10-Q 1 fy19q110-q.htm 10-Q Document

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2019
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
   
Commission File Number: 001-36269
 
 
 
Care.com, Inc.
 
(Exact name of registrant as specified in its charter)
Delaware
20-578-5879
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
77 Fourth Avenue, Fifth Floor
Waltham, MA
02451
(Address of principal executive offices)
(Zip Code)
(781) 642-5900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of exchange on which registered
Common Stock, par value $0.001
 
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
 
None
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [x]    No  [ ]
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  [x ]    No  [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[ ]
 
Accelerated filer
[x]
Non-accelerated filer
[ ]
(Do not check if a smaller reporting company)
Smaller reporting company
[ ]
 
 
 
Emerging growth company
[x]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [x]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]
As of May 3, 2019, there were 32,476,588 shares of the registrant's common stock, $0.001 par value, outstanding.




CARE.COM, INC.
FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
Item 6.
Signatures
 






CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The following cautionary statements are being made pursuant to PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions thereof. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “could,” “expects,” “may,” “likely,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “probable,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things: our results of operations, financial condition, liquidity and prospects; 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 our business, including marketing and safety; 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 Quarterly Report and in our other public filings with the Securities and Exchange Commission.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by law.



PART I
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CARE.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)


See accompanying notes to the condensed consolidated financial statements
2


 
March 30, 2019
 
December 29, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
90,022

 
$
92,432

Short-term investments
35,099

 
35,099

Accounts receivable (net of allowance of $100 and $100, respectively) (1) 
6,732

 
4,663

Unbilled accounts receivable (2) 
6,033

 
6,394

Prepaid expenses and other current assets
8,398

 
7,223

Total current assets
146,284

 
145,811

Property and equipment, net
3,260

 
3,423

Intangible assets, net
6,770

 
4,061

Goodwill
73,134

 
68,176

Other non-current assets
2,908

 
2,859

Operating lease right of use assets, net
20,871

 

Deferred tax assets
43,978

 
43,737

Total assets
$
297,205

 
$
268,067

 
 
 
 
Liabilities, redeemable convertible preferred stock, and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable (3) 
$
1,740

 
$
3,437

Accrued expenses and other current liabilities (4) 
19,292

 
20,463

Current contingent acquisition consideration
917

 
1,527

Deferred revenue (5)
26,797

 
20,176

Current operating lease liabilities
4,481

 

Total current liabilities
53,227

 
45,603

Non-current contingent acquisition consideration

 
438

Other non-current liabilities
1,428

 
6,806

Non-current operating lease liabilities
23,303

 

Total liabilities
77,958

 
52,847

Contingencies (see Note 6)

 

Series A Redeemable Convertible Preferred Stock, $0.001 par value - 46 shares designated; 46 shares issued and outstanding at March 30, 2019 and December 29, 2018; at aggregate liquidation and redemption value at March 30, 2019 and December 29, 2018, respectively
53,725

 
53,007

Stockholders' equity
 
 
 
Preferred Stock: $0.001 par value - authorized 5,000 shares at March 30, 2019 and December 29, 2018, respectively

 

Common stock, $0.001 par value; 300,000 shares authorized; 32,426 and 32,057 shares issued and outstanding at March 30, 2019 and December 29, 2018, respectively
32

 
32

Additional paid-in capital
290,898

 
286,295

Accumulated deficit
(125,150
)
 
(124,122
)
Accumulated other comprehensive (loss) income
(258
)
 
8

Total stockholders' equity
165,522

 
162,213

Total liabilities, redeemable convertible preferred stock and stockholders' equity
$
297,205

 
$
268,067

(1) Includes accounts receivable due from related party of $822 and $421 at March 30, 2019 and December 29, 2018, respectively (Note 14)  

See accompanying notes to the condensed consolidated financial statements
3


(2) Includes unbilled accounts receivable due from related party of $255 and $680 at March 30, 2019 and December 29, 2018, respectively (Note 14)  
(3) Includes accounts payable due to related party of $0 and $530 at March 30, 2019 and December 29, 2018, respectively (Note 14)  
(4) Includes accrued expenses and other current liabilities due to related party of $1,031 and $403 at March 30, 2019 and December 29, 2018, respectively (Note 14)  
(5) Includes deferred revenue associated with related party of $172 and $1 at March 30, 2019 and December 29, 2018, respectively (Note 14)

See accompanying notes to the condensed consolidated financial statements
4


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

 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
 
 
 
Revenue (1)
$
53,336

 
$
47,325

Cost of revenue
13,802

 
9,443

Operating expenses:
 
 
 
Selling and marketing (2)
18,604

 
16,857

Research and development
11,224

 
8,288

General and administrative
11,308

 
10,467

Depreciation and amortization
447

 
418

Restructuring and right of use asset impairment charges
231

 
462

Total operating expenses
41,814

 
36,492

Operating (loss) income
(2,280
)
 
1,390

Other income, net
269

 
562

(Loss) income before income taxes
(2,011
)
 
1,952

Benefit from income taxes
(983
)
 
(745
)
Net (loss) income
(1,028
)
 
2,697

Accretion of Series A Redeemable Convertible Preferred Stock dividends
(718
)
 
(680
)
Net loss (income) attributable to Series A Redeemable Convertible Preferred Stock

 
(276
)
Net (loss) income attributable to common stockholders
$
(1,746
)
 
$
1,741

 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic):
$
(0.05
)
 
$
0.06

Net (loss) income per share attributable to common stockholders (Diluted):
$
(0.05
)
 
$
0.05

 
 
 
 
Weighted-average shares used to compute net income per share attributable to common stockholders:
 
 
 
Basic
32,209

 
30,551

Diluted
32,209

 
33,344


(1) Includes related party revenue of $946 and $637 for the three months ended March 30, 2019 and March 31, 2018, respectively. (Note 14)  
(2) Includes related party expenses of $3,221 and $3,036 for the three months ended March 30, 2019 and March 31, 2018, respectively. (Note 14)  

See accompanying notes to the condensed consolidated financial statements
5


CARE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
 
 
 
Net (loss) income
$
(1,028
)
 
$
2,697

 
 
 
 
Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustments
(266
)
 
200

Comprehensive (loss) income
$
(1,294
)
 
$
2,897






See accompanying notes to the condensed consolidated financial statements
6


CARE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(in thousands, except per share data)
(unaudited)

 
Redeemable Convertible Preferred Stock
 
Stockholders' Equity
 
 
Common Stock
 
Additional Paid-In Capital
 
 
 
Accumulated
Other Comprehensive Income (Loss)
 
Total
Stockholders' Equity
 
Number
of Shares
 
Amount
 
Number
of Shares
 
$0.001
Par Value
 
 
Accumulated
Deficit
 
 
Balance at December 30, 2017
46

 
$
50,259

 
30,390

 
$
30

 
$
266,030

 
$
(177,145
)
 
$
546

 
$
89,461

Cumulative effect of ASC 606 adoption

 

 

 

 

 
133

 

 
133

Exercises of stock options

 

 
228

 
1

 
1,252

 

 

 
1,253

Issuance of restricted stock units

 

 
215

 

 

 

 

 

Stock-based compensation

 

 

 

 
3,712

 

 

 
3,712

Accretion of Series A Redeemable Convertible Preferred Stock dividends

 
680

 

 

 
(680
)
 

 

 
(680
)
Foreign currency translation adjustment

 

 

 

 

 

 
200

 
200

Net income

 

 

 

 

 
2,697

 

 
2,697

Balance at March 31, 2018
46

 
$
50,939

 
30,833

 
$
31

 
$
270,314

 
$
(174,315
)
 
$
746

 
$
96,776

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 29, 2018
46

 
$
53,007

 
32,057

 
$
32

 
$
286,295

 
$
(124,122
)
 
$
8

 
$
162,213

Exercises of stock options

 

 
168

 

 
1,267

 

 

 
1,267

Issuance of restricted stock units

 

 
201

 

 

 

 

 

Stock-based compensation

 

 

 

 
4,054

 

 

 
4,054

Accretion of Series A Redeemable Convertible Preferred Stock dividends

 
718

 

 

 
(718
)
 

 

 
(718
)
Foreign currency translation adjustment

 

 

 

 

 

 
(266
)
 
(266
)
Net loss
 
 
 
 

 

 

 
(1,028
)
 

 
(1,028
)
Balance at March 30, 2019
46

 
$
53,725

 
32,426

 
$
32

 
$
290,898

 
$
(125,150
)
 
$
(258
)
 
$
165,522





See accompanying notes to the condensed consolidated financial statements
7


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

 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Cash flows from operating activities
 
 
 
Net (loss) income
$
(1,028
)
 
$
2,697

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Stock-based compensation
4,054

 
3,712

Depreciation and amortization
739

 
463

Deferred income taxes
(1,057
)
 
(830
)
Contingent consideration expense
7

 

Change in fair value of contingent consideration
103

 

Foreign currency remeasurement loss (gain)
62

 
(437
)
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(2,074
)
 
(1,099
)
Unbilled accounts receivable
355

 
(67
)
Prepaid expenses and other current assets
(2,279
)
 
(930
)
Other non-current assets
(30
)
 
18

Accounts payable
(1,678
)
 
545

Accrued expenses and other current liabilities
396

 
614

Deferred revenue
6,630

 
4,428

Payments of contingent consideration in excess of acquisition date fair value
(425
)
 

Other non-current liabilities
218

 
327

Net cash provided by operating activities
3,993

 
9,441

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of property and equipment; and software
(248
)
 
(144
)
Payments for acquisitions, net of cash acquired
(7,472
)
 
(5,000
)
Purchase of short-term investment

 
(15,099
)
Sale of short-term investment

 
15,000

Net cash used in investing activities
(7,720
)
 
(5,243
)
 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from exercise of common stock options
1,262

 
868

Payments of contingent consideration
(732
)
 

Net cash provided by financing activities
530

 
868

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
50

 
91

Net (decrease) increase in cash and cash equivalents and restricted cash
(3,147
)
 
5,157

Cash and cash equivalents and restricted cash, beginning of the period
95,284

 
89,024

Cash and cash equivalents and restricted cash, end of the period
$
92,137

 
$
94,181

Cash and cash equivalents, end of the period
90,022

 
91,887


See accompanying notes to the condensed consolidated financial statements
8


Restricted Cash1
2,115

 
2,294

Cash and cash equivalents and restricted cash, end of the period
$
92,137

 
$
94,181

 
 
 
 
Supplemental disclosure of cash flow activities
 
 
 
Cash paid for taxes
$
313

 
$
273

 
 
 
 
Supplemental disclosure of non-cash operating, investing and financing activities
 
 
 
Unpaid purchases of property and equipment
$
3

 
$
82

Series A Redeemable Convertible Preferred Stock dividend accretion
$
718

 
$
680

 
 
 
 
1 As of the three months ended March 30, 2019 $720 and $1,395 was included in Prepaid expenses and other current assets and Other non-current assets on the Consolidated Balance Sheet, respectively. As of the three months ended March 31, 2018 $535 and $1,759 was included in Prepaid expenses and other current assets and Other non-current assets on the Consolidated Balance Sheet, respectively.



See accompanying notes to the condensed consolidated financial statements
9

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)




1. Description of Business and Summary of Significant Accounting Policies
Care.com, Inc. (the “Company”, “we”, “us”, and “our”), a Delaware corporation, was incorporated on October 27, 2006. We are the world’s largest online marketplace for finding and managing family care. Our consumer matching solutions enable families to connect to caregivers and caregiving services in a reliable and easy way, and our payment solutions enable families to pay caregivers electronically online or via their mobile device and to manage their household payroll and tax matters with Care.com HomePay. In addition, we serve employers by providing access to our platform to employer-sponsored families and we serve care-related businesses—such as day care centers, nanny agencies and home care agencies—that wish to market their services to our care-seeking families and recruit our caregiver members.
Certain Significant Risks and Uncertainties
We operate in a dynamic industry and, accordingly, our business is affected by a variety of factors. For example, we believe that negative changes in any of the following areas could have a significant negative effect on our future financial position, results of operations or cash flows: rates of revenue growth; member engagement and usage of our existing and new products; perception of our brand; coverage by the media and other publicity; retention of qualified employees and key personnel; management of our growth; scaling and adaptation of existing technology and network infrastructure; competition in our market; performance of acquisitions and investments; protection of our intellectual property; protection of customers’ information and privacy concerns; security measures related to our website; access to capital at acceptable terms; outcomes of governmental investigations or other legal proceedings.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed on March 7, 2019.
There have been no material changes in our significant accounting policies for the three months ended March 30, 2019 as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, with the exception of the adoption of the Financial Accounting Standards Board’s Accounting Standard Update 2016-02, “Leases (Topic 842)” in the first quarter of fiscal 2019. Refer below to “Recently Issued and Adopted Accounting Pronouncements” for further information.
The condensed consolidated balance sheet as of December 29, 2018, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, and are not necessarily indicative of the results of operations to be anticipated for fiscal 2019 or any future period.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, after elimination of all intercompany balances and transactions. We have prepared the accompanying financial statements in conformity with GAAP.
Fiscal Year-End
We operate and report using a 52 or 53 week fiscal year ending on the Saturday in December closest and prior to December 31. Accordingly, our fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter. Both fiscal 2019 and 2018 are reported using a 52 week fiscal year.
Subsequent Events Consideration
We consider events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.

See accompanying notes to the condensed consolidated financial statements
10

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



In the second quarter of 2019, we ceased using 36,395 square feet of the Company’s headquarters facility located in Waltham, Massachusetts. We expect to record a right of use asset impairment charge ranging from approximately $2.0 million to $4.0 million in the second quarter of 2019. We will finalize the charge in the second quarter of 2019.
In the second quarter of 2019, we entered into a 5-year lease for an office facility in the San Francisco Bay Area. The lease will commence in the second quarter of 2019, and we will pay an aggregate of approximately $5.3 million over the lease term.
Recently Adopted Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-based Payment Accounting.” This guidance simplifies the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The guidance is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. We adopted ASU 2018-07 as of the first day of the third quarter in fiscal 2018. The effect of adoption was immaterial.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The guidance requires an entity to recognize a right-of-use asset and a lease liability for all of its leases with lease terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. We adopted ASU 2016-02 and its amendments in the first quarter of fiscal 2019 using the modified retrospective approach and with a cumulative effect recorded on the date of adoption of December 31, 2018, the first day of our 2019 reporting year. Prior periods were not restated accordingly.
We elected the Practical Expedient Package (ASC 842-10-65-1) permitted under the transition guidance within the new standard, which among other things allowed us to carry forward the historical lease classification. Refer to Note 15 “Leases” for the adoption impact to our condensed consolidated balance sheet. The difference between the operating lease liabilities and operating right of use assets is associated with accrued rent payments under ASC 840 and right of use asset impairments related to restructuring activities completed prior to the adoption date associated with our cease use of certain office space subject to operating leases.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract,” which requires that a customer in a cloud computing arrangement that is a service contract follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early application is permitted. We are currently evaluating the impact of ASU 2018-15 on our consolidated financial statements and whether we will early adopt.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The guidance will be effective for us in the first quarter of fiscal 2020. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. We are currently evaluating the impact of ASU 2018-13 on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance will be effective for us in our annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted, and we are currently evaluating whether we will early adopt. ASU 2017-04 must be applied prospectively. We

See accompanying notes to the condensed consolidated financial statements
11

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



expect that ASU 2017-04 would simplify our measurement of goodwill impairment if any of our reporting units have a zero or negative carrying value, or would fail Step 1 of the impairment test following the date of adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 will be effective for us in our first quarter of fiscal 2020, and earlier adoption is permitted. The modified-retrospective approach is required for adoption. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.
2. Fair Value Measurements
The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of March 30, 2019 and December 29, 2018 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):
 
March 30, 2019
 
December 29, 2018
 
Fair Value Measurements Using Input Types
 
 
 
Fair Value Measurements Using Input Types
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market mutual funds
$
18,240

 
$

 
$

 
$
18,240

 
$
18,148

 
$

 
$

 
$
18,148

Certificates of deposit
37,082

 

 

 
37,082

 
37,180

 

 

 
37,180

Total assets
$
55,322

 
$

 
$

 
$
55,322

 
$
55,328

 
$

 
$

 
$
55,328

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent acquisition consideration
$

 
$

 
$
917

 
$
917

 
$

 
$

 
$
1,964

 
$
1,964

Total liabilities
$

 
$

 
$
917

 
$
917

 
$

 
$

 
$
1,964

 
$
1,964

The following table sets forth a summary of changes in fair value of our contingent acquisition consideration liability, which represents the recurring measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs (in thousands):
 
March 30, 2019
 
Contingent Acquisition Consideration
Beginning balance - December 29, 2018
$
1,964

Change in fair value of contingent consideration
110

Payment of contingent consideration liability
(1,157
)
Ending balance - March 30, 2019
$
917

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

See accompanying notes to the condensed consolidated financial statements
12

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



Non-Recurring Fair Value Measurements
We re-measure the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets comprise long-lived assets, including property and equipment, right of use asset impairments, intangible assets and goodwill. In the three months ended March 30, 2019 and March 31, 2018, no significant remeasurements were necessary. Other financial instruments not measured or recorded at fair value in the accompanying condensed consolidated balance sheets principally consist of accounts receivable, accounts payable, and accrued liabilities. The estimated fair values of these instruments approximate their carrying values due to their short-term nature.
In the quarter ended September 30, 2017, we ceased use of 25,812 square feet of the Company’s headquarters facility and recorded a restructuring liability, which upon adoption of ASC 842 we reclassified this liability as a reduction of the right-of-use asset associated with the lease. We have updated our estimate in subsequent periods, as discussed in Note 12. These estimates include assumptions for the time period it will take to obtain a subtenant, construction costs, and certain sublease rates. These estimates may vary from the sublease agreements ultimately executed, if at all, and could result in an adjustment to the right of use asset. In the first and third quarters of fiscal 2018 and first quarter of fiscal 2019, we updated our assumptions, as we had signed a sublease agreement for a portion of the ceased use space during the first quarter of fiscal 2018 and updated our estimates for the expected time period it will take to obtain a subtenant for the remainder of the cease use space during both the first and third quarters of fiscal 2018. We discounted the estimated future cash flows to arrive at fair value. This resulted in an additional $0.6 million of charges, of which $0.5 million was incurred in the first quarter of fiscal 2018; $0.1 million was incurred in the third quarter of fiscal 2018 and $0.2 million was incurred in the first quarter of fiscal 2019. The measurement of our restructuring charges and right of use asset impairments using these assumptions is a level 3 measurement.
3. Revenue
Revenue Recognition
Revenue is recognized when control of the promised service is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for the service. For all presentations below sales and usage-based taxes are excluded from revenue.
The following table presents our revenue disaggregated by major service lines for the three months ended March 30, 2019 and March 31, 2018 (in thousands):
 
Three Months Ended

 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
 
 
 
Business-to-Consumer
 
 
 
Matching Solutions
$
36,304

 
$
33,202

Payment Solutions
8,982

 
8,432

Business-to-Business
 
 
 
Care@Work Solutions
5,956

 
3,955

Recruiting and Marketing Solutions and other
2,094

 
1,736

Total revenue
$
53,336

 
$
47,325

The following table presents our revenue disaggregated by timing of transfer of services for the three months ended March 30, 2019 and March 31, 2018 (in thousands):
 
Three Months Ended

 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
 
 
 
Over-time
46,267

 
43,704

Point-in-time
7,069

 
3,621

Total revenue
$
53,336

 
$
47,325


See accompanying notes to the condensed consolidated financial statements
13

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



Contract Balances
The increase in the deferred revenue balance for the three months ended March 30, 2019 was primary driven by cash payments received for our obligation to perform future services during fiscal 2019, offset by $14.0 million of revenue recognized that was included in the deferred revenue balance as of December 29, 2018. We consider on-demand back-up care overages for our Care@Work offering to be constrained variable consideration in the transaction price until the constraint is resolved upon usage. The revenue recognized in the three months ended March 30, 2019 related to on-demand back-up care overages for our Care@Work offering was immaterial.
Transaction Price Allocated to the Remaining Performance Obligations
For performance obligations that are part of contracts that have an original expected duration of greater than one year, we expect to recognize $5.0 million, $3.5 million, and $1.1 million of revenue related to our Care@Work offering in the remainder of fiscal 2019, fiscal 2020 and fiscal 2021, respectively, related to performance obligations that are currently unsatisfied (or partially satisfied) as of March 30, 2019.
This disclosure does not include revenue related to performance obligations that are part of a contract whose original expected duration is one year or less. Our matching solutions offering consists of subscription terms whose duration is one year or less, and the service period for our payment solutions revenue is one year or less. Additionally, most of our business-to-business contracts are for durations of one year or less. Furthermore, this disclosure does not include expected consideration related to performance obligations for which we elect to recognize revenue in the amount we have a right to invoice (e.g., usage-based pricing terms).
Contract Costs
We capitalize sales commissions for new customer contracts in our business-to-business solutions offerings. Capitalized commission are amortized over the period of expected benefit, which is the customer life and we estimate to be approximately five-years. As of March 30, 2019, capitalized commissions were $1.5 million. For the three months ended March 30, 2019 and March 31, 2018, amortized commission expense was $0.1 million and less than $0.1 million, respectively.
For renewal commissions with a renewal term of one-year of less, we applied the practical expedient and expense commission when incurred because the amortization period would have been one-year or less. These costs are recorded within sales and marketing expense.
4. Business Acquisitions
Filios Inc.
On January 4, 2019, we purchased all of the outstanding stock of Filios, Inc. (“Figure 8”), a mobile app for parents to organize and manage carpools, pursuant to which we acquired the outstanding shares of Figure 8 for total potential consideration of $12.6 million, consisting of $7.6 million as an up-front payment and four earn-outs of $0.5 million$1.0 million$1.0 million and $2.5 million to be earned consecutively over one-year periods for four-years. All of the earn-outs were determined to be compensatory in nature based on required future services and product development milestones required to be achieved by the founders who will continue employment with us. The preliminary purchase price of $7.6 million was allocated to assets and liabilities as follows: $4.5 million of goodwill, $3.1 million in identified intangible assets, consisting proprietary technology in the form of Figure 8’s mobile application, as well as working capital assets and liabilities, which were immaterial. Additionally, we increased our goodwill by $0.8 million to record a deferred tax liability in purchase accounting related to the acquired intangible assets.
We continue to gather information in the measurement period related to the acquired intangible assets, accrued liabilities and contingent liabilities of Filios, Inc. as of the acquisition date and our purchase accounting for the acquisition is preliminary.
Trusted Labs, Inc.
On July 12, 2018, we purchased all of the outstanding stock of Trusted Labs, Inc. (“Trusted”), an on-demand child care provider offering service in the San Francisco Bay Area and New York City, pursuant to which we acquired the outstanding shares of Trusted for total potential consideration of $8.1 million, consisting of an up-front payment of $4.6 million, up to $2.2 million in retention payments, earn-out payments of up to an aggregate of $1.0 million to be earned consecutively over three-quarters following the closing, and payments of $0.3 million to settle liabilities. We estimated the fair value of the contingent consideration at the acquisition date to be $1.0 million and thus included this in the total accounting purchase price of $5.6 million. The preliminary purchase price of $5.6 million was allocated to assets and liabilities as follows: $3.4 million of

See accompanying notes to the condensed consolidated financial statements
14

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



goodwill, $2.5 million in identified intangible assets, consisting primarily of proprietary software and care-giver relationships, and $0.3 million working capital liabilities, which were immaterial. The goodwill is primarily derived from synergies we expect as a result of the deal. Additionally, a discrete tax benefit of $0.6 million was recorded to account for the valuation allowance release primarily related to the acquired intangible assets which have increased fair market value basis for GAAP purposes but carryover basis for tax purposes, resulting in a deferred tax liability that provided a source of income supporting realization of other deferred tax assets.
We continue to gather information in the measurement period related to the accrued liabilities and contingent liabilities of Trusted as of the acquisition date and as that information is gathered we may identify opening balance sheet liabilities that could be material to our financial statements that are required to be recorded within the measurement period. At this time we cannot reliably estimate a range of potential liabilities.
Galore, Inc.
On May 31, 2018, we entered into an asset purchase agreement with Galore, Inc. (“Galore”), an e-commerce marketplace for parents to discover and purchase activities for their children and a SaaS platform for businesses providing family activities to offer those activities for purchase online, pursuant to which we acquired certain assets of Galore for total consideration of $0.3 million as an up-front payment, and two earn-out payments ranging from $0.3 - $0.5 million in year one and $0.7 - $0.9 million in year 2, based upon certain revenue achievement metrics. Due to ongoing service requirements pertaining to the earn-outs, the amounts are being recognized as compensation expense over the required employment period. The purchase price of $0.3 million was allocated to an identified intangible asset, consisting of proprietary software.
Town & Country Resources, Inc.
On January 9, 2018, we entered into an asset purchase agreement with Town & Country Resources, Inc. (Town & Country), a premium home staffing agency in the San Francisco Bay Area, pursuant to which we acquired certain assets for total potential consideration of $7.0 million, consisting of $5.0 million as an up-front payment, and two earn-outs up to $1.0 million and $1.0 million each to be earned over consecutive one-year periods. We estimated the fair value of the contingent consideration at the acquisition date to be $1.0 million and thus included this in the total accounting purchase price of $6.0 million. The preliminary purchase price of $6.0 million was allocated to assets and liabilities as follows: $4.8 million of goodwill, $1.2 million in identified intangible assets, consisting primarily of caregiver relationships and Town & Country trade-name, and working capital assets and liabilities, which were immaterial. The goodwill is primarily derived from synergies we expect as a result of the deal.
Pro forma information related to the acquisitions in fiscal 2018 and 2019 were not presented as the impact of the acquisitions on our consolidated results of operations is not significant.
5. Goodwill and Intangible Assets
The following table presents the change in goodwill for the periods presented (in thousands):
Balance as of December 29, 2018
$
68,176

Effect of currency translation
(367
)
Business acquisitions
5,325

Balance as of March 30, 2019
$
73,134


See accompanying notes to the condensed consolidated financial statements
15

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



The following table presents the detail of intangible assets for the periods presented (dollars in thousands):
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted-Average Remaining Life (Years)
 
 
 
 
 
 
 
 
March 30, 2019
 
 
 
 
 
 
 
Indefinite lived intangibles
$
260

 
$

 
$
260

 
N/A
Trademarks and trade names
4,730

 
(4,462
)
 
268

 
5.4
Proprietary software
10,974

 
(5,574
)
 
5,400

 
4.5
Internal software
227

 
(156
)
 
71

 
1.5
Leasehold interests
170

 
(168
)
 
2

 
0.1
Caregiver relationships
1,111

 
(601
)
 
510

 
1.9
Customer relationships
8,527

 
(8,268
)
 
259

 
3.8
Total
$
25,999

 
$
(19,229
)
 
$
6,770

 
 
 
 
 
 
 
 
 
 
December 29, 2018
 
 
 
 
 
 
 
Indefinite lived intangibles
$
260

 
$

 
$
260

 
N/A
Trademarks and trade names
4,742

 
(4,441
)
 
301

 
5.3
Proprietary software
7,869

 
(5,316
)
 
2,553

 
4.5
Internal software
227

 
(141
)
 
86

 
1.7
Leasehold interests
170

 
(163
)
 
7

 
0.4
Caregiver relationships
1,116

 
(538
)
 
578

 
2.1
Customer relationships
8,541

 
(8,265
)
 
276

 
4.0
Total
$
22,925

 
$
(18,864
)
 
$
4,061

 
 
Amortization expense was $0.4 million and $0.2 million for the three months ended March 30, 2019 and March 31, 2018, respectively. Of these amounts, $0.1 million and $0.1 million was classified as a component of depreciation and amortization, and $0.3 million and $0.1 million was classified as a component of cost of revenue in the condensed consolidated statements of operations for the three months ended March 30, 2019 and March 31, 2018, respectively.
As of March 30, 2019, the estimated future amortization expense related to intangible assets for future fiscal years was as follows (in thousands):
2019 remaining
1,248

2020
1,600

2021
1,346

2022
1,331

2023
937

Thereafter
48

Total
$
6,510

6. Contingencies
Legal matters
From time to time we are involved in regulatory, governmental and law enforcement inquiries, investigations and subpoenas, as well as legal proceedings, that arise in the ordinary course of our business. Each reporting period, we evaluate whether or not a loss contingency related to such matters is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. If a loss is probable and the potential estimate of the loss is

See accompanying notes to the condensed consolidated financial statements
16

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



a range, we evaluate if there is a point within the range that appears at the time to be a better estimate than any other point in the range, and if so, that amount is accrued. If we conclude that no amount in the range appears to be a better estimate than any other, we accrue the minimum amount in the range. We monitor developments in legal matters that could affect estimates we have previously accrued and update our estimates as appropriate based on subsequent developments.
In March 2016, we learned of an investigation by the Marin County, California District Attorney’s Office regarding the clarity and conspicuousness of our automatic renewal disclosures and the mechanism by which we obtain informed consent when members purchase premium subscriptions on our website. In September 2016, we learned of an investigation by the San Francisco County, California District Attorney’s Office regarding the accuracy and clarity of our disclosures about the sex offender registry search available to consumers through our website. In 2017, the District Attorneys’ Offices proposed a joint settlement that would include a payment by us of approximately $4.9 million to resolve both investigations. We are in discussions with the District Attorneys’ Offices regarding 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.
In addition, on April 3, 2019, a complaint was filed against the Company and two of our officers, Sheila Lirio Marcelo, our chief executive officer, and Michael Echenberg, our chief financial officer, in the U.S. District Court for the District of Massachusetts. The lawsuit purports to be brought on behalf of a class of purchasers of our stock during the period from March 27, 2015 to April 1, 2019, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, related to the Company’s disclosures about the screening of certain member information for criminal or other inappropriate inactivity. The complaint seeks compensatory and punitive damages, fees, interest, costs and other appropriate relief. Plaintiffs currently have until June 3, 2019 to petition for Lead Plaintiff status. The parties have agreed to defer Care.com’s response until after a lead plaintiff has been appointed and an amended complaint has been filed. The Company is unable to predict the ultimate outcome of this litigation, and therefore cannot estimate possible losses or ranges of losses, if any.
We also are currently involved in other pending regulatory and government inquiries and investigations and legal proceedings in the ordinary course of our business. Although the results of these matters cannot be predicted with certainty, we do not believe they will have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
7. Stockholders’ Equity
Stock-Based Compensation
The following table summarizes stock-based compensation in our accompanying condensed consolidated statements of operations (in thousands):
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
 
 
 
Cost of revenue
$
98

 
$
64

Selling and marketing
635

 
474

Research and development
1,416

 
809

General and administrative
1,905

 
2,365

   Total stock-based compensation
$
4,054

 
$
3,712

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the three months ended March 30, 2019, we granted 0.7 million time-based restricted stock units (RSUs) to certain employees, advisors and directors, and 0.3 million performance-based RSUs (“PSUs”) to certain members of management.

See accompanying notes to the condensed consolidated financial statements
17

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



In the first quarter of fiscal 2019, we granted 0.3 million PSUs. The number of PSUs that become eligible to vest for each recipient will be determined in the first quarter of 2020 based upon our level of achievement of certain financial targets for fiscal 2019. To the extent any PSUs become eligible to vest, they generally will vest over a two-year period, retroactive to March 2019, as continued services are performed. PSUs granted in 2018 and 2017 are vesting over a two-year and three-year period, respectively, retroactive to the grant date of the applicable award. We are recognizing expense using the graded-vesting method based on our estimate of the number of PSUs that will vest. If there is a change in the estimate of the number of PSUs that are probable of vesting, we will cumulatively adjust compensation expense in the period that the change in estimate is made.
RSUs and PSUs are not included in issued and outstanding common stock until the shares are vested and released. The grant-date fair value of an RSU and PSU is measured based on the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share, which is the per share par value of our common stock.  The weighted-average grant-date fair value per vested RSU and PSU share and the total fair value of vested shares from RSU and PSU grants was $11.73 and $2.3 million, respectively, for the three months ended March 30, 2019. The weighted-average grant-date fair value of vested RSU and PSU shares and total fair value of vested shares from RSU and PSU grants were $9.51 and $2.0 million, respectively, for the three months ended March 31, 2018.
During the three months ended March 31, 2018, we granted 0.1 million stock options to certain employees and directors with a weighted average exercise price per share of $17.45. We did not grant any stock options during the three months ended March 30, 2019.
A summary of stock option, RSU and PSU activity for the three months ended March 30, 2019 was as follows (in thousands for shares and intrinsic value):
 
 
 
 
 
 
 
 
 
Restricted Stock Units
 
Shares
 
Weighted-Average Remaining Contractual Term (Years)
 
Weighted-Average Exercise Price
 
Aggregate Intrinsic Value
 
Shares
 
Weighted-Average Grant Date Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding as of December 29, 2018
3,524

 
5.84
 
$
9.13

 
$
37,477

 
2,123

 
$
15.40

Granted(1)

 
 
 
$

 
 
 
978

 
$
20.94

Settled (RSUs and PSUs)

 
 
 


 
 
 
(199
)
 
$
11.73

Exercised
(169
)
 
 
 
$
7.53

 
 
 


 


Canceled and forfeited
(13
)
 
 
 
$
9.64

 
 
 
(305
)
 
$
18.76

Outstanding as of March 30, 2019
3,342

 
5.70
 
$
9.21

 
$
35,550

 
2,597

 
$
16.91

Vested and exercisable as of March 30, 2019
2,436

 
4.89
 
$
8.15

 
$
28,552

 
N/A
 
N/A
____________________________
(1) For RSUs, includes time-based and performance-based
Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on the New York Stock Exchange as of March 29, 2019, the final trading day of the three months ended March 30, 2019, was $19.76. The total intrinsic value of options exercised and RSUs and PSUs vested was approximately $6.6 million and $6.8 million for the three months ended March 30, 2019 and March 31, 2018, respectively. The aggregate fair value of the options that vested during the three months ended March 30, 2019 and March 31, 2018 was $0.6 million and $0.7 million, respectively.
As of March 30, 2019, total unrecognized compensation cost related to non-vested stock options and RSUs, including PSUs and market-based RSUs, was approximately $3.9 million and $31.9 million, respectively, which is expected to be recognized over a weighted-average period of 1.8 years and 3.0 years, respectively, to the extent they are probable of vesting. As of March 30, 2019, we had 3.4 million shares available for grant under the 2014 Plan.

See accompanying notes to the condensed consolidated financial statements
18

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



Common Stock
As of March 30, 2019, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):
 
March 30, 2019
Options issued and outstanding
3,342

Restricted stock units issued and outstanding
2,597

Common stock available for stock-based award grants under incentive award plans
3,385

Common stock available for conversion of Series A Redeemable Convertible Preferred Stock
5,117

Total
14,441

8. Net (Loss) Income per Share Attributable to Common Stockholders
Basic net (loss) income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. For the three months ended March 30, 2019 and March 31, 2018, we applied the two-class method to calculate basic and diluted net (loss) income per share of common stock, as our Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock) is a participating security. The two-class method is an earnings allocated formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. We compute diluted net (loss) income per common share using net (loss) income as the “control number” in determining whether potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options, unvested restricted stock outstanding during the period and potential issuance of stock upon the conversion of our Series A Preferred Stock, including accrued dividends, outstanding during the period, except where the effect of such securities would be anti-dilutive.
The calculations of basic and diluted net (loss) income per share and basic and diluted weighted-average shares outstanding for the three months ended March 30, 2019 and March 31, 2018 were as follows (in thousands, except per share data):

See accompanying notes to the condensed consolidated financial statements
19

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
Numerator:
 
 
 
Basic:
 
 
 
Net (loss) income attributable to common stockholders
$
(1,746
)
 
$
1,741

Diluted:
 
 
 
Net (loss) income attributable to common stockholders
$
(1,746
)
 
$
1,741

Plus: undistributed earnings allocated to participating securities

 
956

Less: undistributed earnings reallocated to participating securities

 
(936
)
Net (loss) income attributable to common stockholders
$
(1,746
)
 
$
1,761

 
 
 
 
Denominator:
 
 
 
Weighted-average shares outstanding - basic
32,209

 
30,551

 
 
 
 
Dilutive impact from:
 
 
 
Options outstanding

 
2,044

Restricted stock units

 
749

Weighted-average shares outstanding - dilutive
32,209

 
33,344

 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic):
$
(0.05
)
 
$
0.06

Net (loss) income per share attributable to common stockholders (Diluted):
$
(0.05
)
 
$
0.05

The following equity shares were excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Stock options
3,342

 
954

Restricted stock units
2,597

 
294

Series A Redeemable Convertible Preferred Stock (as converted to common stock)
5,117

 
4,851

The Series A Preferred Stock is considered anti-dilutive due to the fact that the two-class method was more dilutive when calculating dilutive net (loss) income per share attributable to common stockholders.
9. Preferred Stock
Preferred Stock consists of the following at March 30, 2019 and December 29, 2018 (in thousands, except shares):

See accompanying notes to the condensed consolidated financial statements
20

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



 
Preferred Stock Authorized
 
Issuance Date
 
Issued and Outstanding
 
Liquidation Preference (as of June 29, 2023)
 
Carrying Value
 
Common Stock Issuable Upon Conversion (as of June 29, 2023)
March 30, 2019
Series A
46,350

 
June 29, 2016
 
46,350

 
$
67,424

 
$
53,725

 
6,421,369

December 29, 2018
Series A
46,350

 
June 29, 2016
 
46,350

 
$
67,424

 
$
53,007

 
6,421,369

Please refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 filed with the Securities and Exchange Commission on March 7, 2019 for further detail on the Series A Redeemable Convertible Preferred Stock.
10. Income Taxes
We are required to compute income tax expense in each jurisdiction in which it operates. This process requires us to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (NOL) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, we consider whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.
ASC 740 requires a valuation allowance to reduce the deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. On a periodic basis, we reassess the valuation allowance on its deferred tax assets weighing positive and negative evidence to assess the recoverability of the deferred tax assets.
In the first quarter of 2019, we made the decision to implement additional screening on individual caregivers seeking jobs through our U.S. consumer marketplace with improvements to be rolled out by the end of the year. We also made the decision to explore other safety initiatives. These safety enhancements represent significant new investments for us that we expect to have an adverse effect on our profitability in fiscal 2019. The effect will be most pronounced in the United States where, based on our current forecasts, we expect to incur a modest pre-tax loss in fiscal 2019, with a return to profitability in fiscal 2020. Using this information, we updated our assessment and considered the positive and negative evidence. We determined that the positive evidence consisting of our cumulative three-year history of profits and future projections which indicate we will remain in a three-year cumulative income position in fiscal 2019 and future years outweighs the negative evidence consisting of pre-tax losses in fiscal 2015 and prior and the challenges to U.S. profitability in 2019 as a result of the factors noted above. In addition, we considered that our U.S. NOL carryforwards do not begin to expire in a material manner until 2028. Therefore, we concluded that it remains more likely than not our deferred taxes will ultimately be realized. If in future periods our profitability is further materially affected by decisions to make additional investments or incur additional costs, or our revenue growth is affected by the factors noted in Note 1 “Certain Significant Risks and Uncertainties”or other factors, it may result in a need to record valuation allowances and such result would likely be material to our reported results of operations.
We recorded an income tax benefit of $1.0 million and $0.7 million for the three months ended March 30, 2019 and March 31, 2018. The tax benefit recorded for the three months ended March 30, 2019 primarily relates to excess tax benefits recorded from the taxable compensation on share-based awards which are recorded discretely each quarter.
The tax benefit recorded for the three months ended March 31, 2018 primarily related to the excess tax benefits from the taxable compensation on share-based awards, partially offset by tax expense pertaining to amortization of goodwill associated with the acquisition of Care.com HomePay for tax purposes, for which there was no corresponding book deduction, and certain state taxes based on operating income that are payable without regard to tax loss carryforwards.
11. Segment and Geographical Information
We consider operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the chief executive officer “CEO”. Our CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. For the periods presented we have concluded that we have a single operating and reportable segment.

See accompanying notes to the condensed consolidated financial statements
21

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



No country outside of the United States provided greater than 10% of our total revenue. Revenue is classified by the major geographic areas in which our customers are located. The following table summarizes total revenue generated by our geographic locations (dollars in thousands):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
United States
$
48,657

 
$
42,537

International
4,679

 
4,788

Total revenue
$
53,336

 
$
47,325


 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(As a percentage of revenue)
United States
91
%
 
90
%
International
9
%
 
10
%
Total revenue
100
%
 
100
%
Our long-lived assets are primarily located in the United States and are not allocated to any specific region. Therefore, geographic information is presented only for total revenue.
12. Restructuring Charges and Right of Use Asset Impairments
During the quarter ended September 30, 2017, we ceased use of 25,812 square feet of our 108,743 square foot headquarters facility in Waltham, Massachusetts. We recorded a lease obligation charge of $3.1 million. The lease obligation charge comprised of restructuring expense, including sublease income and construction costs, net of deferred rent liabilities of $2.6 million. Additionally, we wrote off $0.5 million of leasehold improvements related to the space. These estimates may vary from the sublease agreements ultimately executed, if at all, resulting in an adjustment to the charges. The initial restructuring charge was recorded as restructuring expense in the consolidated statements of operations for the three and nine months ended September 30, 2017. In the first 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 expected 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 three months ended September 29, 2018, we again updated our estimate for the expected time 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. Upon adoption of ASC 842, we reclassified the restructuring liability from liabilities to a reduction of the right of use asset associated with the lease. Additionally, during the three months ended March 30, 2019, we again updated our assumptions, as we had signed a sublease agreement for the remaining portion of the ceased use space, resulting in an additional $0.2 million of charges in the first quarter of fiscal 2019.

See accompanying notes to the condensed consolidated financial statements
22

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



13. Other Income (Expense), net
Other income (expense), net, consisted of the following (in thousands):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Interest income
$
346

 
$
140

Interest expense
(11
)
 
(3
)
(Loss) gain on foreign exchange
(66
)
 
426

Other expense, net

 
(1
)
Total other income, net
$
269

 
$
562

14. Related Party Transactions

We had the following transactions with related parties as of and during the three months ended March 30, 2019 and March 31, 2018:
CapitalG LP
On June 29, 2016, we issued Series A Preferred Stock to CapitalG LP, as described in Note 9. As a result of this transaction, Alphabet Inc., the ultimate parent of CapitalG LP (“CapitalG”), and all related affiliates of Alphabet Inc. are considered to be related parties. We had the following transactions with Alphabet Inc. and its affiliates during the three months ended March 30, 2019 and March 31, 2018 (in thousands):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Revenue
$
946

 
$
637

Selling and marketing expense
$
3,221

 
$
3,036

We had the following transactions with Alphabet Inc. and its affiliates as of March 30, 2019 and December 29, 2018 (in thousands):
 
Period Ended
 
March 30,
2019
 
December 29,
2018
Accounts receivable
$
822

 
$
421

Unbilled accounts receivable
$
255

 
$
680

Accounts payable
$

 
$
530

Accrued expense
$
1,031

 
$
403

Deferred revenue
$
172

 
$
1

15. Leases
On December 30, 2018, we adopted ASU No. 2016-02 - Leases (ASC 842) using the modified retrospective method. We chose to apply the transition provisions as of the period of adoption. Results for reporting periods beginning on or after December 30, 2018 are presented under ASC 842 while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 840.
Adoption of the new standard resulted in the recording of $20.8 million of operating lease right of use assets, $4.3 million of short-term operating lease liabilities, and $23.5 million of long-term operating lease liabilities. The difference between the operating lease liabilities and operating right of use assets is associated with existing deferred rent under ASC 840 and existing restructuring

See accompanying notes to the condensed consolidated financial statements
23

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



liabilities under ASC 420, which we removed from our balance sheet upon the adoption of ASC 842. The following table summarizes the amount by which each financial statement line item was affected in the current reporting period due to the adoption of ASC 842 as compared with the guidance that was in effect before the change (in thousands):
 
December 29, 2018
 
ASC 842 Adjustment
 
December 30, 2018
Assets
 
 
 
 
 
Operating lease right of use assets, net

 
20,832

 
20,832

Total assets
$
268,067

 
$
20,832

 
$
288,899

 
 
 
 
 
 
Liabilities, redeemable convertible preferred stock, and stockholders' equity
 
 
 
 
 
Accrued expenses and other current liabilities *
20,463

 
(1,071
)
 
19,392

Current operating lease liabilities

 
4,268

 
4,268

Total current liabilities
45,603

 
3,197

 
48,800

Other non-current liabilities *
6,806

 
(5,818
)
 
988

Non-current operating lease liabilities

 
23,453

 
23,453

Total liabilities
52,847

 
20,832

 
73,679

Stockholders' equity
 
 
 
 
 
Total stockholders' equity
162,213

 

 
162,213

Total liabilities, redeemable convertible preferred stock and stockholders' equity
$
268,067

 
$
20,832

 
$
288,899

 
 
 
 
 
 
* Accrued expense and other current liabilities and other non-current liabilities represents lease restructuring charges and deferred rent reflected as reductions in operating lease right of use assets, net.
We consider a lease to be a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. We lease office spaces in various locations throughout the United States and Europe. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
For these lease agreements, we have elected the practical expedient to not separate non-lease and lease components and instead to account for them as a single lease component.
Some leases include an option to renew, with renewal terms that can extend the lease term from one to ten years. The exercise of lease renewal options is at our sole discretion. None of these options to renew are recognized as part of our right-to-use asset or lease liability as of March 30, 2019, as renewal was determined to not be reasonably assured. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
One of our leases includes variable lease payment based on an index rate, which is included in the lease liability using the index rate as of the lease commencement date. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, because we elected the practical expedient to not separate non-lease and lease components and instead account for them as a single lease component, our operating leases costs include variable lease costs associated with common area maintenance, insurance and real estate taxes.
We sublease certain real estate to third parties. Our subleases are primarily attributable to our headquarters office space in Waltham, Massachusetts. There are no variable lease payments or options to extend the subleases, nor do they contain any material residual value guarantees or material restrictive covenants.
As most of our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available at the adoption or commencement date, in determining the present value of lease payments.
The table below summarizes our lease costs as well as sublease income for the three months ended March 30, 2019 (in thousands):

See accompanying notes to the condensed consolidated financial statements
24

CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2019
(unaudited)



 
 
Three Months Ended
 
 
March 30,
2019
Lease Costs
Statement of Operations Classification
 
Operating lease costs (1)
General and administrative
$
1,079

Variable lease costs - operating leases
General and administrative
334

Sublease income
General and administrative
(162
)
Total lease costs
 
$
1,251

 
 
 
(1) Operating lease costs include short-term leases, which is immaterial.
The table below summarizes the maturity of our lease liabilities as of March 30, 2019 (in thousands):
Year
Operating Leases
2019 remaining
$
4,441

2020
$
6,143

2021
$
6,121

2022
$
5,519

2023
$
5,105

Thereafter
$
5,161

Total lease payments
$
32,490

Less: Discount to lease payments
(4,706
)
Present value of lease liabilities
$
27,784

The table below summarizes the weighted-average remaining lease term (in years) and the weighted-average incremental borrowing rate (in percentages):
Lease Term and Discount Rates
March 30,
2019
Weighted average remaining lease term
 
Operating leases
5.4

Weighted average incremental borrowing rate
 
Operating leases
5.7
%
Supplemental cash flow information related to operating leases for the three months ended March 30, 2019 are as follows (in thousands):
 
Three Months Ended
 
March 30,
2019
Cash payments of amounts included in lease liabilities
 
Operating leases
$
(1,385
)
Right of use assets obtained in exchange for new lease obligations
 
Operating leases
$
1,057


See accompanying notes to the condensed consolidated financial statements
25


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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed on March 7, 2019. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from our expectations.
Overview
We are the world’s largest online marketplace for finding and managing family care. We have more than 32.9 million members, including 19.1 million families and 13.9 million caregivers, spanning over 20 countries. We help families address their particular lifecycle of care needs, which may include child care, senior care, special needs care and other non-medical family care needs such as pet care, tutoring and housekeeping. In the process, we also help caregivers find rewarding full-time and part-time employment opportunities.
Our consumer matching solutions allow families to search for, qualify, vet, connect with and ultimately select caregivers in a low-cost, reliable and easy way. We also provide caregivers with solutions to create personal profiles, describe their unique skills and experience, and otherwise differentiate and market themselves in a highly fragmented marketplace.
In addition to our consumer matching solutions, we offer our members innovative products and services to facilitate their interaction with caregivers. We provide solutions intended to improve both the ease and reliability of the care relationship in the home. One product area we are particularly focused on is consumer payments solutions. Through Care.com HomePay, families can subscribe to payroll and tax preparation services for domestic employees. This offering deepens our relationship with our members and could enhance the lifetime value associated with each member.
We also serve employers through our Care@Work offering by providing access to certain of our products and services, including back-up care for children and seniors, to employer-sponsored families. In addition, we serve care-related businesses— such as day care centers, nanny agencies and home care agencies — that wish to market their services to our care-seeking families and recruit our caregiver members. These businesses improve our member experience by providing additional caregiving choices for families and employment opportunities for caregivers.
We have experienced steady growth in revenue and members. Our members increased to 32.9 million as of March 30, 2019 from 28.4 million as of March 31, 2018, representing an annual growth rate of approximately 16%. Our revenue has increased to $53.3 million for the three months ended March 30, 2019 from $47.3 million for the three months ended March 31, 2018. However, we experienced a decline in income from $2.7 million in the three months ended March 31, 2018, to a net loss of $1.0 million for the three months ended March 30, 2019.
Key Business Metrics
In addition to traditional financial and operational metrics, we use the following business metrics to monitor and evaluate results (in thousands, except monthly average revenue per paying family - U.S. Consumer Business):
 
As of
 
March 30,
2019
 
March 31,
2018
Total members
32,944

 
28,420

Total families
19,062

 
16,195

Total caregivers
13,882

 
12,225

Paying families - U.S. Consumer Business
350

 
318

Monthly average revenue per paying family - U.S. Consumer Business
$
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 enough in them to have registered. Our total members increased 16% as of March 30, 2019, compared to March 31, 2018.

See accompanying notes to the condensed consolidated financial statements
26


Total Families. We define total families as the number of paying families and non-paying families who have registered through our websites and mobile apps since the launch of our marketplace in 2007. Total families also includes subscribers of our Care.com HomePay service. Our total families increased 18% as of March 30, 2019, compared to March 31, 2018.
Total Caregivers. We define total caregivers as the number of caregivers who have registered through our websites and mobile apps since the launch of our marketplace in 2007. Our total caregivers increased 14% as of March 30, 2019, compared to March 31, 2018.
Paying Families - U.S. Consumer Business. We define paying families - U.S. Consumer Business as the number of families located in the United States who have registered through our U.S.-based websites and mobile apps and who are paying subscribers of our U.S.-based matching services or our Care.com HomePay services as of the end of the fiscal period. The number of paying families in our U.S. Consumer Business increased 10% as of March 30, 2019, compared to March 31, 2018.
Monthly Average Revenue per Paying Family - U.S. Consumer Business. We define monthly average revenue per paying family, or MARPPF, for our U.S. Consumer Business as total U.S. Consumer Business revenue, including revenue from subscriptions and products, divided by the average number of paying families of our U.S.-based matching services and Care.com HomePay services in a given fiscal period, expressed on a monthly basis. We believe MARPPF is significant to our business because it represents how successful we have been at monetizing the subset of members who we have converted into paying families. The numerator of this metric includes revenue that comes from caregivers in addition to revenue that comes from families, while the denominator includes only paying families. We believe this is the most meaningful presentation because we do not consider the caregiver component of our business to be separate and distinct; rather, we believe revenue generated from caregivers is a byproduct of the families that have registered on our site. Our U.S. Consumer Business MARPPF as of March 30, 2019 remained consistent with the MARPPF as of March 31, 2018.
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed in the table below and within this Quarterly Report on Form 10-Q adjusted EBITDA, a non-GAAP financial measure. The table below represents a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our consolidated operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business.
Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted EBITDA does not reflect discontinued operations;
• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• adjusted EBITDA does not reflect costs related to mergers and acquisitions;
adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not include accretion of Series A Redeemable Convertible Preferred Stock dividends or issuance costs;
• adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
• adjusted EBITDA does not reflect one time unusual or non-cash significant adjustments; and
• other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside our GAAP financial results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):

See accompanying notes to the condensed consolidated financial statements
27


 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Net (loss) income
$
(1,028
)
 
$
2,697

 
 
 
 
Federal, state and franchise taxes
(859
)
 
(439
)
Other income, net
(269
)
 
(562
)
Depreciation and amortization
739

 
463

EBITDA
(1,417
)
 
2,159

 
 
 
 
Stock-based compensation
4,054

 
3,712

Merger and acquisition related costs
1,436

 
176

Restructuring related costs
231

 
462

Litigation related costs
21

 

Software implementation costs
8

 
153

Severance related costs

 
67

Adjusted EBITDA
$
4,333

 
$
6,729

Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the assumptions and estimates associated with the following critical accounting policies have the greatest potential impact on our condensed consolidated financial statements:
• Revenue recognition;
• Redeemable convertible preferred stock;
• Goodwill;
• Income taxes; and
• Amortization and impairment of intangible assets.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 filed on March 7, 2019 with the exception of the adoption of the Financial Accounting Standards Board’s Accounting Standard Update 2016-02, “Leases (Topic 842)” in the first quarter of fiscal 2019. Please refer to Note 15 of the notes to the condensed consolidated financial statements for further detail.
Recently Issued and Adopted Accounting Pronouncements
For information on recent accounting pronouncements, see Note 1 “Recently Issued and Adopted Accounting Pronouncements” in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

See accompanying notes to the condensed consolidated financial statements
28



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

 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
 
 
 
Revenue
$
53,336

 
$
47,325

Cost of revenue
13,802

 
9,443

Operating expenses:
 
 
 
Selling and marketing
18,604

 
16,857

Research and development
11,224

 
8,288

General and administrative
11,308

 
10,467

Depreciation and amortization
447

 
418

Restructuring and right of use asset impairment charges
231

 
462

Total operating expenses
41,814

 
36,492

Operating (loss) income
(2,280
)
 
1,390

Other income, net
269

 
562

(Loss) income before income taxes
(2,011
)
 
1,952

Benefit from income taxes
(983
)
 
(745
)
Net (loss) income
(1,028
)
 
2,697

Accretion of Series A Redeemable Convertible Preferred Stock dividends
(718
)
 
(680
)
Net loss (income) attributable to Series A Redeemable Convertible Preferred Stock

 
(276
)
Net (loss) income attributable to common stockholders
$
(1,746
)
 
$
1,741

 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic):
$
(0.05
)
 
$
0.06

Net (loss) income per share attributable to common stockholders (Diluted):
$
(0.05
)
 
$
0.05

 
 
 
 
Weighted-average shares used to compute net income per share attributable to common stockholders:
 
 
 
Basic
32,209

 
30,551

Diluted
32,209

 
33,344

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

See accompanying notes to the condensed consolidated financial statements
29


 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
 
 
 
Cost of revenue
$
98

 
$
64

Selling and marketing
635

 
474

Research and development
1,416

 
809

General and administrative
1,905

 
2,365

Total stock-based compensation
$
4,054

 
$
3,712

The following tables set forth our condensed consolidated results of operations for the periods presented as a percentage of revenue for those periods (certain items may not foot due to rounding).
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Revenue
100
 %
 
100
 %
Cost of revenue
26
 %
 
20
 %
Operating expenses:
 
 
 
Selling and marketing
35
 %
 
36
 %
Research and development
21
 %
 
18
 %
General and administrative
21
 %
 
22
 %
Depreciation and amortization
1
 %
 
1
 %
Restructuring and right of use asset impairment charges
 %
 
1
 %
Total operating expenses
78
 %
 
77
 %
Operating (loss) income
(4
)%
 
3
 %
Other income, net
1
 %
 
1
 %
(Loss) income before income taxes
(4
)%
 
4
 %
Benefit from income taxes
(2
)%
 
(2
)%
Net (loss) income
(2
)%
 
6
 %
Accretion of Series A Redeemable Convertible Preferred Stock dividends
(1
)%
 
(1
)%
Net loss (income) attributable to Series A Redeemable Convertible Preferred Stock
 %
 
(1
)%
Net (loss) income attributable to common stockholders
(3
)%
 
4
 %
Revenue
We generate revenue primarily through (a) subscription fees to our suite of products and services, which enable families to manage their diverse and evolving care needs, and caregivers to describe their unique skills and experience and otherwise differentiate and market themselves in a highly fragmented marketplace; and (b) annual contracts with corporate employers, both to provide access to our suite of products and services as an employee benefit, and to allow businesses to recruit employees and advertise their business profiles. Substantially all of our revenue earned is recognized on a ratable basis over the period the service is provided, with the exception of revenue from individually purchased background checks, which is recognized when the services are delivered to the end customer.
The following are our sources of revenue:
U.S. Consumer Business
Our U.S. Consumer Business consists of our U.S. matching solutions and our payments solutions.

See accompanying notes to the condensed consolidated financial statements
30


Our U.S. matching solutions provide families access to job posting features, search features, caregiver profiles and content and are offered directly to consumers. Access to this platform is free of charge for basic members. Paying family members pay a monthly, quarterly or annual subscription fee to connect directly with caregivers and to utilize enhanced tools such as third-party background checks. Paying caregiver members pay a subscription fee for priority notification of jobs, messaging services and to perform third-party background checks on themselves. Subscription payments are received from all paying members at the time of sign-up and are recognized on a daily basis over the subscription term as the services are delivered once the revenue recognition criteria are met (refer to Note 3 of the notes to the condensed consolidated financial statements for a description of the revenue recognition criteria).
Our payments solutions provide families several options to manage their financial relationship with their caregiver through the use of household employer payroll and tax services. Revenue related to Care.com HomePay, our household payroll and tax service, is primarily generated through quarterly subscriptions and recognized on a daily ratable basis over the period the services are provided.
Other Revenue
Other revenue includes revenue generated through contracts that provide corporate employers access to certain of our products and services, including on-demand back-up care, through our Care@Work solution. This product offering is typically sold through the use of an annual contract with an automatic renewal clause. Revenue related to this offering is recognized on a daily basis over the contract term. Additionally, other revenue includes revenue generated from international markets. This revenue is typically recognized on a daily basis over the term of a member’s subscription. We also generate revenue through our marketing solutions offering, which is designed to provide care-related businesses an efficient and cost-effective way to target qualified families seeking care services, and through our recruiting solutions offering, which allows care-related businesses to recruit caregivers for full-time and part-time employment. Revenue related to these product offerings is typically recognized in the period earned.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Revenue
$
53,336

 
$
47,325

 
$
6,011

 
13
%
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was primarily attributed to an increase of $3.1 million in our consumer matching solutions business, principally related to a higher number of paying families and caregivers. Additionally, there was an increase of $2.0 million in Care@Work, and an increase of $0.6 million in our consumer payment solutions business.
Cost of Revenue
Our cost of revenue primarily consists of expenses that are directly related, or closely correlated, to revenue generation, including matching and payments member variable servicing costs such as personnel costs for customer support, transaction fees related to credit card payments, the cost of background checks run on both families and caregivers and costs associated with back-up care. Additionally, cost of revenue includes website hosting fees and amortization expense related to caregiver relationships, proprietary software acquired as part of acquisitions and website intangible assets. We currently expect cost of revenue to increase on an absolute basis in the near term as we continue to expand our related customer base.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Cost of revenue
$
13,802

 
$
9,443

 
$
4,359

 
46
%
Percentage of revenue
26
%
 
20
%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was related to increases in compensation-related costs of $2.1 million, member servicing and background check screening fees of $1.2 million and credit card fees of $0.6 million.

See accompanying notes to the condensed consolidated financial statements
31


Selling and Marketing
Our selling and marketing expenses primarily consist of customer acquisition marketing, including television advertising, branding, other advertising and public relations costs, as well as third-party resources for consulting and allocated facilities and other supporting overhead costs. In addition, sales and marketing expenses include salaries, benefits, stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. We plan to continue to invest in sales and marketing to grow our current customer base, continue building brand awareness, and expand our global footprint.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Selling and marketing
$
18,604

 
$
16,857

 
$
1,747

 
10
%
Percentage of revenue
35
%
 
36
%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was primarily attributed to increases in both acquisition marketing expense of $0.9 million and compensation-related costs of $0.8 million.
Research and Development
Our research and development expenses primarily consist of salaries, benefits and stock-based compensation for our engineers, product managers and developers. In addition, product development expenses include third-party resources, as well as allocated facilities and other supporting overhead costs. We believe that continued investment in features, software development tools and code modification is important to attaining our strategic objectives and, as a result, we expect product development expense to increase on an absolute basis in the near term.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Research and development
$
11,224

 
$
8,288

 
$
2,936

 
35
%
Percentage of revenue
21
%
 
18
%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was primarily related to an increase in compensation-related costs of $2.9 million.
General and Administrative
Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include: third-party resources; cyber security risk mitigation costs; legal and accounting services; acquisition-related costs; insurance premiums; and facilities.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
General and administrative
$
11,308

 
$
10,467

 
$
841

 
8
%
Percentage of revenue
21
%
 
22
%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was related to higher compensation related costs of $0.2 million. Additionally, there were increases in consulting resources for professional services expense, third-party advisors expense and IT-related expense of $0.2 million, $0.2 million and $0.2 million, respectively.

See accompanying notes to the condensed consolidated financial statements
32


Depreciation and Amortization
Depreciation and amortization expenses primarily consist of depreciation of computer equipment and software and amortization of leasehold improvements and acquired intangibles. Overall, we expect that depreciation and amortization expenses will decrease as a percentage of revenue.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Depreciation and amortization
$
447

 
$
418

 
$
29

 
7
%
Percentage of revenue
1
%
 
1
%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was primarily attributed to new amortization associated with the acquisitions made during fiscal 2018. Over the next five years, we expect to incur total annual amortization expense associated with previous acquisitions of $6.5 million.
Restructuring and Right of Use Asset Impairment Charges
 
Three Months Ended
 
Period-to-Period Change
 
March 30, 2019
 
March 31, 2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Restructuring charges
$
231

 
$
462

 
$
(231
)
 
(50
)%
Percentage of revenue
%
 
1
%
 
 
 
 
Comparison of Three Months Ended March 30, 2019 and March 31, 2018
In the first quarter of fiscal 2018, we updated our assumptions associated with our third quarter 2017 restructuring event, as we had signed a sublease agreement for a portion of the ceased use space and updated our estimates for the expected 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. Additionally, during the three months ended March 30, 2019, we again updated our assumptions, as we had signed a sublease agreement for the remaining portion of the ceased use space, resulting in an additional $0.2 million of right of use asset impairment charges in the first quarter of fiscal 2019.
Other Income, net
Other income, net, consists primarily of foreign exchange gains and losses, net of the interest income earned on our cash and cash equivalents and investments.
 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
Other income, net
$
269

 
$
562

 
$
(293
)
 
(52
)%
Percentage of revenue
1
%
 
1
%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The change was primarily driven by the unfavorable movement of foreign exchange rates, primarily due to the strengthening of the US dollar against the Euro and British Pound Sterling during the three months ended March 30, 2019 compared to the three months ended March 31, 2018.
Benefit from Income Taxes
Benefit from income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions.

See accompanying notes to the condensed consolidated financial statements
33


 
Three Months Ended
 
Period-to-Period Change
 
March 30,
2019
 
March 31,
2018
 
$ Change
 
% Change
 
(in thousands, except percentages)
Benefit from income taxes
$
(983
)
 
$
(745
)
 
$
(238
)
 
32
%
Percentage of revenue
(2
)%
 
(2
)%
 
 
 
 
Comparison of the Three Months Ended March 30, 2019 and March 31, 2018
The tax benefit recorded for the three months ended March 30, 2019 primarily relates to excess tax benefits recorded from the taxable compensation on share-based awards.
The tax benefit recorded for the three months ended March 31, 2018 primarily related to the excess tax benefits from the taxable compensation on share-based awards, partially offset by tax expense pertaining to amortization of goodwill associated with the acquisition of Care.com HomePay for tax purposes, for which there was no corresponding book deduction, and certain state taxes based on operating income that are payable without regard to tax loss carryforwards
Liquidity and Capital Resources
The following table summarizes our cash flow a