10-Q 1 fy19q310-q.htm 10-Q Document
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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
Trading Symbol
Name of exchange on which registered
Common Stock, par value $0.001
CRCM
The New York Stock Exchange
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 November 1, 2019, there were 33,128,379 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 the 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; our revenue, expenses, adjusted EBITDA and other financial metrics; the industries in which we and our partners operate; industry, geographic and demographic trends; our market and leadership position; performance and growth factors; demand for services; seasonality; our competitive strengths and differentiators; our growth strategies and opportunities for expansion, investment, acquisitions and integration; our marketing strategies; our intellectual property; regulatory compliance; changes in headcount; our employee and labor relationships; investments in existing or new lines of business; our ability to attract new members and retain existing members; revenue from our paying members; our ability to attract and retain key employees; our dividend policy; the position of our brand; our investments in our business, including marketing and safety; the outcome of litigation and legal matters and proceedings; depreciation and amortization expense, cash flow and use of cash; our operating and capital expenditures; exchange rates; the impact of the Tax Cuts and Jobs Act of 2017 and adjustments, tax benefits, tax rates, tax audits and settlements; and the 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.


1



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


 
September 30, 2019
 
December 29, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
94,560

 
$
92,432

Short-term investments
35,000

 
35,099

Accounts receivable (net of allowance of $100 and $100, respectively) (1) 
6,488

 
4,663

Unbilled accounts receivable (2) 
6,684

 
6,394

Prepaid expenses and other current assets
7,389

 
7,223

Total current assets
150,121

 
145,811

Property and equipment, net
3,336

 
3,423

Intangible assets, net
3,249

 
4,061

Goodwill
67,321

 
68,176

Other non-current assets
3,129

 
2,859

Operating lease right of use assets, net
23,525

 

Deferred tax assets

 
43,737

Total assets
$
250,681

 
$
268,067

 
 
 
 
Liabilities, redeemable convertible preferred stock, and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable (3) 
$
2,277

 
$
3,437

Accrued expenses and other current liabilities (4) 
25,176

 
20,463

Current contingent acquisition consideration
1,000

 
1,527

Deferred revenue (5)
24,459

 
20,176

Current operating lease liabilities
5,587

 

Total current liabilities
58,499

 
45,603

Non-current contingent acquisition consideration

 
438

Deferred tax liability
1,835

 

Other non-current liabilities
3,568

 
6,806

Non-current operating lease liabilities
24,619

 

Total liabilities
88,521

 
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 September 30, 2019 and December 29, 2018; at aggregate liquidation and redemption value at September 30, 2019 and December 29, 2018, respectively
55,199

 
53,007

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

 

Common stock, $0.001 par value; 300,000 shares authorized; 33,082 and 32,057 shares issued and outstanding at September 30, 2019 and December 29, 2018, respectively
33

 
32

Additional paid-in capital
299,679

 
286,295

Accumulated deficit
(192,191
)
 
(124,122
)
Accumulated other comprehensive (loss) income
(560
)
 
8

Total stockholders' equity
106,961

 
162,213

Total liabilities, redeemable convertible preferred stock and stockholders' equity
$
250,681

 
$
268,067

(1) Includes accounts receivable due from related party of $231 and $421 at September 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 $610 and $680 at September 30, 2019 and December 29, 2018, respectively. (Note 14)  
(3) Includes accounts payable due to related party of $0 and $530 at September 30, 2019 and December 29, 2018, respectively. (Note 14)  
(4) Includes accrued expenses and other current liabilities due to related party of $1,352 and $403 at September 30, 2019 and December 29, 2018, respectively. (Note 14)  
(5) Includes deferred revenue associated with related party of $57 and $1 at September 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
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
 
 
 
 
 
 
 
 
Revenue (1)
$
53,285

 
$
49,160

 
$
157,599

 
$
142,451

Cost of revenue
15,598

 
11,532

 
43,050

 
30,798

Operating expenses:
 
 
 
 
 
 
 
Selling and marketing (2)
17,732

 
16,439

 
53,287

 
49,197

Research and development
8,417

 
8,860

 
36,563

 
25,640

General and administrative
13,281

 
10,987

 
35,604

 
33,047

Depreciation and amortization
478

 
416

 
1,408

 
1,245

Goodwill and intangible asset impairment charge

 

 
8,183

 

Restructuring and right of use asset impairment charges
(134
)
 
89

 
2,855

 
568

Total operating expenses
39,774

 
36,791

 
137,900

 
109,697

Operating (loss) income
(2,087
)
 
837

 
(23,351
)
 
1,956

Other (expense) income, net
(222
)
 
38

 
454

 
(168
)
(Loss) income before income taxes
(2,309
)
 
875

 
(22,897
)
 
1,788

(Benefit from) provision for income taxes
(73
)
 
(977
)
 
45,172

 
(2,592
)
Net (loss) income
(2,236
)
 
1,852

 
(68,069
)
 
4,380

Accretion of Series A Redeemable Convertible Preferred Stock dividends
(773
)
 
(718
)
 
(2,192
)
 
(2,063
)
Net (income) attributable to Series A Redeemable Convertible Preferred Stock

 
(155
)
 

 
(321
)
Net (loss) income attributable to common stockholders
$
(3,009
)
 
$
979

 
$
(70,261
)
 
$
1,996

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic):
$
(0.09
)
 
$
0.03

 
$
(2.16
)
 
$
0.06

Net (loss) income per share attributable to common stockholders (Diluted):
$
(0.09
)
 
$
0.03

 
$
(2.16
)
 
$
0.06

 
 
 
 
 
 
 
 
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
32,863

 
31,356

 
32,539

 
30,980

Diluted
32,863

 
33,880

 
32,539

 
33,633


(1) Includes related party revenue of $937 and $819 for the three months ended September 30, 2019 and September 29, 2018, respectively. Includes related party revenue of $2,759 and $2,161 for the nine months ended September 30, 2019 and September 29, 2018, respectively. (Note 14)  
(2) Includes related party expenses of $3,482 and $2,912 for the three months ended September 30, 2019 and September 29, 2018, respectively. Includes related party expenses of $9,946 and $8,565 for the nine months ended September 30, 2019 and September 29, 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
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
 
 
 
 
 
 
 
 
Net (loss) income
$
(2,236
)
 
$
1,852

 
$
(68,069
)
 
$
4,380

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(505
)
 
14

 
(568
)
 
(236
)
Comprehensive (loss) income
$
(2,741
)
 
$
1,866

 
$
(68,637
)
 
$
4,144






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

Exercises of stock options

 

 
249

 

 
1,943

 

 

 
1,943

Issuance of restricted stock units

 

 
157

 

 

 

 

 

Stock-based compensation

 

 

 

 
4,988

 

 

 
4,988

Accretion of Series A Redeemable Convertible Preferred Stock dividends

 
665

 

 

 
(665
)
 

 

 
(665
)
Foreign currency translation adjustment

 

 

 

 

 

 
(450
)
 
(450
)
Net loss

 

 

 

 

 
(169
)
 

 
(169
)
Balance as of June 30, 2018
46

 
$
51,604

 
31,239

 
$
31

 
$
276,580

 
$
(174,484
)
 
$
296

 
$
102,423

Exercises of stock options

 

 
190

 

 
1,551

 

 

 
1,551

Issuance of restricted stock units

 

 
215

 
1

 

 

 

 
1

Stock-based compensation

 

 

 

 
4,281

 

 

 
4,281


See accompanying notes to the condensed consolidated financial statements
7


Accretion of Series A Redeemable Convertible Preferred Stock dividends

 
718

 

 

 
(718
)
 

 

 
(718
)
Foreign currency translation adjustment

 

 

 

 

 

 
14

 
14

Net income

 

 

 

 

 
1,852

 

 
1,852

Balance as of September 29, 2018
46

 
$
52,322

 
31,644

 
$
32

 
$
281,694

 
$
(172,632
)
 
$
310

 
$
109,404



See accompanying notes to the condensed consolidated financial statements
8


 
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 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

Exercises of stock options

 

 
124

 

 
420

 

 

 
420

Issuance of restricted stock units

 

 
189

 
1

 

 

 

 
1

Stock-based compensation

 

 

 

 
7,282

 

 

 
7,282

Accretion of Series A Redeemable Convertible Preferred Stock dividends

 
701

 

 

 
(701
)
 

 

 
(701
)
Foreign currency translation adjustment

 

 

 

 

 

 
203

 
203

Net loss

 

 

 

 

 
(64,805
)
 

 
(64,805
)
Balance at June 29, 2019
46

 
54,426

 
32,739

 
33

 
297,899

 
(189,955
)
 
(55
)
 
107,922

Exercises of stock options

 

 
6

 

 
46

 

 

 
46

Issuance of restricted stock units

 

 
337

 

 

 

 

 

Stock-based compensation

 

 

 

 
2,507

 

 

 
2,507

Accretion of Series A Redeemable Convertible Preferred Stock dividends

 
773

 

 

 
(773
)
 

 

 
(773
)
Foreign currency translation adjustment

 

 

 

 

 

 
(505
)
 
(505
)
Net loss

 

 

 

 

 
(2,236
)
 

 
(2,236
)
Balance as of September 30, 2019
46

 
$
55,199

 
33,082

 
$
33

 
$
299,679

 
$
(192,191
)
 
$
(560
)
 
$
106,961



See accompanying notes to the condensed consolidated financial statements
9




See accompanying notes to the condensed consolidated financial statements
10


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

 
Nine Months Ended
 
September 30, 2019
 
September 29, 2018
Cash flows from operating activities
 
 
 
Net (loss) income
$
(68,069
)
 
$
4,380

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Stock-based compensation
13,843

 
12,981

Depreciation and amortization
2,150

 
1,527

Deferred income taxes
44,750

 
(2,712
)
Contingent consideration expense

 
29

Change in fair value of contingent consideration
669

 
257

Loss on impairment of goodwill and intangible assets
8,183

 
142

Foreign currency remeasurement loss
545

 
606

Disposal of fixed assets
525

 

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(1,867
)
 
497

Unbilled accounts receivable
(303
)
 
(625
)
Prepaid expenses and other current assets
(1,856
)
 
(1,630
)
Other non-current assets
(27
)
 
(693
)
Operating lease right of use assets and liabilities
(208
)
 

Accounts payable
(1,150
)
 
(678
)
Accrued expenses and other current liabilities
5,420

 
4,677

Deferred revenue
4,376

 
3,645

Payments of contingent consideration in excess of acquisition date fair value
(521
)
 

Other non-current liabilities
2,894

 
1,330

Net cash provided by operating activities
9,354

 
23,733

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of property and equipment; and software
(1,606
)
 
(564
)
Payments for acquisitions, net of cash acquired
(7,472
)
 
(9,818
)
Purchase of short-term investment
(50,000
)
 
(35,099
)
Sale of short-term investment
50,099

 
15,000

Other
(84
)
 

Net cash used in investing activities
(9,063
)
 
(30,481
)
 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from exercise of common stock options
1,791

 
4,693

Payments of contingent consideration
(1,112
)
 

Net cash provided by financing activities
679

 
4,693

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(269
)
 
(282
)
Net (decrease) increase in cash and cash equivalents and restricted cash
701

 
(2,337
)

See accompanying notes to the condensed consolidated financial statements
11


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
$
95,985

 
$
86,687

Cash and cash equivalents, end of the period
94,560

 
84,573

Restricted Cash (1)
1,425

 
2,114

Cash and cash equivalents and restricted cash, end of the period
$
95,985

 
$
86,687

 
 
 
 
Supplemental disclosure of cash flow activities
 
 
 
Cash paid for taxes
$
427

 
$
483

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

 
$
297

Series A Redeemable Convertible Preferred Stock dividend accretion
$
2,192

 
$
2,063

 
 
 
 
(1) As of the nine months ended September 30, 2019 $30 and $1,395 was included in Prepaid expenses and other current assets and Other non-current assets on the Condensed Consolidated Balance Sheet, respectively. As of the nine months ended September 29, 2018 $354 and $1,759 was included in Prepaid expenses and other current assets and Other non-current assets on the Condensed Consolidated Balance Sheet, respectively.



See accompanying notes to the condensed consolidated financial statements
12

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




1. Description of Business and Summary of Significant Accounting Policies
Care.com, Inc., a Delaware corporation, was incorporated on October 27, 2006. Unless the context indicates otherwise, when used in this report, the terms “we,” “us,” “our,” “Care.com” and the “Company” mean Care.com, Inc. and its consolidated subsidiaries, collectively. 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; and 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 nine months ended September 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 (“FASB”) Accounting Standard Update (“ASU”) No. 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
Prior to June 30, 2019, we operated and reported using a 52 or 53 week fiscal year ending on the Saturday in December closest and prior to December 31. Accordingly, our fiscal quarters ended on the Saturday that fell closest to the last day of the third month of each quarter.
In the second quarter of fiscal 2019, our board of directors approved a resolution to change the Company’s fiscal year from a 52 or 53 week fiscal year to a calendar year. Accordingly, our current fiscal year will be extended from December 28, 2019 to December 31, 2019, with subsequent fiscal years beginning on January 1 and ending on December 31 of each year. Beginning June 30, 2019, the first day of our third quarter, our quarterly results will be for the three month periods ending March 31, June 30, September 30 and December 31.


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



Subsequent Events Consideration
We consider events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events recorded in the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2019.
Recently Adopted Accounting Pronouncements
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 (Accounting Standards Codification (“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 ceased 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 ASC 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 have elected to prospectively adopt ASU No. 2018-15. Adoption will have no day one impact on the consolidated balance sheet.
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 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 No. 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.


14


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



2. Fair Value Measurements
The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of September 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):
 
September 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
$
18,473

 
$

 
$

 
$
18,473

 
$
18,148

 
$

 
$

 
$
18,148

Certificates of deposit
36,395

 

 

 
36,395

 
37,180

 

 

 
37,180

Total assets
$
54,868

 
$

 
$

 
$
54,868

 
$
55,328

 
$

 
$

 
$
55,328

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent acquisition consideration
$

 
$

 
$
1,000

 
$
1,000

 
$

 
$

 
$
1,964

 
$
1,964

Total liabilities
$

 
$

 
$
1,000

 
$
1,000

 
$

 
$

 
$
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):
 
September 30, 2019
 
Contingent Acquisition Consideration
Beginning balance - December 29, 2018
$
1,964

Change in fair value of contingent consideration
669

Payment of contingent consideration liability
(1,633
)
Ending balance - September 30, 2019
$
1,000

We recorded our estimates of the fair value of contingent consideration associated with the Town & Country Resources, Inc. and Trusted Labs, 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 initial 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. Subsequently, the fair value of the liability was estimated using updated assumptions on the probability assessment of achievement of the financial and operating metrics. 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.
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 nine months ended September 30, 2019 and September 29, 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.


15


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



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, we updated our assumptions for the expected time period it will take to obtain a subtenant for the remainder of the ceased use space. This resulted in an additional $0.6 million of charges, of which $0.5 million was incurred in the first quarter of fiscal 2018 and $0.1 million was incurred in the third quarter of fiscal 2018. We also updated our assumptions in the first, second and third quarters of fiscal 2019. We signed a sublease agreement for a portion of the ceased use space during the third quarter of fiscal 2019 and accordingly updated our estimates. The updated assumptions resulted in $0.2 million and $0.3 million of restructuring and right of use asset impairment charges in the first and second quarters of fiscal 2019, respectively. In the third quarter of fiscal 2019 a reduction to the restructuring and right of use asset impairments of $0.1 million was recorded, when the final sublease agreement was signed and the subtenant income was known. The measurement of our restructuring charges and right of use asset impairments using these assumptions is a level 3 measurement.
During the quarter ended June 29, 2019, we decided to abandon and seek a sublet for 36,395 square feet of the Company’s headquarters facility, which resulted in a right of use asset impairment charge of $1.1 million. This loss was determined by comparing the fair value of the impacted right of use asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment (“ASC 360”). The fair value of the right of use asset was based on the estimated sublease income for the portion of the Company’s headquarters taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate and the sublease rate. Additionally, we recorded a restructuring loss of $0.7 million associated with abandoning the space. The loss comprised of exit and disposal costs consisting of construction costs, real estate taxes, broker fees and utilities. Furthermore, we wrote-off $0.5 million of leasehold improvements related to the space. Refer to Note 12 for further information. The measurement of our restructuring loss and right of use asset impairments using the assumptions described is a level 3 measurement.
In the second quarter of fiscal 2019, we decided to wind down our Figure 8 business. This resulted in an indicator of impairment for the associated goodwill and intangible assets. Given that Figure 8 was only acquired in the first quarter of fiscal 2019, we had not yet integrated the business into our existing reporting units. As we will be disposing of the business, our impairment assessment completed in the second quarter of fiscal 2019 resulted in an impairment loss of $8.2 million in the three and six months ended June 29, 2019. This impairment loss comprised of the $5.3 million of goodwill recorded upon acquisition and $2.9 million of net proprietary software intangible assets.
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 and nine months ended September 30, 2019 and September 29, 2018 (in thousands).


16


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



 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 29, 2018
 
September 30, 2019
 
September 29, 2018
 
 
 
 
 
 
 
 
Business-to-Consumer
 
 
 
 
 
 
 
Matching Solutions
$
37,478

 
$
36,814

 
$
109,868

 
$
103,965

Payment Solutions
6,530

 
6,058

 
21,923

 
20,488

Business-to-Business
 
 
 
 
 
 
 
Care@Work Solutions
6,875

 
4,367

 
18,937

 
12,468

Recruiting and Marketing Solutions and other
2,402

 
1,921

 
6,871

 
5,530

Total revenue
$
53,285

 
$
49,160

 
$
157,599

 
$
142,451

The following table presents our revenue disaggregated by timing of transfer of services for the three and nine months ended September 30, 2019 and September 29, 2018 (in thousands).
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 29, 2018
 
September 30, 2019
 
September 29, 2018
 
 
 
 
 
 
 
 
Point-in-time
$
4,696

 
$
4,205

 
$
16,016

 
$
13,314

Over-time
48,589

 
44,955

 
141,583

 
129,137

Total revenue
$
53,285

 
$
49,160

 
$
157,599

 
$
142,451

Contract Balances
The increase in the deferred revenue balance at September 30, 2019 as compared to December 29, 2018 was primarily driven by cash payments received for our obligation to perform future services during fiscal 2019, offset by $18.5 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 nine months ended September 30, 2019 related to on-demand back-up care overages for our Care@Work offering was $0.3 million.
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 $1.5 million, $3.9 million, $1.4 million and $0.2 million of revenue related to our Care@Work offering in the remainder of fiscal 2019, fiscal 2020, fiscal 2021 and fiscal 2022, respectively, related to performance obligations that are currently unsatisfied (or partially satisfied) as of September 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 commissions are amortized over the period of expected benefit, which is the customer life and we estimate to be approximately five years. As of September 30, 2019, capitalized commissions were $1.6 million. For the three and nine months ended September 30, 2019 and September 29, 2018, amortized commission expense was (in thousands):


17


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



 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
Amortized commission expense
$
96

 
$
22

 
$
295

 
$
61

For renewal commissions with a renewal term of one year or 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 all of 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, and 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. In the second quarter of fiscal 2019, we decided to wind down our Figure 8 business. Please refer to Note 5 for further information on the impairment losses recorded.
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 all of 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 purchase price of $5.6 million was allocated to assets and liabilities as follows: $3.4 million of goodwill, $2.5 million in identified intangible assets, consisting primarily of proprietary software and care-giver relationships, and $0.3 million in 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.
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 of up to $1.0 million each to be earned over consecutive one-year periods. We estimated the fair value of the contingent consideration at the


18


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



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 the 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
(855
)
Business acquisition
5,325

Goodwill impairment
(5,325
)
Balance as of September 30, 2019
$
67,321

In the second quarter of fiscal 2019, we decided to wind down our Figure 8 business. This resulted in an indicator of impairment for the associated goodwill and intangible assets. Given that Figure 8 was only acquired in the first quarter of fiscal 2019, we had not yet integrated the business into our existing reporting units. As we will be disposing of the business, our impairment assessment completed in the second quarter of fiscal 2019 resulted in an impairment loss of $8.2 million in the second quarter of fiscal 2019. This impairment loss comprised of the $5.3 million of goodwill recorded upon acquisition and $2.9 million of net proprietary software intangible assets.
Additionally, in the quarter ended June 29, 2019 we incurred other expenses of $3.9 million in stock-based compensation related to the acceleration of time-based restricted stock units granted as part of the acquisition of Figure 8 and $4.1 million associated with the acceleration of the earn-out payments as part of the decision to no longer invest in Figure 8. We recorded $7.5 million of these expenses as research and development expense with the remaining $0.5 million recorded in general and administrative expenses. The $8.2 million impairment loss for the goodwill and intangible asset was recorded as goodwill and intangible asset impairment charge in the consolidated statements of operations for the nine months ended September 30, 2019.
After the Figure 8 impairment loss in the second quarter of fiscal 2019, we had $47.1 million of accumulated impairment losses.


19


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 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)
 
 
 
 
 
 
 
 
September 30, 2019
 
 
 
 
 
 
 
Indefinite lived intangibles
$
260

 
$

 
$
260

 
N/A
Trademarks and trade names
4,714

 
(4,488
)
 
226

 
5.3
Proprietary software
7,787

 
(5,665
)
 
2,122

 
3.7
Internal software
227

 
(184
)
 
43

 
1.1
Caregiver relationships
1,104

 
(731
)
 
373

 
1.4
Customer relationships
8,509

 
(8,284
)
 
225

 
3.3
Total
$
22,601

 
$
(19,352
)
 
$
3,249

 
 
 
 
 
 
 
 
 
 
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 $1.1 million and $0.7 million for the nine months ended September 30, 2019 and September 29, 2018, respectively. Of these amounts, $0.4 million and $0.4 million was classified as a component of depreciation and amortization, and $0.7 million and $0.3 million was classified as a component of cost of revenue in the condensed consolidated statements of operations for the nine months ended September 30, 2019 and September 29, 2018, respectively.
As of September 30, 2019, the estimated future amortization expense related to intangible assets for future fiscal years was as follows (in thousands):
2019 remaining
258

2020
984

2021
712

2022
679

2023
313

Thereafter
43

Total
$
2,989

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 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


20


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



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 a 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, who was then 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. A lead plaintiff has been appointed and on July 23, 2019 the court set a schedule for the completion of certain pretrial events. In accordance with that schedule, the plaintiffs filed an amended complaint on September 16, 2019 and the Company filed a motion to dismiss on November 1, 2019. 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). During the nine months ended September 30, 2019, we recorded an additional $3.9 million of stock compensation associated with the wind down of our Figure 8 business in research and development expense on the accompanying condensed consolidated statements of operations. Please refer to Note 5 for further information.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 29, 2018
 
September 30, 2019
 
September 29, 2018
 
 
 
 
 
 
 
 
Cost of revenue
$
136

 
$
87

 
$
346

 
$
219

Selling and marketing
639

 
631

 
1,911

 
1,827

Research and development
503

 
1,105

 
7,063

 
3,134

General and administrative
1,229

 
2,458

 
4,523

 
7,801

   Total stock-based compensation
$
2,507

 
$
4,281

 
$
13,843

 
$
12,981

Pursuant to our 2014 Incentive Award Plan (the “2014 Plan”), during the nine months ended September 30, 2019, we granted 1.3 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 and advisors.


21


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



In the first half 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 share of RSUs and PSUs and the total fair value of vested shares from RSU and PSU grants were $16.10 and $11.6 million, respectively, for the nine months ended September 30, 2019. The weighted-average grant-date fair value per vested share of RSUs and PSUs and total fair value of per share of vested shares from RSU and PSU grants were $10.76 and $6.2 million, respectively, for the nine months ended September 29, 2018.
During the nine months ended September 29, 2018, we granted 0.1 million stock options to certain employees and directors with a weighted-average exercise price per share of $17.44. We did not grant any stock options during the nine months ended September 30, 2019.
A summary of stock option, RSU and PSU activity for the nine months ended September 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)

 
 
 
$

 
 
 
1,599

 
$
17.19

Settled (RSUs and PSUs)

 
 
 


 
 
 
(718
)
 
$
16.10

Exercised
(298
)
 
 
 
$
5.84

 
 
 


 


Canceled and forfeited
(162
)
 
 
 
$
13.72

 
 
 
(768
)
 
$
17.72

Outstanding as of September 30, 2019
3,064

 
5.01
 
$
9.21

 
$
9,285

 
2,236

 
$
15.66

Vested and exercisable as of September 30, 2019
2,557

 
4.53
 
$
8.59

 
$
8,818

 
N/A
 
N/A
____________________________
(1) For RSUs, includes time-based and performance-based
Aggregate intrinsic value represents the difference between the closing price of our common stock and the exercise price of outstanding, in-the-money options. The closing price of our common stock as reported on the New York Stock Exchange as of September 30, 2019, the final trading day of the nine months ended September 30, 2019, was $10.45. The total intrinsic value of options exercised and RSUs and PSUs vested was approximately $14.2 million and $19.3 million for the nine months ended September 30, 2019 and September 29, 2018, respectively. The aggregate fair value of the options that vested during the nine months ended September 30, 2019 and September 29, 2018 was $1.7 million and $1.9 million, respectively.
As of September 30, 2019, total unrecognized compensation cost related to non-vested stock options and RSUs, including PSUs and market-based RSUs, was approximately $2.2 million and $23.7 million, respectively, which is expected to be recognized over a weighted-average period of 1.4 years and 2.0 years, respectively, to the extent they are probable of vesting. As of September 30, 2019, we had 3.4 million shares available for grant under the 2014 Plan.


22


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



Common Stock
As of September 30, 2019, we had reserved the following shares of common stock for future issuance in connection with the following (in thousands):
 
September 30, 2019
Options issued and outstanding
3,064

Restricted stock units issued and outstanding
2,236

Common stock available for stock-based award grants under incentive award plans
3,373

Common stock available for conversion of Series A Redeemable Convertible Preferred Stock
5,257

Total
13,930

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 and nine months ended September 30, 2019 and September 29, 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 and nine months ended September 30, 2019 and September 29, 2018 were as follows (in thousands, except per share data):


23


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



 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 29, 2018
 
September 30, 2019
 
September 29, 2018
Numerator:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(3,009
)
 
$
979

 
$
(70,261
)
 
$
1,996

Diluted:
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(3,009
)
 
$
979

 
$
(70,261
)
 
$
1,996

Plus: undistributed earnings allocated to participating securities

 
873

 

 
2,384

Less: undistributed earnings reallocated to participating securities

 
(863
)
 

 
(2,362
)
Net (loss) income attributable to common stockholders
$
(3,009
)
 
$
989

 
$
(70,261
)
 
$
2,018

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
32,863

 
31,356

 
32,539

 
30,980

 
 
 
 
 
 
 
 
Dilutive impact from:
 
 
 
 
 
 
 
Options outstanding

 
1,899

 

 
1,944

Restricted stock units

 
625

 

 
709

Weighted-average shares outstanding - dilutive
32,863

 
33,880

 
32,539

 
33,633

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common stockholders (Basic):
$
(0.09
)
 
$
0.03

 
$
(2.16
)
 
$
0.06

Net (loss) income per share attributable to common stockholders (Diluted):
$
(0.09
)
 
$
0.03

 
$
(2.16
)
 
$
0.06

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
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
Stock options
3,064

 
514

 
3,064

 
746

Restricted stock units
2,236

 
1,046

 
2,236

 
805

Series A Redeemable Convertible Preferred Stock (as converted to common stock)
5,257

 
4,983

 
5,257

 
4,983

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 September 30, 2019 and December 29, 2018 (in thousands, except shares):


24


CARE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 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)
September 30, 2019
Series A Redeemable Convertible Preferred Stock
46,350

 
June 29, 2016
 
46,350

 
$
67,424

 
$
55,199

 
6,421,369

December 29, 2018
Series A Redeemable Convertible Preferred Stock
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 Preferred Stock.
10. Income Taxes
We are required to compute income tax expense in each jurisdiction in which we operate. This process requires us to project our current tax liability and estimate our 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 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. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion, or all, of the deferred tax asset. A cumulative loss in recent years is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.
On a periodic basis, we reassess the need for a valuation allowance on deferred tax assets by weighing positive and negative evidence to assess the recoverability of deferred tax assets. We evaluate the realizability of our deferred tax assets by tax-paying jurisdiction and assess the need for a valuation allowance on a quarterly and annual basis. We evaluate the profitability of each tax-paying component on an historic cumulative basis and a forward-looking basis as part of this analysis. We also weigh other available evidence, both positive and negative, to inform our assessment. Based on the analysis performed in the second quarter of fiscal 2019, we concluded that it is not more likely than not that our deferred tax assets will be realized. As a result, we recorded a valuation allowance on our deferred tax assets in the second quarter of fiscal 2019.
In the fourth quarter of 2018 and at the first quarter of 2019, we reached a conclusion that it was more likely than not that substantially all of our deferred taxes would be realized. In each of those periods we had experienced cumulative consolidated pre-tax income on a 3-year basis, most significantly in the United States which has the substantial majority of our deferred tax assets. In addition, during these periods we were projecting to remain in a consolidated pre-tax income position in future years and this positive evidence outweighed all other evidence as it related to our ability to realize our deferred tax assets at these reporting periods.
There were several events that transpired in the second quarter of fiscal 2019, that resulted in a change in our financial outlook, our weighting of evidence, and therefore our conclusion is that it is not more likely than not we will realize substantially all of our deferred tax assets as of June 29, 2019. We entered a cumulative consolidated pre-tax loss in the second quarter of fiscal 2019 and are now projecting to remain in one in the near future. Our pre-tax losses incurred to date in fiscal 2019 and our projections for the remainder of the year have been negatively affected by meaningful increases in our operating expenses and decreases in our projected revenues. On May 9, 2019 we announced decisions we have made to invest in safety-related initiatives, which added a significant new cost to our operating plan. In the second quarter of fiscal 2019, we also experienced indicators of impairment related to our decision to no longer invest in Figure 8, which we recently acquired and for which we recorded compensation and other impairment charges described in Note 5. In addition, in the second quarter of fiscal 2019 we experienced lower than expected revenues which we attribute to lower than expected conversions of new members and


25


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



renewals of existing members. We also expect these trends to adversely affect our revenue growth for the remainder of the year. As a result, we have meaningfully lowered our projections of revenue for the remainder of the year, which significantly affects our ability to generate pre-tax income.
We concluded the negative evidence summarized above outweighs the positive evidence as of the second and third quarters of fiscal 2019, and therefore, have not relied on projections of taxable income in our assessment of the realization of deferred taxes at September 30, 2019. We recognized a valuation allowance of $44.5 million in income tax expense in the nine months ended September 30, 2019.
We recorded an income tax benefit of $0.1 million and $1.0 million for the three months ended September 30, 2019 and September 29, 2018, respectively, and income tax expense $45.2 million and an income tax benefit of $2.6 million for the nine months ended September 30, 2019 and September 29, 2018, respectively. The benefit recorded for the three months ended September 30, 2019 primarily related to natural movement in our valuation allowance and naked liability related to the goodwill amortization for tax purposes for which there is no corresponding GAAP deduction. The expense recorded for the nine months ended September 30, 2019 primarily relates to the recording of a valuation allowance against our net deferred tax assets.
The tax benefit recorded for the three and nine months ended September 29, 2018 primarily relates to excess tax benefits recorded from the taxable compensation on share-based awards and a discrete benefit recorded related to the acquisition of Trusted. A benefit of $0.6 million was recorded in the third quarter of fiscal 2018 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. The tax benefit for the three and nine months ended September 29, 2018 was partially offset by tax expenses pertaining to amortization of goodwill for tax purposes, for which there is no corresponding book deduction, foreign taxes in certain foreign jurisdictions, and certain state taxes based on operating income that are payable without regard to tax loss carryforwards.
11. Segments and Geographical Information
We consider operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is the CEO. 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.
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
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
United States
$
48,505

 
$
44,594

 
$
143,477

 
$
128,494

International
4,780

 
4,566

 
14,122

 
13,957

Total revenue
$
53,285

 
$
49,160

 
$
157,599

 
$
142,451


 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
 
(As a percentage of revenue)
United States
91
%
 
91
%
 
91
%
 
90
%
International
9
%
 
9
%
 
9
%
 
10
%
Total revenue
100
%
 
100
%
 
100
%
 
100
%


26


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



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 consisted 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 and third quarters of fiscal 2018, we updated our assumptions for the expected time period it will take to obtain a subtenant for the remainder of the ceased use space. This resulted in and additional $0.6 million of charges, of which $0.5 million was incurred in the first quarter of fiscal 2018 and $0.1 million was incurred in the third quarter of fiscal 2018. We also updated our assumptions in the first, second and third quarters of fiscal 2019. We signed a sublease agreement for a portion of the ceased use space during the third quarter of fiscal 2019 and accordingly updated our estimates. The updated assumptions resulted in $0.2 million and $0.3 million of restructuring and right of use asset impairment charges in the first and second quarters of fiscal 2019, respectively. In the third quarter of fiscal 2019 a reduction to the restructuring and right of use asset impairments of $0.1 million was recorded when the final sublease agreement was signed and the subtenant income was known. 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.
During the quarter ended June 29, 2019, we decided to abandon and seek a sublet for 36,395 square feet of our 108,743 square foot headquarters facility in Waltham, Massachusetts. We recorded a right of use asset impairment charge of $1.1 million. This loss was determined by comparing the fair value of impacted right of use asset to the carrying value of the asset of the impairment measurement date, as required under ASC 360. The fair value of the right of use asset was based on the estimated sublease income for the portion of the Company’s headquarters taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate and the sublease rate. Additionally, we had a restructuring loss of $0.7 million associated with abandoning the space. The loss consisted of exit and disposal costs consisting of construction costs, real estate taxes, broker fees and utilities. Furthermore, 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 and right of use impairment charges in the consolidated statements of operations for the nine months ended September 30, 2019.
13. Other (Expense) Income, net
Other (expense) income, net, consisted of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
Interest income
$
338

 
$
180

 
$
1,039

 
$
488

Interest expense
(9
)
 
(11
)
 
(26
)
 
(35
)
Loss on foreign exchange
(551
)
 
(131
)
 
(559
)
 
(620
)
Other expense, net

 

 

 
(1
)
Total other (expense) income, net
$
(222
)
 
$
38

 
$
454

 
$
(168
)
14. Related Party Transactions

We had the following transactions with related parties as of and during the three and nine months ended September 30, 2019 and September 29, 2018:
CapitalG LP

See accompanying notes to the condensed consolidated financial statements
27

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



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 and nine months ended September 30, 2019 and September 29, 2018 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
September 29,
2018
 
September 30,
2019
 
September 29,
2018
Revenue
$
937

 
$
819

 
$
2,759

 
$
2,161

Selling and marketing expense
$
3,482

 
$
2,912

 
$
9,946

 
$
8,565

We had the following transactions with Alphabet Inc. and its affiliates as of September 30, 2019 and December 29, 2018 (in thousands):
 
Period Ended
 
September 30,
2019
 
December 29,
2018
Accounts receivable
$
231

 
$
421