt our operations to meet the increased legal and operational demands of our Care@Work clients, our brand and results of operations may be negatively impacted,” above.
Additionally, as part of our growth strategy, we intend to grow our consumer payments solutions. Although an increasing number of our members are using Care.com HomePay, a household employer payroll and tax product, if this trend does not continue, or if any other payments solutions we may offer do not achieve adequate acceptance in the market, our competitive position could be impaired and our growth could be adversely affected.
We depend on search engines and job board sites to attract a significant percentage of our members, and if those businesses change their ranking or listings practices, algorithms or increase their pricing, it could impact our ability to attract new members.
Many of our members locate our services through search engines, such as Google and Bing. Search engines typically provide two types of search results, algorithmic and purchased listings, and we rely on both types. Algorithmic listings cannot be purchased and are determined and displayed by a set of formulas designed by the search engine. Search engines revise their algorithms from time to time in an attempt to optimize search result listings. If the search engines on which we rely for algorithmic listings modify their algorithms in a manner that reduces the prominence of our listing, fewer potential members may find and click through to our services. Additionally, our competitors’ search engine optimization efforts may result in their services receiving greater prominence in search result listings than ours, which could also reduce the number of potential members that visit our services. We have experienced fluctuations in the prominence of our search result listings in the past and we anticipate fluctuations in the future. In addition, costs for purchased listings on search engines have increased in the past and may continue to increase in the future. Price increases could reduce the number of potential members that visit our services and increase our costs. Any reduction in the number of users directed to our services from search engines would harm our business and operating results.
Job board sites are also an important source of our caregiver acquisition efforts. We derive much of that volume from organic search listings within those job boards. Some job board aggregators have denied certain of our listings, or removed certain listings we have posted. If a greater portion of our listings are denied we may have to find alternative paid sources to acquire caregivers, which would impact our ability to attract new members and increase our acquisition costs.
Data security and integrity are critically important to our business, and breaches of security, unauthorized disclosure of information about our members, denial of service attacks or the perception that member information is not secure could result in a material loss of business, substantial legal liability or significant harm to our reputation.
Our operations are substantially dependent on the proper functioning and integrity of our technology systems. In the ordinary course of our business, we rely on our systems to collect, process and store a large amount of consumer information,

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including financial information and sensitive personal information. In addition, we use our systems to create, transmit and store confidential business and financial information. This information is often accessed through transmissions over public and private networks, including the Internet. Despite our physical security measures, implementation of technical controls and contractual precautions designed to identify, detect and prevent the unauthorized access, alteration, use, transmission or disclosure of our data, there is no guarantee that these measures or any other measures will be sufficient to protect our data or detect any compromise of our data’s security. Our systems are vulnerable to bugs, defects, breakdown, malicious intrusion, random attack and theft. Data privacy or security breaches by individuals authorized to access our technology systems, including our employees, contractors or contractual counterparties, or others may pose a risk that sensitive data may be accidentally or deliberately exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. We have been and expect to continue to be targeted by cyber-attacks, which may be carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious intent. Several recent, highly publicized data security breaches and denial of service attacks at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems.
Any unauthorized disclosure of sensitive or confidential business or member information, information, including by cyber attacks or other security breach, could cause a loss of data, give rise to remediation or other expenses, disrupt our operations, expose us to substantial liability under federal, state and foreign laws, and subject us to litigation and investigations, which could have an adverse effect on our business, cash flows, financial condition and results of operations. In addition, some laws and regulations mandate notification to affected individuals and regulatory authorities in the event that personal data is accessed or acquired by unauthorized persons. For example, the GDPR, which was adopted by the European Union (“E.U.”) in 2016 and went into effect in May 2018, includes data breach notification requirements in regard to both affected individuals and E.U. data protection authorities (depending on the facts of the breach) with which we will have to comply. Complying with such numerous and complex regulations in the event of unauthorized access would be expensive and difficult, and failure to comply with these regulations could subject us to regulatory scrutiny and additional liability.
We use, store and, in some instances, share information collected from or about our members and site visitors and their devices, which may subject us to governmental and industry regulation and other legal obligations related to privacy and data protection and our actual or perceived failure to comply with such obligations could harm our business.
We receive, store and process information from and about our members and website visitors and their devices, as well as information about Care.com HomePay and back-up care users, including name, contact information, and in some cases sensitive personal information, such as credit card numbers, tax return information, bank account numbers, social security numbers and other personal information such as criminal background information and information relating to children and vulnerable individuals. In addition, members using our service can allow us to share information, including personal and background information, with other members and with third parties.
Diverse legal and industry requirements in the regions where our members and site visitors reside may apply to our collection, use, storage and sharing of information about such individuals, including to the extent that our members choose to share data about themselves or family members in connection with potential employment in the home setting. The scope of these privacy and data protection obligations are changing in substantial and unpredictable ways, subject to differing interpretations, and may be inconsistent between different regions or conflict with other rules. For example, the E.U.-U.S. Safe Harbor program was invalidated and replaced with the Privacy Shield program in 2016. Privacy Shield has been subject to legal challenges and may not be appropriate for us.
For example, the GDPR came into effect on May 25, 2018, replacing the Data Protection Directive 95/46/EC. The GDPR introduces stringent operational requirements for companies established in the E.U. or European Economic Area (“EEA”), or those outside the E.U. or EEA but which are targeting or monitoring individuals located in the E.U. or EEA, including fulfilling new and strengthened rights for data subjects (e.g., the right to erasure of personal data, data portability, etc.) , detailed disclosures to data subjects (including disclosure of the legal basis on which personal data is processed), additional obligations when contracting with service providers, mandatory data breach notification requirements, appropriate privacy governance framework to be implemented including policies, procedures, training and data audit, and increased fines, with potential fines for violations of certain provisions of the GDPR reaching as high as the greater of €20 million or 4% of a company’s total annual global revenue. In addition, failure by us, our partners, our vendors, or our employees or contractors to comply with the GDPR could result in regulatory investigations, reputational damage, orders to cease or change our use of data, enforcement notices, as well potential civil claims including class actions where individuals suffer harm.
We are subject to E.U. rules with respect to cross-border transfers of personal data out of the E.U. and EEA. While currently we have legally recognized mechanisms in place which are based on E.U. Commission approved model clauses and/or other permitted mechanisms that we believe allow for the transfer of E.U. member, customer, and employee information to the United States and other countries outside of the E.U. and EEA, it is possible that these mechanisms may not be sufficient

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under the GDPR or other future legal requirements that could have an impact on how we move data to Care.com entities outside the E.U. or EEA. For example, there is currently ongoing litigation in the E.U. challenging the legitimacy of the E.U. Commission approved model clauses as a data export mechanism under the GDPR. As such, it is uncertain whether the model clauses may be invalidated as a compliant data transfer mechanism in the near future.
In response to these regulatory changes and the ongoing scrutiny of transfer mechanisms generally, we may be required to find alternative solutions for the compliant transfer of personal data outside the E.U. or EEA and to make changes in regard to our data export processes. We may have to require some of our vendors who process personal data to take on additional privacy and security obligations, and some may refuse, causing us to incur potential disruption and expense related to our business processes. If our policies and practices, or those of our vendors, are, or are perceived to be, insufficient, or if our members and customers have concerns regarding the transfer of data from the E.U. or EEA to the United States or other countries outside of the E.U. or EEA, we could be subject to enforcement actions or investigations by individual E.U. or EEA data protection authorities or lawsuits by private parties, member engagement could decline and our business could be negatively impacted. The requirements imposed by the GDPR and similar laws, regulations and policies that are applicable to us may limit the use and adoption of our products and solutions, which together with the costs of compliance, could have a material adverse impact on our results of operations.
As a data controller under GDPR, we are accountable for third-party data vendors or service providers we engage to process personal data on our behalf. We attempt to address the associated risks by implementing various processes designed to mitigate such risks, which include, without limitation, the performance of vendor security reviews, due diligence and other activities. We also enter into agreements with vendors and service providers that access personal data and where required under the GDPR, obligate them to only process data according to our instructions and to take sufficient security measures to protect such data. There is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such data. Any violation of data or security laws by our third-party vendors could have a material adverse effect on our business and result in the fines and penalties outlined above.
We are also subject to evolving European privacy laws on cookies and e-marketing. The E.U. is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each European member state. The draft e-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e., the greater of €20 million or 4% of total global annual revenue). While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European legislative process and commentators now expect it to be adopted during the second half of 2020 or during 2021 following a transition period.
We are subject to evolving privacy regulation under U.S. law as well. A number of proposals are pending before federal and state legislative and regulatory bodies, and additional laws and regulations have been passed but are not yet effective, any of which could significantly affect our business. For example, on June 28, 2018, California passed the CCPA, which will go into effect on January 1, 2020. The CCPA introduces significant changes to privacy law for businesses that collect personal information from California residents, including giving consumers statutory rights that are similar in some ways to those granted to consumers under the GDPR. The CCPA will impose substantial new compliance burdens on businesses subject to the law, and also creates a new potential source of consumer litigation through the private right of action authorized under the statute.
Some industry requirements subject us to payment card association operating rules, certification requirements and rules, including the Payment Card Industry Data Security Standard, or PCI DSS, a security standard with which companies that collect, store or transmit certain data regarding credit and debit cards, credit and debit card holders, and credit and debit card transactions are required to comply. Our failure to remain fully compliant with the PCI DSS may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors and merchant banks. Such failure to comply fully may also subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our services or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.
We strive to comply with all applicable laws, policies, legal obligations and industry requirements relating to privacy and data protection, to the extent reasonably possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other privacy-related legal obligations, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our members and customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or

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developers, violate applicable laws, their contractual obligations to us or our policies, such violations may also put our members’ information at risk and could in turn have an adverse effect on our business.
Complying with existing and proposed laws, regulations and industry standards applicable to the collection, use, storage and sharing of data about our members and site visitors can be costly and can delay or impede the development of new products, result in negative publicity and reputational harm, increase our operating costs, require significant management time and attention, increase our risk of non-compliance and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.
The expansion of our service offerings exposes us to increased litigation risk related to our on-demand caregivers.
In connection with new and expanded service offerings, we have increased the number of caregivers we employ for the purpose of providing care to families on an on-demand basis, and have engaged nanny agencies and daycare centers, whose caregivers provide on-demand services to our corporate clients. For example, our subsidiaries Care Concierge, Town & Country and Trusted Labs provide back-up child and adult care to families an on-demand basis. Our relationships with on-demand caregivers and caregivers we employ may increase the likelihood that we will be found liable for caregiver misconduct. Such liability, in individual cases or in the aggregate, could be substantial, and could have a negative effect on our results of operations. In addition, the expansion of our on-demand care offerings has increased the cost of certain related insurance policies. These costs may continue to rise in the future, and there is no guarantee that that the policies we maintain will be sufficient to protect us from all liability, or that they will cover all types of claims that may be made against us.
If the businesses we have acquired do not perform as expected or we are unable to effectively integrate acquired businesses, our operating results and prospects could be harmed.
We have acquired complementary businesses in the past. The benefits that we expect to achieve as a result of our acquisitions depend in part on our ability to realize anticipated growth opportunities and cost savings synergies. Our success in realizing these opportunities and synergies and the timing of this realization depend among other things on the successful integration of the acquired companies’ businesses and operations with our businesses and operations and the adoption of our respective best practices. Even if we are able to integrate these businesses and operations successfully and implement those strategic initiatives, it may not result in the realization of the full benefits of the growth opportunities and synergies we currently expect to achieve, within the anticipated time frame or at all. If a company we purchase does not perform as we expected, our investment could become impaired or we could discontinue the operations and our financial results could be negatively impacted.
Our mergers and acquisitions involve numerous risks, including the following:
difficulties in integrating and managing the combined operations, technologies, technology platforms and products of the acquired companies and realizing the anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical or financial problems;
legal or regulatory challenges or litigation post-acquisition, which could result in significant costs or require changes to the businesses or unwinding of the transaction;
failure of the acquired company to achieve anticipated revenue, earnings or cash flow;
diversion of management’s attention or other resources from our existing business;
our inability to maintain the key customers and business relationships and the reputations of acquired businesses;
uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions;
our dependence on unfamiliar affiliates and partners of acquired businesses;
unanticipated costs associated with pursuing acquisitions;
responsibility for the liabilities of acquired businesses, whether such liabilities were disclosed to us or not prior to our acquisition and whether such liabilities meet or exceed our estimates, including, without limitation liabilities arising out of the acquired business’s failure to maintain effective data protection and privacy controls and comply with applicable regulations;
difficulties in assigning or transferring intellectual property licensed by acquired companies from third parties to us or our subsidiaries;
potential loss of key employees of the acquired companies;

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challenges in integrating and auditing the financial statements of acquired companies that have not historically prepared financial statements in accordance with U.S. generally accepted accounting principles;
difficulties in integrating acquired companies’ systems controls, policies and procedures to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002; and
potential accounting charges to the extent intangibles recorded in connection with an acquisition, such as goodwill, trademarks, customer relationships or intellectual property, are later determined to be impaired and written down in value.
Moreover, we rely heavily on the representations and warranties provided to us by the sellers of acquired companies, including as they relate to the financial condition of the company, creation, ownership and rights in intellectual property, and compliance with laws and contractual requirements. If any of these representations and warranties are inaccurate or breached, such inaccuracy or breach could result in costly litigation and assessment of liability for which there may not be adequate recourse against such sellers, in part due to contractual time limitations and limitations of liability.
We may make acquisitions of or investments in complementary businesses in the future, which could require significant management attention, disrupt our business, result in dilution to our stockholders, and adversely affect our financial results.
As part of our business strategy, we have made, and may in the future make, acquisitions to add specialized employees, complementary companies, products or technologies. In addition, we may make investments in complimentary businesses. The identification of suitable acquisition or investment candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or investments. Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. For any such transaction, we may:
issue additional equity securities that would dilute our stockholders;
use cash that we may need in the future to operate our business;
incur debt on terms unfavorable to us or that we are unable to repay;
incur large charges or expenses or assume substantial liabilities;
become subject to new laws and regulations about which we have limited prior experience or knowledge;
encounter difficulties retaining key employees of the acquired companies; and
become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.
Any of these risks could harm our business and operating results. In addition, for legal, technical or business reasons, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of any company we acquire as quickly or fully as we would like. The integration of any acquired company may require, among other things, coordination of administrative, sales and marketing, accounting and finance functions, harmonization of legal terms and privacy policies and expansion of information and management systems.
Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets or goodwill.
We have recorded significant goodwill impairment charges from our discontinued operations and may be required to record additional charges to future earnings if our goodwill or intangible assets become impaired.
We are required under generally accepted accounting principles to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business. We will need to continue to evaluate the carrying value of our goodwill and may be required to record additional charges to earnings during the period in which any impairment of our goodwill or other intangible assets is determined, which could adversely impact our results of operations, prospects and financial position. As of December 29, 2018, our goodwill balance was $68.2 million and our intangible asset balance was $4.1 million, which represented 25% and 2% of total consolidated assets, respectively.
Our international operations are subject to certain challenges and risks.
While we intend to focus most of our international efforts on growing our existing international markets, we also may expand our international operations in the future. Our ability to manage our business and conduct our operations internationally

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requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, regulatory systems and commercial infrastructures. Our international operations require us to invest significant funds and other resources. International expansion also subjects us to numerous risks, including risks associated with:
recruiting and retaining talented and capable employees in foreign countries;
providing products and services across a significant distance, in different languages and among different cultures, including potentially modifying our solutions and features to ensure that they are culturally relevant in different countries;
compliance with applicable foreign laws and regulations, which, in certain areas such as privacy and data protection, for example GDPR, may be more restrictive than U.S. laws and regulations;
compliance with anti-bribery laws, including without limitation compliance with the Foreign Corrupt Practices Act and the United Kingdom Bribery Act;
currency exchange rate fluctuations; and
higher costs of doing business internationally.
If our revenue from our international operations does not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer.
We are subject to litigation and other legal proceedings and investigations which could have an adverse effect on our financial condition.
We are, and expect in the future to be, subject to litigation and various legal proceedings and/or government investigations, including litigation, proceedings and/or government investigations related to privacy, advertising, other consumer protection laws, contracts, intellectual property or other matters and that involve claims for substantial amounts of money or for other relief or that might necessitate changes to our business or operations. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we may establish reserves and/or disclose the relevant litigation claims or legal proceedings, as and when required or appropriate. These assessments and estimates are based on information available to management at the time of such assessment or estimation and involve a significant amount of judgment. As a result, actual outcomes or losses could differ materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these litigations or legal proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition and results of operations.
The number of our registered families is significantly higher than the number of our paying families and substantially all of our revenue is derived from our paying families.
The number of registered members in our marketplace is significantly higher than the number of paying families because some families choose to register, but not become paying families, and others become paying families, but choose not to renew their paid memberships. If we are not able to attract new registered families, convert registered families to paying families or retain our paying families for longer periods of time our business may not grow as fast as we expect, or not at all, which would harm our operating and financial results and may cause our stock price to decline. Therefore, we must provide features and products that demonstrate the value of our marketplace to our members and motivate them to become paying members. If we fail to successfully motivate our members to do so, our business and operating results could be adversely affected.
Our business may be harmed if users view our marketplace as primarily limited to finding regularly scheduled caregivers for children.
Our membership growth and engagement rates could be adversely affected if consumers perceive the utility of our marketplace to be limited to finding full-time caregivers for children. Despite the breadth of care needs that can be met through our platform, including after school care, occasional babysitting, senior care, pet care, tutoring and housekeeping, 33% of job postings in fiscal year 2018 were for full-time child caregivers. If families and caregivers fail to utilize the breadth of the family care and other services available through our marketplace, our membership growth and engagement rates could be negatively impacted, and our business will be harmed.
We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our platform is accessible, and our business is subject to risks of events outside of our control.
Our members access information through our websites and mobile apps. Our reputation and ability to acquire, retain and serve our members depend upon the reliable performance of our websites and mobile apps and the underlying network infrastructure. We have previously experienced, and may experience in the future, service disruptions, outages and other

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performance problems due to a variety of factors, including infrastructure changes, human or software errors, computer viruses or physical or electronic break-ins, denial of service attacks, capacity constraints and fraud or security violations. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve the availability of our platform, especially during peak usage times and as our solutions become more complex and if our user traffic increases. If our platform is unavailable when users attempt to access it or it does not load as quickly as they expect, users may use other services and may not return to our platform as often in the future, or at all. This would negatively impact our ability to attract users and increase engagement on our website and mobile apps. We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our infrastructure to accommodate actual and anticipated changes in our business and in our technology, our business and operating results may be harmed.
Substantially all of our communications, network and computer hardware used to operate our online services and mobile applications are located in facilities that we do not own or control. Our systems and operations are also vulnerable to damage or interruption from tornadoes, floods, fires, power losses, telecommunications failures or acts of war. For example, a significant natural disaster, such as a major snowstorm or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for such losses that may occur. In addition, acts of terrorism could negatively affect our results of operations by causing disruptions in our business or the economy as a whole.
We have implemented disaster recovery procedures that allow us to move our services to a back-up operating infrastructure in the event of a catastrophe or other event outside of our control. However, these procedures do not yet provide a real time solution. Therefore, if our primary operating infrastructure becomes due to a catastrophe or other events outside of our control, there will be a period of time that our platform will remain unavailable while the transition to a back-up operating infrastructure takes place. Any period during which our existing members are unable to access our services, or prospective members are unable to register on our website, could negatively affect our business
Interruptions or delays in service arising from our third-party vendors could impair the delivery of our service and harm our business.
We rely upon third-party vendors to provide certain services upon which we rely, including data center, communications and networking infrastructure services, credit card and payment processing services, background checking services, in-center and in-home back-up care services, email management and delivery services, customer relationship management services and other services critical to our business. The operation of our product and service offerings could be impaired if the availability of these services is interrupted or limited in any way. We have contractual relationships with these parties but do not have physical control over their daily operations, which increases our vulnerability to problems with the services they provide. If any of these third-party service providers terminates their relationship with us, or does not provide an adequate level of service to our members, it would be disruptive to our business as we seek to replace the service provider or remedy the inadequate level of service.
In addition, these service providers are vulnerable to damage or interruption from tornadoes, floods, fires, power loss, telecommunications failures and similar events. They also are subject to break-ins, sabotage, acts of vandalism, the failure of physical, administrative, and technical security measures, terrorist acts, human error, financial insolvency and other unanticipated problems or events. The occurrence of any of these events could result in interruptions in our service and unauthorized access to, or alteration of, the content and data contained on our systems and the content and data that these third-party vendors store and deliver on our behalf.
We have experienced, and expect in the future to experience, interruptions and delays in service and availability from third party vendors. Any errors, failures, interruptions or delays experienced in connection with third-party technologies and services could negatively impact our relationship with our members, our brand and reputation and our ability to attract, retain and serve our members.
If we or our service providers fail to process payment transactions effectively and accurately or fail to protect against potential fraudulent activities relating to payment transactions, we may incur expenses and suffer reputational harm.
We offer Care.com HomePay, our household employer payroll and tax services. We also offer an electronic payments solution through a third-party payments processor that allows families to make electronic payments to their caregivers through our website and mobile apps. It is possible that we or our service provider may make errors in processing payments or that funds may be misappropriated due to fraud. We may also make errors in calculating and remitting taxes to the Internal Revenue Service and state tax authorities. In addition, the online tax preparation, payroll administration and online payments industries have increasingly been subject to fraudulent activities by third parties. In addition to any direct damages and potential fines we may incur as a result of payment processing errors or fraud relating to our payments products, negative publicity or a loss of confidence regarding these services could harm our business and damage our brand.

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We may not be able to compete successfully against current and future competitors.
We are and will continue to be faced with many competitive challenges, any of which could adversely affect our prospects, results of operations and financial condition.
With respect to our consumer matching solutions, we compete for families, caregivers, employers and care-related businesses with traditional offline consumer resources, online job boards and other online care marketplaces. We also compete for a share of care-related businesses’ overall recruiting and advertising budgets with traditional, offline media companies and other Internet marketing providers. Our principal competitors are Craigslist, a ‘‘free to consumer’’ website, UrbanSitter and Sittercity, an online care specific marketplace. Our principal competitor in our employer channel is Bright Horizons. In the consumer payments market, Care.com HomePay competes with similar products offered by HomeWork Solutions, Inc., NannyChex and GTM Payroll Services. In addition, we may in the future be subject to competition from companies that operate other online marketplaces and that decide to expand into the online care market or other established companies that decide to expand into the consumer payments market. These potential competitors may be larger and have more resources than we do, may enjoy substantial competitive advantages, such as greater name recognition, longer operating histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. As a result, these potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities or technologies.
To compete effectively for members, we must continue to invest significant resources in marketing and in the development of our products and services to enhance their value. To compete effectively for revenue from employers and care-related businesses, we must continue to invest in marketing and in growing our membership. Failure to compete effectively against our current or future competitors could result in loss of current or potential members, which could adversely affect our margins, and prevent us from achieving or maintaining profitability. We cannot assure you that we will be able to compete effectively for members in the future against existing or new competitors, and the failure to do so could result in loss of existing or potential members, reduced membership revenue, increased marketing or selling expenses or diminished brand strength, any of which could harm our business.
We may incur liability or other expenses if caregivers or other users of our services engage in inappropriate, harmful or illegal conduct, or if we do not notify our members of alleged inappropriate or illegal conduct.
Families and caregivers have sought, and may seek in the future, damages from us if a caregiver or family does not meet their expectations or causes them harm. Currently, Care.com is a party to several lawsuits brought by members relating to alleged criminal acts by other members they found through the Care.com site, including acts resulting in death. These types of claims also may be brought under foreign laws. If a decision were rendered against us in a claim of this type, we may incur significant liability and/or negative publicity. Even if these claims do not result in liability to us, they may result in significant investigation or defense costs, as well as negative publicity. In addition, because there is a particularly low tolerance for failure when seeking care for a loved one, any such claims, events or publicity could have a significant adverse effect on our reputation and brand. Any of these results, particularly damages to our brand and reputation, could adversely affect our financial condition, business and operating results.
From time to time, we become aware of information relating to our members through complaints from other members, publicly available sources or otherwise, which results in the removal of the member from our marketplace. Because of the complex legal and regulatory environment in which our business operates, we generally do not advise other members when we decide to remove a particular member and, when we do advise members that we have removed a member, we generally do not tell them the reason for removal. As a result, a member who hires a caregiver through our platform may not be aware that the caregiver has subsequently been removed from our marketplace or the reason the caregiver was removed, and may seek to make a legal claim against us for failure to notify them of the removal or the reason for the removal. Any such claims, whether or not meritorious, or any claim by a caregiver that he or she should not have been so removed, may be a distraction to management, result in our incurring costs to defend or settle the claim, may require us to pay damages, or may otherwise harm our business and reputation.
Adverse economic conditions may adversely impact our business.
Our business depends on the overall demand for care. Our prospective members’ employment and income impact their demand for care. Adverse economic conditions, including increases in unemployment or reductions in labor force participation in general or among our members and prospective members, could reduce the number of dual-income families -a key component of our target market - and therefore the number of families seeking care. In addition, if consumer spending is reduced due to a weak economy, families may decrease spending on care services they believe to be non-essential, such as housekeeping and tutoring, or reduce or eliminate certain activities that typically require the services of our caregivers, such as date nights that require babysitters and vacations that may require pet sitters. As a result, weakened adverse changes in prevailing economic conditions could decrease the traffic on our platform, reduce sales of our products and services and delay adoption of new offerings.

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If we require additional funds from outside sources in the future, those funds may not be available on acceptable terms, or at all.
We may require additional funds from outside sources in the future, and we may not be able to obtain those funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders.
If we do not have, or are not able to obtain, sufficient outside funds, we may have to delay development of new product offerings. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our development programs. We also may have to reduce marketing or other resources devoted to our products or cease operations. Any of these actions could harm our operating results.
Our business is subject to a variety of U.S. and foreign laws, some of which are unsettled and still developing and which could subject us to claims or investigations, or otherwise harm our business.
We are or may be found to be subject to numerous state, federal and foreign laws and regulations that affect consumer-based businesses and companies that conduct business on the Internet. Because our services are accessible worldwide, we are also subject to laws and regulations in jurisdictions, both in the United States and internationally, in which we have no operations. Many of these laws and regulations are still evolving and being tested in courts, and could be interpreted in ways that could harm our business.  These may involve user privacy, information security and data protection, use of consumer background information, intellectual property, electronic contracts, consumer protection, telecommunications, taxation, securities law compliance and online payment services. Many jurisdictions have passed laws, such as the General Data Protection Regulation, or the GDPR, and the California Consumer Privacy Act of 2018, or the CCPA, that impose new restrictions and obligations in connection with the collection, storage, use, transmittal and retention of consumer data, and other jurisdictions are considering such laws. These laws require the adoption of operating standards that can be vaguely defined and difficult, expensive and time consuming to implement. Many of these laws are new and remain untested. As a result, the costs of complying with these laws may increase in the future as they are interpreted and standards coalesce around their implementation. These laws have imposed, and will continue to impose, substantial new compliance burdens, and will expand our litigation and regulatory enforcement risks.
Beyond information security and data privacy, we are subject to U.S. federal, state, local and foreign consumer protection laws and regulations that affect, and in many cases restrict, the manner in which we are permitted to operate. Our compliance with these laws and regulations is monitored by governmental authorities, many of which have the power to launch investigations, or to cause legal proceedings to be commenced against us. For example, we offer members a paid subscription service that auto-renews until downgraded to a non-paying membership. Many states have enacted laws specific to auto-renewing contracts and other states are considering such laws. Among other things, these laws may require specific notifications to consumers prior to and/or after a consumer agrees to an auto-renewing contract, including reminder notifications prior to a subscription renewing, and may specify the manner in which such notifications are given. Compliance with these laws and regulations may be onerous and expensive, and variations and inconsistencies among jurisdictions in their scope and interpretation may further increase the cost of compliance and litigation risk. We have been, and from time to time may become, subject to legal proceedings and/or government investigations relating to our compliance with state auto-renewing contract laws. Complying with investigations can subject us to increased costs and adverse publicity even if no violations are found. Violation of a state auto-renew law can result in civil penalties and in many instances renders the contract unenforceable, which could result in a refund of all fees paid under the contract. Likewise, we are subject to laws and regulations regarding unfair or deceptive trade practices. These laws and regulations can be interpreted to apply to content on our website, communications we make to our members and marketing materials we place with third parties or transmit to prospective or current members. We have been and are currently subject to regulatory investigations in connection with our auto-renew practices and compliance with unfair and deceptive trade practices laws. For more information about investigations related to our auto-renew practices, see Item 3 “Legal Proceedings.” The penalties, fees and expenses we incur in these investigations could be significant, either individually or in the aggregate. Changes to our practices in these or other areas that are required by law or as a result of investigations, or that we deem are advisable in light of the business and regulatory environments in which we operate, may have a negative effect on our results of operations.

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In the United States we acquire information about our members from consumer credit reporting agencies and other third-party sellers of public data. We use this information in an effort to verify the accuracy of certain information that some of our members provide about themselves and to advance our business objective to maintain a trusted online community for our members. We also facilitate the purchase and sharing of third-party consumer reports and background checks by members, subject to the permission of the individual who is the subject of the report. The Fair Credit Reporting Act, or the FCRA, applies to consumer credit reporting agencies as well as data furnishers and users of consumer reports, as those terms are defined in the FCRA. The FCRA promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies that engage in the practice of assembling or evaluating information relating to consumers for certain specified purposes, including for employment. The FCRA limits the distribution and use of consumer reports and establishes consumer rights to access and dispute their own credit files, among other rights and obligations. Members who access consumer reports about job applicants via our service expressly agree to follow the FCRA requirements for employers. Violation of the FCRA can result in civil and criminal penalties. The U.S. Federal Trade Commission, the U.S. Consumer Financial Protection Bureau, and state attorneys’ general, acting alone or in cooperation with one another, actively enforce the FCRA as do private litigants. Many states have enacted laws with requirements similar to the FCRA. Some of these laws impose additional, or more stringent, requirements than the FCRA.
In addition, the payment processing and tax preparation industries are receiving heightened attention from federal and state governments. New legislation, regulation, public policy considerations, litigation by the government or private entities or new interpretations of existing laws may subject us to additional legal or regulatory oversight or obligations, restrict the types of products and services that we can offer or the prices we can charge, or otherwise cause us to change the way we operate our payment processing and tax preparation businesses or offer our payment processing and tax products and services. This in turn may increase our cost of doing business and limit our revenue opportunities. In addition, if our practices are not consistent with current or new interpretations of existing laws, we may become subject to lawsuits, penalties and other liabilities.
If we are not able to comply with existing or new laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain services, which would negatively affect our business, financial condition and results of operations. In addition, increased public attention to liability that could result from lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.
Our practices surrounding the auto-renewal of our paid subscriptions have been, and may in the future be, the subject regulatory scrutiny and litigation.
We offer members a paid subscription service that auto-renews until downgraded to a non-paying membership. Many states have enacted laws specific to auto-renewing contracts and other states are considering such laws. Among other things, these laws may require specific notifications to consumers prior to and/or after a consumer agrees to an auto-renewing contract, including reminder notifications prior to a subscription renewing, and may specify the manner in which such notifications are given. Governmental investigations in connection with these laws can result in increased legal fees and settlements that require the payment of fines, changes to our business practices, or both. Violations of a state auto-renew laws can result in civil penalties and in many instances render the contract unenforceable, which could result in a refund of all fees paid under the contract. We have been and are subject to regulatory investigations in connection with our auto-renew practices. For example, the Marin County District Attorney’s Office is conducting an investigation related to the clarity and conspicuousness of our automatic renewal disclosures and the mechanism by which we obtain informed consent when members purchase premium subscriptions on our website. Any changes to our auto-renew practices that are required in connection with these investigations, that are required by law or that we deem are necessary or appropriate in light of the business and regulatory environments in which we operate may have a negative effect on our results of operations.
We could be subjected to lawsuits or investigations in numerous jurisdictions, including those in which we do not have any operations.
Because our services are accessible worldwide, we are subject to laws and regulations in numerous jurisdictions in the United States and abroad, including jurisdictions in which we have no local entity, employees, infrastructure or operations. We could be subjected to investigations or litigation in any number of these jurisdictions. Lawsuits or investigations in one jurisdiction could make similar lawsuits or investigations in other jurisdictions more likely, and even if we are able to successfully defend, settle or otherwise resolve an investigation or litigation in one jurisdiction, there is no guarantee we will be successful doing so in other jurisdictions. As a result, even disputes or allegations of non-compliance that are insignificant on an individual basis could, if duplicated in other jurisdictions, aggregate to have a material adverse effect on our business and results of operations.
As we develop and sell new products, services and features, we may be subject to additional and unexpected regulations, which could increase our costs or otherwise harm our business.

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As we develop and sell new products, services and features to our members, we may become subject to additional laws and regulations, which could create unexpected liabilities for us, cause us to incur additional costs or restrict our operations. For example, we offer our convenience payments product to our members through a third party. If, in the future, we provide this product directly to our members, we would be subject to complex financial regulations. We may also become subject to financial regulations as we develop additional payment and financial solutions for our members. In addition, if we expand our offerings to include more personalized services, we may become subject to various laws and regulations relating to the protection of children, seniors and/or prospective employees.
Our failure to accurately anticipate the application of laws and regulations that governmental organizations or others may claim are applicable to new products and services we may offer, or other failures to comply, could create liability for us, result in adverse publicity or cause us to alter our business practices, including curtailing or withdrawing entirely from one or more lines of business, which could hurt our brand or cause our revenue to decrease, our costs to increase or our business otherwise to be harmed.
We could face liability or other expenses for information on or accessible through our online marketplace, including background check reports.
We offer families the ability to purchase and view through our marketplace background checks, including criminal background checks, of caregivers they are interesting in hiring, subject to the caregivers’ consent. We contract with third-agencies that we believe are reputable to offer a variety of background checks that range in cost and comprehensiveness. For various reasons, including federal and state law limitations, state and county criminal record reporting system limitations, and human and electronic misstatements or errors, even the most comprehensive background check offered may not disclose the existence of all criminal records in all jurisdictions. Even though we disclose to families that the background checks they purchase and/or view through our marketplace are not comprehensive and may not be accurate or complete, we are and may continue to be subject to lawsuits alleging that background checks offered through our marketplace failed to completely or accurately disclose the criminal history of a caregiver, which resulted in the family hiring the caregiver and experiencing a loss for which we are responsible. We are, and in the future may be, subject to government investigations and inquiries into whether we failed to adequately describe or disclose the limitations of background checks offered through our marketplace. Our failure to successfully defend or settle any of these litigations or government proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition and results of operations. Even if we are able to successfully defend or favorably resolve a litigation, proceeding or investigation, publicity surrounding such litigation, proceeding or investigation could have a negative effect on our reputation and brand, which could harm our business and cause our stock price to fall.
In addition, a significant portion of the information available through our online marketplace, including job postings, caregiver profiles and photographs, is submitted by families, caregivers and third parties. We also allow care-related businesses and other third parties to advertise their products and services on our websites and include links to third-party websites. We could be exposed to liability with respect to this information. Members could assert that information concerning them on our website contains errors or omissions and/or seek damages from us for losses incurred if they rely upon incorrect information provided by our members, care-related businesses or others. We could also be subject to claims that the persons posting information on our websites do not have the right to post such information or are infringing the rights of third parties, such as copyrights in photographs and privacy and publicity rights. Among other things, we might be subject to claims that by directly or indirectly providing links to websites operated by third parties, we are liable for wrongful actions by the third parties operating those websites. These claims also may be brought under foreign laws that often do not provide the same protections for online services companies that laws in the United States do. We could incur significant costs in investigating and defending against these claims even if they do not result in liability to us.
We also allow families to submit reviews of caregivers. Our terms of use prohibit members from providing inaccurate, misleading, defamatory or false information to us or to any other user of our website and that all opinions expressed must be genuinely held. However, we do not have a regular practice of verifying the accuracy of all of the information provided by our members. There is a risk that a review or other content posted by a member may be considered defamatory or otherwise offensive, objectionable or illegal under applicable law. We also have been and may in the future be subject to claims that we failed to detect and remove unsafe members from our website based content provided in reviews. Therefore, there is a risk that publication on our website of our ratings and reviews may result in a suit against us for defamation, civil rights infringement, negligence, copyright or trademark infringement, invasion of privacy, personal injury, discrimination, or other legal claims. Even if these claims do not result in liability to us, they may result in costly and time-consuming litigation and/or injury to our reputation.
If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

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We rely on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as contractual restrictions, to safeguard our intellectual property. We do not have any patents or pending patent applications. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our digital content, aspects of our solutions for members, our technology, software, branding and functionality, or obtain and use information that we consider proprietary. Moreover, policing our proprietary rights is difficult and may not always be effective. As we expand internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States.
Our digital content is not protected by any registered copyrights or other registered intellectual property. Rather, our digital content is protected by statutory and common law rights, user agreements that limit access to and use of our data and by technological measures. Compliance with use restrictions is difficult to monitor, and our proprietary rights in our digital content databases may be more difficult to enforce than other forms of intellectual property rights.
We hold several registered trademarks in the United States, including ‘‘Care.com’’, which is registered on the principal register. We also hold registered trademarks in the E.U., Germany and Canada. Some of our trade names may not be eligible to receive trademark protection. Trademark protection may also not be available, or sought by us, in every country in which our service may become available. Competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in Internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly confusing consumers and caregivers.
We currently hold the ‘‘Care.com’’, ‘‘Betreut.de’’, “myhomepay.com” and ‘‘Breedlove.com’’ Internet domain names and various other domain names. Domain names generally are regulated by Internet regulatory bodies. If we lose the ability to use a domain name in the United States or any other country, we would be forced to incur significant additional expense to market our solutions, including the development of a new brand and the creation of new promotional materials, which could substantially harm our business and operating results. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize the ‘‘Care’’ name or other names we utilize in all of the countries in which we currently intend to conduct business.
In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our personnel, consultants and third parties with whom we have relationships. These agreements may not effectively prevent disclosure of trade secrets and other confidential information, and may not provide an adequate remedy in the event of misappropriation of trade secrets or any unauthorized disclosure of trade secrets and other confidential information. In addition, others may independently discover trade secrets and confidential information and, in such cases, we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions, and failure to obtain or maintain trade secret protection, or our competitors being able to obtain our trade secrets or to independently develop technology similar to ours or competing technologies, could adversely affect our competitive business position.
Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.
Internet, technology and social media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. Some own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us. We have received in the past and may in the future receive notices asserting that we have infringed, misappropriated or otherwise violated a third party’s intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. We cannot assure you that we are not infringing or violating any third-party intellectual property rights.
We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation claims arising from such assertions will substantially harm our business and operating results. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to: pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s patent or copyright rights; cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our solutions; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials; and to indemnify our partners and other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. Any of these events could seriously harm our business, operating results and financial

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condition. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our business and our stock price.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be reevaluated frequently.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will be detected.
Our revenue may be negatively affected if we are required to charge sales tax or other transaction taxes on all or a portion of our past and future sales in jurisdictions where we are currently not collecting and reporting tax.
We currently only charge and collect sales or other transaction taxes in certain of the jurisdictions where our members reside. A successful assertion by any state, local jurisdiction or country in which we do not charge and collect such taxes that we should be collecting sales or other transaction taxes on the sale of our products or services, or the imposition of new laws requiring the collection of sales or other transaction taxes on the sale of our products or services, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, reduce demand for our products or services, decrease our ability to compete if competitors lower their fees to offset the tax but we do not or otherwise substantially harm our business and results of operations.
Any inability of the Company to realize its deferred tax assets, if and when they arise, may have a material adverse effect on the Company’s financial condition and results of operations.
We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits. We evaluate our deferred tax assets for recoverability based on available evidence, including assumptions about future profitability and capital gain generation. Although we believe that it is more likely than not that the deferred tax assets will be realized, some or all of our deferred tax assets could expire unused if we are unable to generate taxable income of an appropriate character and in a sufficient amount to utilize these tax benefits in the future. Any determination that we would not be able to realize all or a portion of its deferred tax assets in the future would result in a charge to earnings in the period in which the determination is made. This charge could have a material adverse effect on our results of operations and financial condition. In addition, the assumptions used to make this determination are subject to change from period to period based on changes in tax laws or variances between our projected operating performance and actual results. As a result, significant management judgment is required in assessing the possible need for a deferred tax asset valuation allowance. The changes in the estimates and assumptions used in such assessments and decisions can materially affect our results of operations and financial condition.
Changes in our (benefit from) provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.
Our (benefit from) provision for income taxes is subject to volatility and could be adversely affected by the following:
changes in the valuation of our deferred tax assets;
foreign or domestic income tax assessments and any related tax interest or penalties;
expiration of, or lapses in, the research and development tax credit laws;
tax effects of nondeductible compensation;
adjustments to the pricing of intercompany transactions and transfers of intellectual property or other assets;
changes in accounting principles; or
changes in tax laws and regulations, including changes in taxation of the services provided by our foreign subsidiaries.

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Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, that if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital. In addition, we are subject to the examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. The outcomes of these examinations might have a material and adverse effect on our operating results and financial condition.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 29, 2018, we had federal net operating loss carryforwards of $137.2 million and state net operating loss carryforwards of $116.9 million. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an ‘‘ownership change,’’ the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an ‘‘ownership change’’ generally occurs if there is a cumulative change in our ownership by ‘‘5-percent shareholders’’ that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We may have experienced an ownership change in the past and may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income and taxes may be subject to significant limitations.
Our international operations subject us to potentially adverse tax consequences.
We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.
Comprehensive tax reform bills could adversely affect our business and financial condition.
The U.S. government recently enacted comprehensive federal income tax legislation that includes significant changes to the taxation of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could be adversely affected. In addition, the recently-enacted legislation could create additional operational cost for our Care.com HomePay service and/or adversely affect the tax position of caregivers, which may negatively impact our revenue from that service. This Annual Report on Form 10-K does not discuss any such tax legislation or the manner in which it might affect purchasers or holders of our common stock. We urge current and prospective stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our common stock.
We may not be able to successfully prevent others, including copycat websites and mobile apps, from misappropriating our content.
From time to time, third parties have attempted to misappropriate our content through website scraping, search robots or other means. We have deployed several technologies designed to detect and prevent such efforts. However, we may not be able to successfully detect and prevent all such efforts in a timely manner or assure that no misuse of our content occurs.
In addition, third parties operating ‘‘copycat’’ websites have attempted to imitate our brand or the functionality of our service. When we have become aware of such efforts by other companies, we have employed technological or legal measures in an attempt to halt their operations. However, we may not be able to detect all such efforts in a timely manner, or at all, and even if we could, the technological and legal measures available to us may be insufficient to stop their operations. In some cases, particularly in the case of companies operating outside of the United States, our available remedies may not be adequate to protect us against the damage to our business caused by such websites or mobile apps. Regardless of whether we can successfully enforce our rights against the operation of these third parties, any measures that we may take could require us to expend significant financial or other resources and have a significantly adverse effect on our brand.

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Some of our solutions contain open-source software, which may pose particular risks to our proprietary software and solutions.
We use open-source software in our solutions and will use open source software in the future. From time to time, we may face claims from third parties claiming ownership of, or demanding release of, the open source software and/or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have a negative effect on our business and operating results.
We are an ‘‘emerging growth company,’’ and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are currently an ‘‘emerging growth company,’’ as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and expect to remain an emerging growth company until the end of our fiscal 2019 fiscal year. We will no longer be an “emerging growth company,” as defined by the JOBS Act as of fiscal 2019 year-end. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In this Annual Report on Form 10-K, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management has and will continue to be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. These expenses are likely to increase once we are no longer an “emerging growth company”. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The New York Stock Exchange and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel have devoted and will continue to need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly.
We are continually evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
The results of the United Kingdom’s referendum on withdrawal from the E.U. may have a negative effect on global economic conditions, financial markets and our business.
On June 23, 2016, the United Kingdom (the “U.K.”) held a referendum in which the majority of eligible members of the electorate in the U.K. voted to approve the U.K.’s withdrawal from the E.U., commonly referred to as ìBrexit.î As a result of the referendum, the U.K. government served notice under Article 50 of the Treaty of the European Union on March 29, 2017 to formally initiate a withdrawal process. The U.K and the E.U. have had a two-year period under Article 50 to negotiate the terms of the U.K.’s withdrawal from the E.U. The withdrawal agreement and political declaration that were endorsed at a special meeting of the European Council on November 25, 2018 did not receive the approval of the U.K. Parliament in January 2019.

32


Further discussions are ongoing, although the European Commission has stated that the E.U. will not reopen the withdrawal agreement. Any extension of the negotiation period for withdrawal will require the consent of all 27 remaining member states of the E.U.
A withdrawal could, among other outcomes, disrupt the free movement of goods, services and people between the U.K. and the E.U., undermine bilateral cooperation in key policy areas and significantly disrupt trade between the U.K. and the E.U. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the U.K. from the E.U. would have and how such withdrawal would affect us.
The Brexit vote has caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business. The strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results. The announcement of Brexit vote and the proposed withdrawal of the U.K. from the E.U. have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Such global economic uncertainty may cause our customers to closely monitor their costs and reduce their spending budgets. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile, and the value of an investment in our common stock may decline.
Shares of our common stock were sold in our initial public offering in January 2014 at a price of $17.00 per share and, from the date our common stock first traded on the New York Stock Exchange through March 1, 2019 our common stock has subsequently traded as high as $29.25 and as low as $4.89. The market price of our common stock could be subject to significant fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this ‘‘Risk Factors’’ section and elsewhere in this Annual Report on Form 10-K, these factors include:
our operating performance and the operating performance of similar companies;
the overall performance of the equity markets;
the number of shares of our common stock publicly owned and available for trading;
threatened or actual litigation;
changes in laws or regulations relating to our solutions;
any major change in our board of directors or management;
publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts;
large volumes of sales of shares of our common stock by existing stockholders; and
general political and economic conditions.
In addition, the stock market in general, and the market for the stock of technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.
If securities or industry analysts publish inaccurate or unfavorable research about our business, cease coverage of our company or make projections that exceed our actual results, our stock price and trading volume could decline.
The trading market for our common stock is and will be influenced by the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

33


Furthermore, such analysts publish their own projections regarding our actual results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our stock price may decline if we fail to meet securities and industry analysts’ projections.
Short sellers of our stock have been, and may in the future be, manipulative and may drive down the market price of our common stock.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks. In the past, the publication of such commentary about us by a disclosed short seller precipitated a decline in the market price of our common stock. Efforts by such short seller or by other short sellers, whether or not they identify themselves as such, may have a similar effect, and no assurances can be made that any such effect would be temporary or insignificant.
Our management has broad discretion over our existing cash resources and might not use such funds in ways that increase the value of your investment.
Our management generally has broad discretion over the use of our cash resources, and you will be relying on the judgment of our management regarding the application of these resources. Our management might not apply these resources in ways that increase the value of your investment.
Concentration of ownership among our officers, directors, large stockholders and their affiliates may prevent new investors, from influencing corporate decisions.
Our officers, directors and their affiliated funds and certain of our principal stockholders beneficially own or control, directly or indirectly, a substantial percentage of the outstanding shares of our common stock. As a result, if some of these persons or entities act together, they will have significant influence over the outcome of matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit the ability of other stockholders to influence corporate matters and may have the effect of delaying or preventing an acquisition or cause the market price of our stock to decline. Some of these persons or entities may have interests different from yours. For example, because some of these stockholders purchased their shares at prices substantially below the price at which shares are currently being sold to the public and have held their shares for a relatively longer period, they may be more interested in selling the company to an acquirer than other investors or may want us to pursue strategies that are different from the wishes of other investors.
We do not intend to pay dividends for the foreseeable future.
We never have declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain any future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their shares of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Anti-takeover provisions contained in our certificate of incorporation and by-laws, as well as provisions of Delaware law, could impair a takeover attempt.
Our certificate of incorporation, by-laws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:
authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;
limiting the liability of, and providing indemnification to, our directors and officers;
limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

34


requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;
providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings;
establishing a classified board of directors so that not all members of our board are elected at one time;
limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office; and
providing that directors may be removed by stockholders only for cause.
These provisions, alone or together, could delay hostile takeovers and changes in control of our company or changes in our management.
Risks Related to Our Series A Preferred Stock
The issuance of shares of our Series A Preferred Stock to CapitalG LP reduces the relative voting power of holders of our common stock, dilutes the ownership of such holders, may adversely affect the market price of our common stock and could discourage a change in control of our company.
On June 29, 2016, we completed the sale of shares of our Series A Preferred Stock to CapitalG LP (“CapitalG”) for an aggregate purchase price of $46.35 million pursuant to an Investment Agreement, dated June 29, 2016, between us and CapitalG (the “Investment Agreement”). As of June 29, 2016, these shares represented approximately 13.7% of our outstanding common stock, on an as-converted basis. Holders of Series A Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per annum, payable semi-annually in arrears. The dividends are to be paid in-kind over a seven-year period.
As holders of our Series A Preferred Stock are entitled to vote on an as-converted basis together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, the issuance of the Series A Preferred Stock to CapitalG, and the subsequent payment of in-kind dividends, effectively reduces the relative voting power of the holders of our common stock.
In addition, the conversion of the Series A Preferred Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock. We granted CapitalG customary registration rights in respect of any shares of common stock issued upon conversion of the Series A Preferred Stock. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading. Sales by CapitalG, or transferees of our Series A Preferred Stock, of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.    
CapitalG is owned by Alphabet Inc., a multinational conglomerate whose portfolio encompasses several industries and includes numerous companies, including Google LLC It is possible that CapitalG’s affiliation with companies such as Google LLC may deter other companies from exploring acquisition opportunities of the company, particularly if those potential acquirers view Google LLC or other companies affiliated with CapitalG as competitors.
CapitalG may exercise influence over us, including through their ability to designate and the ability of the Series A Preferred Stock holders to elect a member of our Board of Directors, and their interests may not always be aligned with the holders of our common stock.
As of December 29, 2018, CapitalG is the beneficial owner of approximately 13.6% of our outstanding common stock, on an as converted basis, making CapitalG our largest stockholder. Moreover, the ongoing payment of in-kind dividends to CapitalG is expected to increase the company’s ownership interest in our company. CapitalG is in the business of making investments in companies, including businesses that may directly or indirectly compete with certain portions of our business, and they may have interests that diverge from, or even conflict with, those of our other stockholders.
In addition, pursuant to the terms of the Investment Agreement and the Series A Preferred Stock, for so long as CapitalG or its affiliates beneficially own at least 50% of the shares of Series A Preferred Stock purchased from us pursuant to the Investment Agreement, the holders of Series A Preferred Stock shall have the right to elect one director to our board, with CapitalG having the right to designate the nominee for such position. Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of a director designated by CapitalG may differ from the interests of our stockholders as a whole or of our other directors.

35


Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, and may result in the interests of CapitalG or other holders of Series A Preferred Stock differing from those of our common stockholders.
The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.
The holders of our Series A Preferred Stock also have certain redemption rights or put rights, including the right to require us to repurchase the Series A Preferred Stock on any date after June 29, 2023, at 100% of the Liquidation Preference thereof plus all Accrued but Unpaid Dividends, and the right to require us to repurchase the Series A Preferred Stock upon certain change of control events at 150% of the then current Liquidation Preference plus all Accrued but Unpaid Dividends.
These preferential rights could result in divergent interests between CapitalG or other holders of our Series A Preferred Stock and holders of our common stock. Moreover, the repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.     PROPERTIES
We lease approximately 108,700 square feet of space in our headquarters in Waltham, Massachusetts under leases that expire in January 2025. Of such space, we sublet approximately 10,400 square feet in April 2016, and we ceased use of 25,812 square feet of the same facility in August 2017. We also lease approximately 20,000 square feet of space in Austin, Texas, approximately 19,000 square feet of space in Berlin, Germany and have insignificant rental spaces in various other locations in the United States and Europe. We believe our current and planned office facilities are generally suitable to meet our needs for the foreseeable future. However, we will seek additional space as needed to satisfy our growth.
ITEM 3.    LEGAL PROCEEDINGS
Investigation by the Marin County and San Francisco, California District Attorneys’ Offices
In March 2016, we learned of an investigation by the Marin County, California District Attorney’s Office regarding the clarity and conspicuousness of our automatic renewal disclosures and the mechanism by which we obtain informed consent when members purchase premium subscriptions on our website.  In September 2016, we learned of an investigation by the San Francisco County, California District Attorney’s Office regarding the accuracy and clarity of our disclosures about the sex offender registry search available to consumers through our website.  In 2017, the District Attorneys’ Offices have proposed a joint settlement that would include a payment by us of approximately $4.9 million to resolve both investigations.  We are in discussions with the District Attorneys’ Offices regarding the proposed settlement and continue to cooperate with the investigations.  We have determined that it is probable that we will incur a loss in connection with these matters and have accrued an amount based on the low end of the range of our reasonable estimate of this loss.
We also are currently involved in other pending regulatory and government inquiries and investigations and legal proceedings in the ordinary course of our business. Although the results of these matters cannot be predicted with certainty, we currently believe that there are no other inquiries, investigations or legal proceedings pending that are likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information

36


Our common stock began trading on the New York Stock Exchange under the symbol “CRCM” on January 24, 2014. The following table sets forth the high and low sales prices per share for our Common Stock on the New York Stock Exchange for the indicated periods.
 
Fiscal 2018
 
Fiscal 2017
 
High
 
Low
 
High
 
Low
First Quarter
$
20.62

 
$
15.80

 
$
12.97

 
$
8.05

Second Quarter
$
22.95

 
$
15.14

 
$
16.07

 
$
11.26

Third Quarter
$
22.30

 
$
17.09

 
$
16.50

 
$
12.80

Fourth Quarter
$
22.42

 
$
16.35

 
$
20.88

 
$
14.37

Holders
As of March 1, 2019 there were 24 holders of record of shares of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividend Policy
We have not paid cash dividends since our inception. Our board of directors does not currently intend to pay cash dividends on our common stock. We anticipate that we will retain any future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Our Series A Redeemable Convertible 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.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities Exchange Commission nor shall any such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total return of our common stock during the period commencing January 24, 2014 (the date our common stock began trading on the NYSE) to December 29, 2018, with the Russell 2000 Index and the NASDAQ Internet Index. The graph depicts the results of investing $100 in our common stock, the Russell 2000 Index and the NASDAQ Internet Index at closing prices on January 24, 2014 and assumes, with respect to the Russell 2000 Index and the NASDAQ Internet Index, that all dividends were reinvested. We did not declare or pay any cash dividends on our stock. Such returns are based on historical results and are not intended to suggest future performance.


37


chart-f6a96c1885c4584bb96.jpg
ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data below should be read in conjunction with Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ and our consolidated financial statements and the related notes appearing in Item 8 “Consolidated Financial Statements and Supporting Data” of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included in this Annual Report on Form 10-K.
The consolidated statements of operations for the fiscal years ended and as of December 29, 2018, December 30, 2017, and December 31, 2016, and the consolidated balance sheets as of December 29, 2018 and December 30, 2017, are derived from our audited consolidated financial statements appearing in Item 8 “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. The selected statements of operations data for fiscal years 2015 and 2014, and selected balance sheet data for fiscal years 2016, 2015, and 2014, are derived from our audited consolidated financial statements not included in this report. In addition, during the fourth quarter of fiscal 2015 we substantially completed our plan to exit the Citrus Lane business, and during the fourth quarter of fiscal 2016, we completed the exit of this business. As such, all assets, liabilities, and results of operations have been reclassified to discontinued operations for all periods presented. There were no assets, liabilities, or results of operations for discontinued operations in fiscal years 2017 and 2018. See Note 3 to the Consolidated Financial Statements for more information.
Our historical results are not necessarily indicative of the results to be expected in the future (in thousands, except per share data and revenue per paying family and caregiver):
 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014 (1)
 
 
 
 
 
 
 
 
 
 
Revenue
$
192,260

 
$
174,090

 
$
161,754

 
$
138,681

 
$
110,712

Cost of revenue
42,706

 
35,773

 
31,830

 
26,117

 
23,464

Operating expenses:
 
 
 
 
 
 
 
 
 
Selling and marketing
60,488

 
66,906

 
72,266

 
73,521

 
73,799

Research and development
34,641

 
25,423

 
20,402

 
19,801

 
16,216

General and administrative
44,360

 
35,214

 
31,939

 
30,158

 
27,325


38


 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014 (1)
Depreciation and amortization
1,669

 
1,684

 
2,972

 
4,503

 
4,363

Restructuring charges
613

 
3,136

 
714

 

 

Total operating expenses
141,771

 
132,363

 
128,293

 
127,983

 
121,703

Operating income (expense)
7,783

 
5,954

 
1,631

 
(15,419
)
 
(34,455
)
Other (expense) income, net
(165
)
 
2,203

 
(1,064
)
 
(1,239
)
 
(3,856
)
Income (loss) from continuing operations before income taxes
7,618

 
8,157

 
567

 
(16,658
)
 
(38,311
)
(Benefit from) provision for income taxes
(45,272
)
 
(2,506
)
 
1,282

 
1,221

 
(752
)
Income (loss) from continuing operations
52,890

 
10,663

 
(715
)
 
(17,879
)
 
(37,559
)
Income (loss) from discontinued operations, net of tax

 

 
7,761

 
(17,116
)
 
(42,733
)
Net income (loss)
52,890

 
10,663

 
7,046

 
(34,995
)
 
(80,292
)
Accretion of preferred stock

 

 

 

 
(4
)
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(2,748
)
 
(2,599
)
 
(1,310
)
 

 

Accretion of Series A Redeemable Convertible Preferred Stock issuance costs

 

 
(2,124
)
 

 

Net income attributable to Series A Redeemable Convertible Preferred Stock
(6,983
)
 
(1,120
)
 
(467
)
 

 

Net income (loss) attributable to common stockholders
$
43,159

 
$
6,944

 
$
3,145

 
$
(34,995
)
 
$
(80,296
)
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to common stockholders (Basic):
 
 
 
 
 
 
 
 
 
Income (loss) per share from continuing operations attributable to common stockholders
$
1.38

 
$
0.23

 
$
(0.12
)
 
$
(0.56
)
 
$
(1.30
)
Income per share from discontinued operations attributable to common stockholders

 
$

 
$
0.22

 
(0.53
)
 
(1.47
)
Net income (loss) per share attributable to common stockholders
$
1.38

 
$
0.23

 
$
0.10

 
$
(1.09
)
 
$
(2.77
)
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to common stockholders (Diluted):
 
 
 
 
 
 
 
 
 
Income (loss) per share from continuing operations attributable to common stockholders
$
1.29

 
$
0.22

 
$
(0.12
)
 
$
(0.56
)
 
$
(1.30
)
Income (loss) per share from discontinued operations attributable to common stockholders

 

 
0.22

 
(0.53
)
 
(1.47
)

39


 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014 (1)
Net income (loss) per share attributable to common stockholders
$
1.29

 
$
0.22

 
$
0.10

 
$
(1.09
)
 
$
(2.77
)
 
 
 
 
 
 
 
 
 
 
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic
31,198

 
29,680

 
30,535

 
32,001

 
28,941

Diluted
33,816

 
32,406

 
30,535

 
32,001

 
28,941

(1) The results of operations for Citrus Lane, Inc. have been included in our consolidated financial statements since the date of acquisition on July 17, 2014 and are presented within discontinued operations.
 
Other Financial and Operational Data:
Adjusted EBITDA (2)
$
32,229

 
$
23,302

 
$
13,402

 
$
(5,032
)
 
$
(21,106
)
Total members
31,724

 
27,312

 
22,826

 
18,377

 
13,788

Total families
18,290

 
15,510

 
12,900

 
10,265

 
7,612

Total caregivers
13,434

 
11,802

 
9,926

 
8,112

 
6,176

 
 
 
 
 
 
 
 
 
 
(2) Adjusted EBITDA is a non-GAAP measure. We define adjusted EBITDA as income (loss) from continuing operations, which excludes the accretion of preferred stock dividends and issuance costs, as well as: federal, state and franchise taxes, other income (expense), net, depreciation and amortization, stock-based compensation, accretion of contingent consideration, merger and acquisition related costs, and other unusual or non-cash significant adjustments, such as impairment and restructuring charges. Adjusted EBITDA eliminates the effects of financing, income taxes and the accounting effects of capital spending, which is based on the Company's estimate of the useful life of tangible and intangible assets. Please see ‘‘Adjusted EBITDA’’ below for more information and for a reconciliation of adjusted EBITDA to net income from continuing operations, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Stock-based compensation included in the statements of operations data above was as follows (in thousands):
 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014 (1)
Cost of revenue
$
310

 
$
396

 
$
316

 
$
236

 
$
156

Selling and marketing
2,553

 
1,216

 
898

 
813

 
582

Research and development
4,396

 
1,771

 
1,103

 
760

 
437

General and administrative
10,115

 
6,310

 
4,153

 
3,116

 
2,704

Income (loss) from discontinued operations

 

 
14

 
589

 
1,926

Total
$
17,374

 
$
9,693

 
$
6,484

 
$
5,514

 
$
5,805

(1) The results of operations for Citrus Lane, Inc. have been included in our consolidated financial statements since the date of acquisition on July 17, 2014 and are presented within discontinued operations.


40


 
As of
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
92,432

 
$
86,728

 
$
61,094

 
$
61,240

 
$
71,881

Working capital
100,208

 
79,651

 
56,959

 
24,060

 
43,834

Total assets
268,067

 
184,376

 
155,224

 
142,478

 
173,104

Total deferred revenue
20,176

 
18,626

 
15,971

 
13,435

 
11,472

Total non-current liabilities
7,244

 
7,071

 
9,363

 
7,306

 
12,828

Series A Redeemable Convertible Preferred Stock
53,007

 
50,259

 
47,660

 

 

Total stockholders' equity
162,213

 
89,461

 
66,949

 
88,252

 
118,050

Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this Annual Report on Form 10-K adjusted EBITDA, a non-GAAP financial measure. The table below represents a reconciliation of adjusted EBITDA to net income (loss) from continuing operations, the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this Annual Report on Form 10-K 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, issuance costs, and income attributable to the Series A Redeemable Convertible Preferred Stock;
• 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):

41


 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
Net income (loss) from continuing operations
$
52,890

 
$
10,663

 
$
(715
)
 
 
 
 
 
 
Federal, state and franchise taxes
(44,651
)
 
(2,228
)
 
1,619

Other expense (income), net
165

 
(2,203
)
 
1,064

Depreciation and amortization
2,128

 
2,240

 
3,722

EBITDA
10,532

 
8,472

 
5,690

 
 
 
 
 
 
Stock-based compensation
17,374

 
9,693

 
6,470

Merger and acquisition related costs
2,834

 
407

 
128

Restructuring related costs
613

 
3,136

 
714

Litigation related costs
239

 
636

 
400

Software implementation costs
308

 
471

 

Severance related costs
67

 
487

 

Impairment of intangible assets
142

 

 

Non-recurring professional fees
120

 

 

Adjusted EBITDA
$
32,229

 
$
23,302

 
$
13,402

    

42



ITEM 7.
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 consolidated financial statements and the related notes thereto included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read Item 1A “Risk Factors” of this report for a discussion of important factors that could cause actual results to differ materially from our expectations.
Overview
We are the world’s largest online marketplace for finding and managing family care. We have 31.7 million members, including 18.3 million families and 13.4 million caregivers, spanning more than 20 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 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 31.7 million as of December 29, 2018 from 27.3 million as of December 30, 2017, representing a 16% annual growth rate. Our revenue has increased to $192.3 million for the fiscal year ended December 29, 2018 from $174.1 million for the fiscal year ended December 30, 2017. We experienced net income of $52.9 million and $10.7 million in fiscal year 2018 and fiscal year 2017, 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 paying family - U.S. Consumer Business):
 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
Total members
31,724

 
27,312

 
22,826

Total families
18,290

 
15,510

 
12,900

Total caregivers
13,434

 
11,802

 
9,926

Paying families - U.S. Consumer Business
336

 
302

 
274

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

 
$
40

 
$
40

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 in enough in them to have registered. Our total members increased 16% and 20% as of the fiscal years ended December 29, 2018 and December 30, 2017, respectively, compared to total members as of the prior year ends.

43


Total Families. We define total families as the number of paying and non-paying families 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. Our total families increased 18% and 20% during the fiscal years ended December 29, 2018 and December 30, 2017, respectively, compared to the total families as of the prior year ends.
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 14% and 19% during the fiscal years ended December 29, 2018 and December 30, 2017, respectively, compared to the total caregivers as of the prior year ends.
Paying Families - U.S. Consumer Business. We define paying families - U.S. Consumer Business as the number of families located in the United States who have registered through our U.S.-based websites and mobile apps and who are paying subscribers of our U.S.-based matching services or our Care.com HomePay services as of the end of the fiscal period. The number of paying families in our U.S. Consumer Business increased 11% and 10% during the fiscal year ends December 29, 2018 and December 30, 2017, respectively, compared to the total paying families as of the prior year ends.
Monthly Average Revenue per Paying Family - U.S. Consumer Business. We define monthly average revenue per paying family, or MARPPF, for our U.S. Consumer Business as total U.S. Consumer Business revenue, including revenue from subscriptions and products, divided by the average number of paying families of our U.S.-based matching services and Care.com HomePay services in a given fiscal period, expressed on a monthly basis. We believe MARPPF is significant to our business because it represents how successful we have been at monetizing the subset of members who we have converted into paying families. The numerator of this metric includes revenue that comes from caregivers in addition to revenue that comes from families - while the denominator includes only paying families. We believe this is the most meaningful presentation because we do not consider the caregiver component of our business to be separate and distinct; rather, we believe revenue generated from caregivers is a byproduct of the families that have registered on our site. Our U.S. Consumer Business MARPPF decreased 2.5% and remained constant during the fiscal years ended December 29, 2018 and December 30, 2017, respectively.
Factors and Trends of Our Business
We believe that our performance and future success depend upon a number of factors, including our ability to continue to expand our member base, convert basic members to paying families, introduce innovative new products and enhance existing offerings and our infrastructure. Each of these areas presents significant opportunities for us, but also poses significant risks and challenges. See the section titled ‘‘Risk Factors’’ for a further discussion on these and other risks to our business.
Length of Paid Time. Our revenue is impacted by a number of factors, including the pricing and mix of our monthly, quarterly and annual subscriptions, our ability to cross-sell our suite of products and services and the total length of time a paying family subscribes to the various solutions we offer, which we refer to as length of paid time. This includes both initial and reuse subscription periods, which we define as the duration of subscriptions by the same paying family, which may not necessarily occur consecutively with the paying family’s initial subscription. Based on historical data, we estimate that the average total length of paid time for a U.S. Consumer Business paying family is 14.8 months, measured over an eight year period. During fiscal year 2018, our U.S. Consumer Business MARPPF was $39.
Customer Acquisition Costs. We expect to continue to make significant investments to grow our member and enterprise customer bases. Our average cost of acquisition per member and the number of new members we generate depends on a number of factors, including the effectiveness of our marketing campaigns, changes in cost of media, the mix of our media expenditures between television and search advertising, the competitive environment in our markets and publicity about our company. In addition, an increasing percentage of our paying families has come from word-of-mouth referrals, search engine optimization and reuse, reducing our overall per-member customer acquisition cost. Currently, a majority of our marketing expenditures is spent on attracting paying families for our U.S. Consumer Business, and in fiscal year 2018, we spent an average of $73 per new subscription compared to $99 in fiscal year 2017. These expenditures included television advertising, search advertising and all other direct marketing expenses.
Impact of Seasonal Demands. We generally experience seasonal fluctuations in our financial results due to a heightened demand for caregivers at the beginning of a school year and at the beginning of a calendar year. Accordingly, purchases of subscriptions for our consumer matching solutions generally increase in the first and third quarters compared to the second and fourth quarters. Revenue recognition associated with these subscriptions is recognized on a ratable basis over the subscription term, which could result in cash collection and revenue recognition occurring in different fiscal quarters.
Acquisitions. As part of our ongoing growth strategy, we have completed a number of acquisitions since July 2012. Our growth since this time has been significantly affected by these acquisitions. In general, we pursue acquisitions for several reasons, such as acquiring additional products which enhance the user experience of our services and complement our existing business. Our balance sheet includes goodwill of $68.2 million and intangible assets of $4.1 million related to various prior

44


acquisitions. We perform our annual goodwill impairment test annually as of the first day of our fiscal fourth quarter, or more frequently if certain events or circumstances warrant. Events or changes in circumstances that might indicate potential impairment in goodwill include the specific factors described in the Risk Factors section of this Annual Report on Form 10-K, including a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business.
Financial Operations Overview
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 so they can recruit employees and advertise their business profiles on our platform. The majority 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.
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’’ 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 typically 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. (see ‘‘Critical Accounting Policies and Estimates’’ for a description of the revenue recognition criteria)
Cost of Revenue and Operating Expenses
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 the fulfillment costs of back-up care. Additionally, cost of revenue includes website hosting fees and amortization expense related to caregiver relationships and proprietary software acquired as part of acquisitions. 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.
Selling and Marketing. Our selling and marketing expenses primarily consist of customer acquisition marketing, including television advertising, branding, other advertising and public relations costs, as well as third-party resources for consulting and allocated facilities and other supporting overhead costs. In addition, sales and marketing expenses include salaries, benefits,

45



stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. We plan to continue to invest in sales and marketing to grow our current customer base, continue building brand awareness, and expand our global footprint.
Research and Development. Our research and development expenses primarily consist of salaries, benefits and stock-based compensation for our engineers, product managers and developers. In addition, product development expenses include third-party resources, as well as allocated facilities and other supporting overhead costs. We believe that continued investment in features, software development tools and code modification is important to attaining our strategic objectives and, as a result, we expect product development expense to increase on an absolute basis in the near term.
General and Administrative. Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include: third-party resources; cyber security risk mitigation costs; legal and accounting services; acquisition-related costs; insurance premiums; and facilities.
Depreciation and Amortization. Depreciation and amortization expenses primarily consist of depreciation of computer equipment, software and leasehold improvements and amortization of acquired intangibles. We expect that depreciation and amortization expenses will decrease as a percentage of revenue.
Restructuring Charges. Restructuring charges consists primarily of costs associated with the expected loss on the sublease and cease-use of certain portions of our facilities.
Other (Expense) Income, Net. Other (expense) income, net, consists primarily of foreign exchange gains and losses, net of the interest income earned on our cash and cash equivalents and investments.
(Benefit from) Provision for Income Taxes. (Benefit from) provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions.
Discontinued Operations
We report the results of operations of a component of our company that either has been exited, disposed of, or held for sale in discontinued operations. We present such events as discontinued operations so long as the financial results can be clearly identified, the future operations and cash flows are completely eliminated from ongoing operations, and so long as we do not have any significant continuing involvement in the operations of the component after the disposal or termination transaction.
Results of Operations
The following table sets forth our 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):

46


 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
 
 
 
 
 
Revenue
$
192,260

 
$
174,090

 
$
161,754

Cost of revenue
42,706

 
35,773

 
31,830

Operating expenses:
 
 
 
 
 
Selling and marketing
60,488

 
66,906

 
72,266

Research and development
34,641

 
25,423

 
20,402

General and administrative
44,360

 
35,214

 
31,939

Depreciation and amortization
1,669

 
1,684

 
2,972

Restructuring charges
613

 
3,136

 
714

Total operating expenses
141,771

 
132,363

 
128,293

Operating income
7,783

 
5,954

 
1,631

Other (expense) income, net
(165
)
 
2,203

 
(1,064
)
Income from continuing operations before income taxes
7,618

 
8,157

 
567

(Benefit from) provision for income taxes
(45,272
)
 
(2,506
)
 
1,282

Income (loss) from continuing operations
52,890

 
10,663

 
(715
)
Income from discontinued operations, net of tax

 

 
7,761

Net income
52,890

 
10,663

 
7,046

Accretion of Series A Redeemable Convertible Preferred Stock dividends
(2,748
)
 
(2,599
)
 
(1,310
)
Accretion of Series A Redeemable Convertible Preferred Stock issuance costs

 

 
(2,124
)
Net income attributable to Series A Redeemable Convertible Preferred Stock
(6,983
)
 
(1,120
)
 
(467
)
Net income attributable to common stockholders
$
43,159

 
$
6,944

 
$
3,145

 
 
 
 
 
 
Net income per share attributable to common stockholders (Basic):
 
 
 
 
 
Income (loss) per share from continuing operations attributable to common stockholders
$
1.38

 
$
0.23

 
$
(0.12
)
Income per share from discontinued operations attributable to common stockholders

 

 
0.22

Net income per share attributable to common stockholders
$
1.38

 
$
0.23

 
$
0.10

 
 
 
 
 
 
Net income per share attributable to common stockholders (Diluted):
 
 
 
 
 
Income (loss) per share from continuing operations attributable to common stockholders
$
1.29

 
$
0.22

 
$
(0.12
)
Income per share from discontinued operations attributable to common stockholders

 

 
0.22

Net income per share attributable to common stockholders
$
1.29

 
$
0.22

 
$
0.10

 
 
 
 
 
 
Weighted-average shares used to compute net income per share attributable to common stockholders:
 
 
 
 
 
Basic
31,198

 
29,680

 
30,535

Diluted
33,816

 
32,406

 
30,535

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

47


 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
Cost of revenue
$
310

 
$
396

 
$
316

Selling and marketing
2,553

 
1,216

 
898

Research and development
4,396

 
1,771

 
1,103

General and administrative
10,115

 
6,310

 
4,153

Income from discontinued operations

 

 
14

The following tables set forth our consolidated results of operations for the periods presented as a percentage of revenue for those periods (certain items may not foot due to rounding).
 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
 
 
 
 
 
Revenue
100
 %
 
100
 %
 
100
 %
Cost of revenue
22
 %
 
21
 %
 
20
 %
Operating expenses:
 
 
 
 
 
Selling and marketing
31
 %
 
38
 %
 
45
 %
Research and development
18
 %
 
15
 %
 
13
 %
General and administrative
23
 %
 
20
 %
 
20
 %
Depreciation and amortization
1
 %
 
1
 %
 
2
 %
Restructuring charges
 %
 
2
 %
 
 %
Total operating expenses
74
 %
 
76
 %
 
79
 %
Operating income
4
 %
 
3
 %
 
1
 %
Other (expense) income, net
 %
 
1
 %
 
(1
)%
Income from continuing operations before income taxes
4
 %
 
5
 %
 
 %
(Benefit from) provision for income taxes
(24
)%
 
(1
)%
 
1
 %
Income (loss) from continuing operations
28
 %
 
6
 %
 
 %
Income (loss) from discontinued operations, net of tax
 %
 
 %
 
5
 %
Net income
28
 %
 
6
 %
 
4
 %
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(1
)%
 
(1
)%
 
(1
)%
Accretion of Series A Redeemable Convertible Preferred Stock issuance costs
 %
 
 %
 
(1
)%
Net income attributable to Series A Redeemable Convertible Preferred Stock
(4
)%
 
(1
)%
 
 %
Net income attributable to common stockholders
22
 %
 
4
 %
 
2
 %
Revenue
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Revenue
$
192,260

 
$
174,090

 
$
161,754

 
$
18,170

 
10
%
 
$
12,336

 
8
%
Fiscal 2018 Compared to Fiscal 2017
The change was primarily attributed to a $12.3 million increase in our consumer matching business, principally related to an increased number of paying families and caregiver subscriptions and a higher number of background checks services

48


provided. Additionally, there were increases in Care@Work and consumer payment solutions revenues of $5.0 million and $1.1 million, respectively.
Fiscal 2017 Compared to Fiscal 2016
The change was primarily attributed to a $5.9 million increase in our consumer matching business, principally related to an increased number of paying families and caregiver subscriptions and a higher number of background checks services provided. Additionally, there were increases in consumer payment solutions and Care@Work revenues of $3.2 million and $3.1 million, respectively.
Cost of Revenue
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Cost of revenue
$
42,706

 
$
35,773

 
$
31,830

 
$
6,933

 
19
%
 
$
3,943

 
12
%
Percentage of revenue
22
%
 
21
%
 
20
%
 
 
 
 
 
 
 
 
Fiscal 2018 Compared to Fiscal 2017
The change was primarily related to higher compensation related costs of $5.5 million, and to a lesser extent increased credit card fees and IT hosting related costs of $1.4 million and $0.6 million, respectively. This was partially off-set by decreased member servicing and background check screening fees of $0.8 million.
Fiscal 2017 Compared to Fiscal 2016
The change was primarily related to higher member servicing costs and background check screening fees of $1.8 million, and to a lesser extent increased credit card fees and compensation related costs of $1.4 million and $0.6 million, respectively.
Selling and Marketing
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Selling and marketing
$
60,488

 
$
66,906

 
$
72,266

 
$
(6,418
)
 
(10
)%
 
$
(5,360
)
 
(7
)%
Percentage of revenue
31
%
 
38
%
 
45
%
 
 
 
 
 
 
 
 
Fiscal 2018 Compared to Fiscal 2017
The change principally related to decreased spending on marketing of $8.5 million, as we continue to focus on unpaid channels. This was partially off-set by higher compensation related costs of $1.9 million and to a lesser extent third-party consulting expenses of $0.1 million.
Fiscal 2017 Compared to Fiscal 2016
The change principally related to decreased spending on marketing of $7.3 million, as we continue to focus on unpaid channels. This was partially off-set by higher compensation related costs and consulting expenses of $1.1 million and $1.1 million, respectively.

49


Research and Development
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Research and development
$
34,641

 
$
25,423

 
$
20,402

 
$
9,218

 
36
%
 
$
5,021

 
25
%
Percentage of revenue
18
%
 
15
%
 
13
%
 
 
 
 
 
 
 
 
Fiscal 2018 Compared to Fiscal 2017
The change was primarily related to increases in expenses related to compensation related costs of $9.5 million, and to a lesser extent increases in occupancy expense of $0.3 million. This was partially off-set by decreases in third-party consulting expense of $0.9 million.
Fiscal 2017 Compared to Fiscal 2016
The change was primarily related to increases in expenses related to third-party consulting and compensation related costs of $2.7 million and $2.3 million, respectively.
General and Administrative
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
General and administrative
$
44,360

 
$
35,214

 
$
31,939

 
$
9,146

 
26
%
 
$
3,275

 
10
%
Percentage of revenue
23
%
 
20
%
 
20
%
 
 
 
 
 
 
 
 
Fiscal 2018 Compared to Fiscal 2017
The change was primarily related to higher compensation related costs of $6.4 million, and to a lesser extent increases in IT related expenses, profession services expenses, third-party consulting expense, and the change in fair value of the Town and Country earn-out payments of $0.9 million, $0.6 million, $0.4 million, and $0.3 million, respectively.
Fiscal 2017 Compared to Fiscal 2016
The change was primarily related to higher compensation related costs of $2.9 million, primarily due to stock-based compensation, as well as, increases in third-party consulting and employee benefit costs of $0.8 million, $0.2 million, respectively. These were partially off-set by decreases in bad-debt expense and professional service expenses of $0.4 million and $0.2 million, respectively.
Depreciation and Amortization
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Depreciation and amortization
$
1,669

 
$
1,684

 
$
2,972

 
$
(15
)
 
(1
)%
 
$
(1,288
)
 
(43
)%
Percentage of revenue
1
%
 
1
%
 
2
%
 
 
 
 
 
 
 
 

50


Fiscal 2018 Compared to Fiscal 2017
The change was primarily attributable to certain intangible assets reaching the end of their useful lives during fiscal years 2017 and 2018, partially off-set by the addition of intangibles acquired as part of the business acquisitions during fiscal year 2018. Over the next five years, we expect to incur total amortization expense associated with previous acquisitions of $3.8 million.
Fiscal 2017 Compared to Fiscal 2016
The change was primarily attributable to certain intangible assets reaching the end of their useful lives during fiscal years 2016 and 2017. Over the next five years, we expect to incur total annual amortization expense associated with previous acquisitions of $0.9 million.
Restructuring Charges

 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Restructuring charges
$
613

 
$
3,136

 
$
714

 
$
(2,523
)
 
(80
)%
 
$
2,422

 
339
%
Percentage of revenue
%
 
2
%
 
%
 
 
 
 
 
 
 
 

Fiscal 2018 Compared to Fiscal 2017 and Fiscal 2017 Compared to Fiscal 2016
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 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.
During the quarter ended September 30, 2017, we ceased use of an additional 25,812 square feet of the same facility. We recorded a lease obligation charge of $3.1 million. In the first quarter of fiscal 2018, we updated our assumptions, as we had signed a sublease agreement for a portion of the ceased use space and updated our estimates for the expect time period it will take to obtain a subtenant for the remainder of the cease use space. This resulted in an additional $0.5 million of restructuring charges in the first quarter of fiscal 2018. During the third quarter of fiscal 2018, we again updated our estimate for the expected time period it will take to obtain a subtenant for the remainder of the cease use space, resulting in an additional $0.1 million of restructuring charges in the third quarter of fiscal 2018.
Other (Expense) Income, net
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Other (expense) income, net
$
(165
)
 
$
2,203

 
$
(1,064
)
 
$
(2,368
)
 
(107
)%
 
$
3,267

 
(307
)%
Percentage of revenue
 %
 
1
%
 
(1
)%
 
 
 
 
 
 
 
 
Fiscal 2018 Compared to Fiscal 2017
The change was primarily driven by the unfavorable movement of foreign exchange rates, primarily due to the strengthening of the U.S. dollar against the Euro and British Pound Sterling during fiscal year 2018 compared to fiscal year 2017.
Fiscal 2017 Compared to Fiscal 2016
The change was primarily driven by the favorable movement of foreign exchange rates, primarily due to the weakening of the U.S. dollar against the Euro and British Pound Sterling during fiscal 2017 compared to fiscal 2016.

51


(Benefit from) Provision for Income Taxes
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
(Benefit from) provision for income taxes
$
(45,272
)
 
$
(2,506
)
 
$
1,282

 
$
(42,766
)
 
1,707
%
 
$
(3,788
)
 
(295)%
Percentage of revenue
(24
)%
 
(1
)%
 
1
%
 
 
 
 
 
 
 
 
Fiscal 2018 Compared to Fiscal 2017
During fiscal 2018 we recorded an income tax benefit of $45.3 million, primarily related to the release of the valuation allowance. This benefit was offset slightly by current foreign taxes and current state taxes in the US.
Fiscal 2017 Compared to Fiscal 2016
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective January 1, 2018, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We have calculated our best estimate of the impact of the Tax Act in our year end income tax provision in accordance with our understanding of the Tax Act and guidance available as of the date of this filing. The change in the tax provision/(benefit) was primarily related to the application of the Act. The Act reduced the federal tax rate from 34% to 21%. This rate change was applied to the measurement of our deferred tax assets and liabilities. We recorded a provisional tax benefit of $1.7 million in the fourth quarter of fiscal 2017 primarily due to the remeasurement of net deferred tax liabilities related to indefinite lived intangible assets, mainly goodwill. The Tax Act also provides for net operating losses generated on or after January 1, 2018 to have an indefinite carryforward period. In light of the Tax Act, we evaluated our existing indefinite lived deferred tax liabilities and concluded they can serve as a source of net income supporting the realization of certain deferred tax assets which, when they reverse, will become an indefinite lived net operating loss. This resulted in an additional provisional tax benefit of $2.3 million.
Income (Loss) from Discontinued Operations, Net of Taxes
 
Fiscal Year Ended
 
Fiscal 2018 Compared to Fiscal 2017
 
Fiscal 2017 Compared to Fiscal 2016
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
 
$ Change
 
% Change
 
$ Change
 
% Change
 
(in thousands, except percentages)
Income (loss) from discontinued operations, net of tax
$

 
$

 
$
7,761

 
$

 
%
 
$
(7,761
)
 
(100
)%
Percentage of revenue
%
 
%
 
5
%
 
 
 
 
 
 
 
 
Fiscal 2017 Compared to Fiscal 2016
We completed the closure of the Citrus Lane business in the fourth quarter of fiscal 2016, and we had no income or losses from discontinued operations for fiscal 2017 and fiscal 2018.

52


Liquidity and Capital Resources
The following table summarizes our cash flow activities for the periods indicated (in thousands):
 
Fiscal Year Ended
 
December 29, 2018
 
December 30, 2017
 
December 31, 2016
Cash flow provided by (used in):
 
 
 
 
 
Operating activities - Continuing operations
32,767

 
22,049

 
12,197

Operating activities - Discontinued operations

 

 
2,421

Investing activities - Continuing operations
(30,989
)
 
(825
)
 
(15,580
)
Financing activities - Continuing operations
5,230

 
3,906

 
15,108

Financing activities - Discontinued operations

 

 
(14,510
)
Effect of exchange rates on cash balances
(749
)
 
420

 
(275
)
Increase (decreases) in cash and cash equivalents
$
6,259

 
$
25,550

 
$
(639
)
As of December 29, 2018, we had cash and cash equivalents, restricted cash, and short-term investments of $130.4 million, which consisted of $92.4 million in cash and cash equivalents, $35.1 million in short-term investments and $2.9 million of restricted cash. Cash and cash equivalents, restricted cash and short-term investments consists of cash, certificates of deposit, and money market funds. Cash held internationally as of December 29, 2018 was $11.2 million. We did not have any long-term investments. Additionally, we do not have any outstanding bank loans or credit facilities in place. To date, we have been able to finance our operations through proceeds from the public and private sales of equity, including our IPO in January 2014 and issuance of Series A Redeemable Convertible Preferred Stock in June 2016, and to a lesser extent from the exercise of employee stock options. We believe that our existing cash and cash equivalents balance will be sufficient to meet our working capital expenditure requirements for at least the next 12 months from the date of filing this Annual Report on Form 10-K. From time to time, we may explore additional financing sources to develop or enhance our services, to fund expansion, to respond to competitive pressures, to acquire or to invest in complementary products, businesses or technologies, or to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, if at all.
Operating Activities
Our primary source of cash from operations was from ongoing subscription fees to our consumer matching solutions. We believe that cash inflows from these fees will grow from our continued penetration into the market for care.
Fiscal 2018
Cash from operating activities provided $32.8 million during fiscal year 2018. This amount resulted from a net income of $52.9 million, adjusted for non-cash items of $24.6 million, and a net $4.5 million source of cash due to changes in working capital.
Non-cash income within net income consisted primarily deferred taxes of $45.6 million primarily related to the valuation allowance release for deferred tax assets. This was partially off-set by $17.4 million of stock-based compensation expense,