Grubhub Inc. and LevelUp

Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2018

Grubhub Inc.

LevelUp

Pro Forma Adjustments

Pro Forma Combined Balance Sheets

(in thousands)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

442,678

$

5,119

$

(197,712

)

(a)(b)

$

250,085

Short term investments

38,969

—

—

38,969

Accounts receivable, less allowances for doubtful accounts

98,254

6,716

15

(b)

104,985

Prepaid expenses and other current assets

12,120

2,780

(1,384

)

(b)

13,516

Total current assets

592,021

14,615

(199,081

)

407,555

PROPERTY AND EQUIPMENT:

Property and equipment, net of depreciation and amortization

89,208

9,241

(8,346

)

(c)

90,103

OTHER ASSETS:

Other assets

9,177

799

(799

)

(b)

9,177

Goodwill

589,862

—

295,488

(e)

885,350

Acquired intangible assets, net of amortization

494,484

—

36,441

(f)

530,925

Total other assets

1,093,523

799

331,130

1,425,452

TOTAL ASSETS

$

1,774,752

$

24,655

$

123,703

$

1,923,110

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Restaurant food liability

$

110,011

$

860

$

567

(b)

$

111,438

Accounts payable

8,829

384

36

(b)

9,249

Short term debt

5,469

9,019

(9,019

)

(g)

5,469

Warrant derivative liability

—

5,479

(5,479

)

(g)

—

Bifurcated derivative liability

—

2,980

(2,980

)

(g)

—

Accrued payroll

11,223

459

83

(b)

11,765

Taxes payable

1,203

—

—

1,203

Other accruals

35,782

5,514

(4,872

)

(b)

36,424

Total current liabilities

172,517

24,695

(21,664

)

175,548

LONG TERM LIABILITIES:

Deferred taxes, non-current

70,983

—

(32,267

)

(h)

38,716

Long term debt

116,598

16,601

158,399

(d)(g)

291,598

Other accruals

18,246

555

(555

)

(b)

18,246

Total long term liabilities

205,827

17,156

125,577

348,560

Commitments and contingencies

REDEEMABLE PREFFERED STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)

Redeemable convertible preferred stock

Series A

—

741

(741

)

(g)

—

Series B

—

3,938

(3,938

)

(g)

—

Series C

—

16,900

(16,900

)

(g)

—

Series D

—

31,376

(31,376

)

(g)

—

Series E

—

39,151

(39,151

)

(g)

—

Total redeemable preferred stock

—

92,106

(92,106

)

—

COMMON STOCKHOLDERS’ EQUITY (DEFICIT):

Preferred Stock

—

—

—

—

Common stock

9

2

(2

)

(k)

9

Accumulated other comprehensive loss

(1,528

)

—

—

(1,528

)

Additional paid-in capital

1,066,167

2,971

(377

)

(i)

1,068,761

Retained earnings (accumulated loss)

331,760

(112,275

)

112,275

(k)

331,760

Total Stockholders’ Equity (Deficit)

$

1,396,408

$

(109,302

)

$

111,896

$

1,399,002

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

1,774,752

$

24,655

$

123,703

$

1,923,110

Grubhub Inc.

LevelUp

Pro Forma Adjustments

Pro Forma Combined

(in thousands)

Revenues

$

472,311

$

18,457

$

—

$

490,768

Costs and expenses:

Operations and support

198,728

10,096

10

(i)

208,834

Sales and marketing

94,987

1,616

471

(i)

97,074

Technology (exclusive of amortization)

36,048

7,188

1,849

(i)

45,085

General and administrative

35,877

2,980

(33

)

(i)(m)

38,824

Depreciation and amortization

40,800

2,688

(58

)

(c)

43,430

Total costs and expenses

406,440

24,568

2,239

433,247

Income (loss) from operations

65,871

(6,111

)

(2,239

)

57,521

Interest expense - net

1,030

1,375

842

(d)

3,247

(Gain) loss on revaluation of warrants

—

703

(703

)

(g)

—

Loss on revaluation of bifurcated derivatives

—

28

(28

)

(g)

—

Income (loss) before income taxes

64,841

(8,217

)

(2,350

)

54,274

Income tax (benefit) expense

3,955

—

(2,853

)

(l)

1,102

Net income (loss) attributable to common stockholders

$

60,886

$

(8,217

)

$

503

$

53,172

Net income per share attributable to common stockholders:

Basic

$

0.69

$

0.60

Diluted

$

0.67

$

0.58

Weighted-average shares used to compute net income per share attributable to common stockholders:

Basic

88,294

123

(j)

88,417

Diluted

91,297

123

(j)

91,420

Grubhub Inc.

LevelUp

Pro Forma Adjustments

Pro Forma Combined

(in thousands)

Revenues

$

683,067

$

28,800

$

—

$

711,867

Costs and expenses:

Operations and support

269,453

17,819

32

(i)

287,304

Sales and marketing

150,730

2,512

1,355

(i)

154,597

Technology (exclusive of amortization)

56,263

10,718

4,755

(i)

71,736

General and administrative

65,023

4,340

1,772

(i)(m)

71,135

Depreciation and amortization

51,848

3,833

1,420

(c)

57,101

Total costs and expenses

593,317

39,222

9,333

641,872

Income (loss) from operations

89,750

(10,422

)

(9,333

)

69,995

Interest expense - net

102

3,205

2,015

(d)

5,322

(Gain) loss on revaluation of warrants

—

(2,574

)

2,574

(g)

—

Loss on revaluation of bifurcated derivatives

—

2,952

(2,952

)

(g)

—

Income (loss) before income taxes

89,648

(14,005

)

(10,970

)

64,673

Income tax (benefit) expense

(9,335

)

—

(9,990

)

(l)

(19,325

)

Net income (loss) attributable to common stockholders

$

98,983

$

(14,005

)

$

(980

)

$

83,998

Net income per share attributable to common stockholders:

Basic

$

1.15

$

0.97

Diluted

$

1.12

$

0.95

Weighted-average shares used to compute net income per share attributable to common stockholders:

Basic

86,297

51

(j)

86,348

Diluted

88,182

51

(j)

88,233

•

separate audited consolidated financial statements of Grubhub Inc. as of and for the year ended December 31, 2017 and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017;

•

separate historical financial statements of LevelUp, as of and for the year ended December 31, 2017 (audited), as of June 30, 2018 (unaudited) and for the six months ended June 30, 2018 (unaudited) and 2017 (unaudited) and the related notes included in Exhibit 99.1 of the Current Report on Form 8-K/A filed on November 27, 2018; and

•

separate unaudited consolidated financial statements of Grubhub Inc. as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 and the related notes included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018.

(in thousands)

Cash

$

6,020

Accounts receivable

6,201

Prepaid expenses and other assets

1,396

Property and equipment

895

Restaurant relationships

10,217

Diner acquisition

3,912

Below-market lease intangible

2,205

Developed technology

20,107

Goodwill

295,488

Net deferred tax asset

32,267

Accounts payable and accrued expenses

(3,031

)

Total purchase price plus cash acquired

375,677

Net working capital adjustment receivable

530

Fair value of assumed ISOs attributable to pre-combination service

(2,594

)

Cash acquired

(6,020

)

Net cash paid at closing

$

367,593

(a)

Pro forma adjustments to cash and cash equivalents includes the following: (i) an increase of $175.0 million for borrowings under the Credit Agreement (see Note 3), (ii) a working capital increase of $0.9 million for cash acquired of $6.0 million as of the acquisition date, and (iii) a decrease of $373.6 million for total cash paid at the closing date to acquire LevelUp (see Note 2).

(b)

Represents adjustments to record the fair value of acquired LevelUp assets and liabilities as of the acquisition date. Pro forma adjustments to cash, accounts receivable, prepaid expenses and other assets, restaurant food liability, accounts payable, accrued payroll and other accruals represent changes in working capital as a result of business operations during the period from June 30, 2018 to September 13, 2018, the acquisition date. The adjustment to accounts receivable also includes a net working capital adjustment receivable of $0.5 million. See Note 2 for the preliminary purchase price allocation as of the acquisition date.

(c)

Property and equipment acquired with LevelUp included $0.9 million of leasehold improvements that will be amortized on a straight-line basis over the remaining lease term of 5.8 years. The pro forma adjustment reflects the decrease of $8.3 million to record LevelUp’s property and equipment at its fair value as of the acquisition date.

Depreciation Expense

Six Months Ended

June 30, 2018

Year Ended

December 31, 2017

(in thousands)

Estimated depreciation expense

$

91

$

182

Estimated amortization expense (see (f) below)

2,539

5,071

Historical depreciation and amortization expense

(2,688

)

(3,833

)

Pro forma adjustment to depreciation and amortization expense

$

(58

)

$

1,420

(d)

As described in Note 3, the Company drew $175 million of its available Credit Agreement in September 2018. The Company utilized the term loans to finance a portion of the purchase price and transaction costs in connection with the acquisition of LevelUp.

Interest Expense

Six Months Ended

June 30, 2018

Year Ended

December 31, 2017

(in thousands)

Estimated interest expense on borrowings under the Credit Agreement

$

2,217

$

5,220

Historical interest expense and amortization of debt issuance costs

(1,375

)

(3,205

)

Pro forma adjustment to interest expense

$

842

$

2,015

(e)

Represents the adjustments to record goodwill associated with the acquisition of LevelUp of $295.5 million as described in Note 2.

(f)

Reflects the adjustment to record the estimated fair value of intangible assets identified in the acquisition of LevelUp. The Company identified intangible assets including restaurant relationships, diner acquisition, developed technology and below-market lease intangibles. See Note 2 for a description of the valuation methods used to estimate the fair values of the acquired intangible assets. Amortization of the acquired below-market lease intangible is recognized as rent expense within the condensed consolidated statements of operations. The following table summarizes the estimated fair values of the acquired intangible assets, their estimated useful lives and related pro forma amortization expense:

Amortization Expense

Amount

Weighted-Average

Amortization

Period

Six Months Ended

June 30, 2018

Year Ended

December 31, 2017

(in thousands)

(years)

(in thousands)

Restaurant relationships

$

10,217

19.0

$

269

$

538

Diner acquisition

3,912

5.0

391

782

Developed technology

20,107

6.0

1,676

3,351

Below-market lease intangible

2,205

5.8

203

400

Total

$

36,441

$

2,539

$

5,071

(g)

All of LevelUp’s outstanding indebtedness, including amounts classified as warrant derivative and bifurcated derivative liabilities on LevelUp’s closing balance sheet, were paid in full on September 13, 2018 from the closing payment to acquire LevelUp. Additionally, all outstanding shares of redeemable preferred stock were converted into common stock and paid from the closing payment proceeds on the acquisition date.

(h)

The Company acquired deferred tax assets of $32.3 million with the acquisition of LevelUp primarily related to net operating losses generated by LevelUp through the acquisition date of September 13, 2018.

(i)

The Company granted incentive stock options (“ISOs”) to acquired LevelUp employees in replacement of their unvested equity awards as of the closing date (the “Assumed ISOs”). Approximately $2.6 million of the fair value of the Assumed ISOs granted to acquired LevelUp employees was attributable to the pre-combination services of the LevelUp awardees and was included in the $375.7 million purchase price (see Note 2 for additional details). The pro forma balance sheet reflects a net $0.4 million adjustment to additional paid-in capital for the Assumed ISOs attributable to pre-combination service and removal of existing additional paid in capital balances on LevelUp’s closing balance sheet. This amount will be reflected within goodwill in the purchase price allocation.

Stock-based Compensation Expense

Six Months Ended

June 30, 2018

Year Ended

December 31, 2017

(in thousands)

Post-combination expense for Assumed ISOs

$

2,960

$

7,661

Historical stock-based compensation expense

(178

)

(233

)

Pro forma adjustment to stock-based compensation expense

$

2,782

$

7,428

(j)

The Company also calculated the pro forma impact of the Assumed ISOs on the weighted-average outstanding basic and diluted shares for the year ended December 31, 2017 and the six months ended June 30, 2018. The pro forma increase in weighted-average common shares outstanding reflects the vesting of the Assumed ISOs as if they began vesting on January 1, 2017. Pro forma adjustments to diluted weighted-average shares outstanding include potentially dilutive common stock equivalents, which consist of common stock issuable upon the vesting of the outstanding Assumed ISOs using the treasury stock method.

(k)

Represents the elimination of the historical stockholders’ deficit of LevelUp of $109.3 million plus the $2.6 million fair value of the Assumed ISOs granted to acquired LevelUp employees described in (i) above.

(l)

Reflects the income tax effect of pro forma adjustments based on the estimated blended federal and state statutory tax rate of 27% and 40% applicable to the LevelUp adjustments for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively.

(m)

The Company incurred certain expenses directly and indirectly related to the acquisition of LevelUp during the six months ended June 30, 2018 of $0.5 million, which were recognized in general and administrative expenses within the Company’s consolidated statements of operations. The pro forma adjustments reflect the elimination of these transaction costs during the six months ended June 30, 2018 and retrospective recognition during the first quarter of 2017, as if the acquisition had occurred on January 1, 2017.