What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 125 added, 133 removed, 263 unchanged (50% of the section changed)

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This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act.

consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the impact of the COVID-19 outbreak and our response to it, are forward-looking statements.

All statements other than statements of historical fact contained in this Annual Report on Form 10-K, including statements regarding our investment plans and anticipated returns on those investments, our future customer growth, our future results of operations and financial position, available liquidity and access to financing sources, our business strategy, plans and objectives of management for future operations, including our international expansion, omni-channel strategy and launch of physical retail stores, consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the impact of the COVID-19 pandemic and our response to it, are forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions.

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• our ability to build and maintain strong brands;

• our ability to manage our global growth and expansion;

• our ability to manage our growth and expansion both internationally and into physical retail locations;

• our ability to compete successfully;

• the rate of growth of the Internet and e-commerce;

• economic factors, such as interest rates, the housing market, currency exchange fluctuations and changes in customer spending;

• disruptions or inefficiencies in our supply chain or logistics network, including any impact of the COVID-19 outbreak on our suppliers and third party carriers and delivery agents;

• potential impacts of the COVID-19 outbreak on our business, financial condition and results of operations;

• world events, natural disasters, public health emergencies (such as the COVID-19 outbreak), civil disturbances and terrorist attacks;

• economic factors, such as interest rates, inflation, the housing market, currency exchange fluctuations and changes in customer spending;

• disruptions or inefficiencies in our supply chain or logistics network, including any impact of the COVID-19 pandemic on our suppliers and third party carriers and delivery agents;

• potential impacts of the COVID-19 pandemic on our business, financial condition and results of operations;

• world events, natural disasters, public health emergencies (such as the COVID-19 pandemic), civil disturbances and terrorist attacks;

• developments in, and the outcome of, legal and regulatory proceedings and investigations to which we are a party or are subject, and the liabilities, obligations and expenses, if any, that we may incur in connection therewith.

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Wayfair is one of the world's largest online destinations for the home.

Through our e-commerce business model, we offer visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over twenty-two million products from over 16,000 suppliers.

Through our e-commerce business model, we offer visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over thirty-three million products from over 23,000 suppliers.

We believe an increasing portion of the dollars spent on home goods will be spent online and that there is an opportunity for acquiring more market share.

Our business model is designed to grow our net revenue by acquiring new customers as well as stimulating repeat purchases from our existing customers.

Through increasing brand awareness as well as paid and unpaid

advertising, we attract new and repeat customers to our sites.

Through increasing brand awareness as well as paid and unpaid advertising, we attract new and repeat customers to our sites.

We turn these customers into recurring shoppers by creating a seamless shopping experience across their entire journey — offering best-in-class product discovery, purchasing, fulfillment and customer service.

In fiscal year 2020, our business reached an inflection of profitability, benefiting from years of investment developing our logistics platform, international footprint and technological capabilities.

The sharp acceleration in demand for home products and an uptick in purchasing online during 2020, both heightened by COVID-related factors, served to highlight the durability of Wayfair's business model as well as the attractive nature of our customer unit economics.

As of December 31, 2020, we had reached 31.2 million active customers over the last twelve months, and 70% of 2020 orders came from repeat buyers.

In fiscal year 2021, our business generated lower sales volumes compared to the previous year.

As economies across the U.S.

and the globe began to reopen with rising vaccination rates during the spring of 2021, spending patterns shifted as consumers moved back to spending on experiential categories and in physical stores.

The combination of these changes in consumer

spending and the global supply chain challenges, which also arose due to the COVID-19 pandemic, led to lower sales in the second half of the year as compared to the first.

As of December 31, 2021, we had 27.3 million active customers over the last twelve months, and 76% of 2021 orders came from repeat buyers.

We continued to manage our advertising spend according to a return on investment-oriented approach that carefully tracks and monitors the results of advertising campaigns to ensure the appropriate return targets are being met.

We also leveraged operating costs such as infrastructure expenses and employee salaries, particularly as the pace of hiring slowed and proved substantially below revenue growth.

COVID-19 Outbreak

We are continuing to closely monitor the impact of the COVID-19 outbreak on our business, results of operations and financial results.

The situation surrounding the COVID-19 outbreak remains fluid and the full extent of the positive or negative impact of the COVID-19 outbreak on our business will depend on certain developments including the length of time that the outbreak continues, the impact on consumer activity and behaviors and the effect on our customers, employees, suppliers, partners and stockholders, all of which are uncertain and cannot be predicted.

We also leveraged operating costs such as infrastructure expenses and total compensation costs, particularly as the pace of hiring slowed and proved substantially below revenue growth.

COVID-19 Pandemic

We are continuing to closely monitor the impact of the COVID-19 pandemic on our business, results of operations and financial results.

The situation surrounding the COVID-19 pandemic remains fluid and the full extent of the impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and severity of the pandemic, the emergence of new variants that may continue to prolong the pandemic, the amount of time it will take for normal economic activity to resume, future government actions that may be taken, the impact on consumer activity and behaviors and the effect on our customers, employees, suppliers, partners and stockholders, all of which are uncertain and cannot be predicted.

See Part I, Item 1A, Risk Factors for additional details.

Our focus remains on promoting the health, safety and financial security of our employees and serving our customers.

As a result, we have taken a number of precautionary measures, including implementing social distancing, enhanced cleaning measures and COVID-19 testing in our facilities, suspending all non-essential travel, transitioning a large portion of our employees to working-from-home, reimbursing certain employee technology purchases, establishing employee welfare programs, providing emergency paid time off and targeted hourly pay increases and developing no-contact delivery methods.

In an effort to contain or slow the COVID-19 outbreak, authorities around the world have implemented various measures, some of which have been subsequently rescinded or modified, including travel bans, stay-at-home orders and shutdowns of certain businesses.

We anticipate that these actions and the global health crisis caused by the COVID-19 outbreak, including any resurgences, will continue to negatively impact global economic activity.

While the COVID-19 outbreak has not had a material adverse impact on our operations to date and we believe the long-term opportunity that we see for shopping for the home online remains unchanged, it is difficult to predict all of the positive or negative impacts the COVID-19 outbreak will have on our business in the short- and long-term.

In the short term, we have continued to see increased sales and order activity in the market since the COVID-19 outbreak.

To serve the increased orders, we have hired and are continuing to hire additional frontline and sales and service workers.

However, much is unknown and accordingly the situation remains dynamic and subject to rapid and possibly material change.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders and communities.

In an effort to contain or slow the COVID-19 pandemic, authorities around the world have implemented various measures, some of which have been subsequently rescinded or modified, including travel bans, stay-at-home orders and shutdowns of certain business.

We anticipate that these actions and the global health crisis caused by the COVID-19 pandemic, including any variants, will continue to negatively impact global economic activity.

While it is difficult to predict all of the impacts the COVID-19 pandemic will have on our business, we believe the long-term opportunity that we see for shopping for the home online remains unchanged.

As the COVID-19 pandemic remains dynamic and subject to rapid and possibly material change, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders and communities.

Factors Affecting our Performance

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2021 2020 2019

(in thousands, except LTM Net Revenue per Active Customer, Average Order Value and per share data)

(in millions, except LTM Net Revenue per Active Customer, Average Order Value and per share data)

Key Financial Statement Metrics:

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Gross profit $ 3,895 $ 4,112 $ 2,147

Income (loss) from operations $ 360,349 $ (929,941) $ (473,279)

Net income (loss) $ 184,996 $ (984,584) $ (504,080)

Earnings (loss) per share:

(Loss) income from operations $ (94) $ 360 $ (930)

Net (loss) income $ (131) $ 185 $ (985)

(Loss) earnings per share:

Basic $ (1.26) $ 1.93 $ (10.68)

Diluted $ (1.26) $ 1.86 $ (10.68)

Net cash flows from (for) operating activities $ 410 $ 1,417 $ (197)

Key Operating Metrics:

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We view average order value as a key indicator of the mix of products on our sites, the mix of offers and promotions and the purchasing behavior of our customers.

(5) Adjusted Diluted Earnings (Loss) per Share reflects our January 1, 2021 adoption of ASU 2020-06, further discussed in Note 1, Summary of Significant Accounting Policies , included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Prior periods have not been restated.

Under legacy accounting, Adjusted Diluted Earnings per Share for the year ended December 31, 2021 would have been $1.11.

Results of Consolidated Operations

In 2020, net revenue increased by $5.0 billion, or 55.0% compared to 2019, primarily due to growth in our customer base, with the number of active customers increasing by 53.7% in 2020 compared to 2019.

There was an increase in order frequency, with LTM orders per active customer increasing by 5.4% in 2020 compared to 2019.

Additionally, we believe our merchandising investments encouraged active customers to spend more on average in 2020 than the prior year, with LTM net revenue per active customer increasing 1.1% in 2020 compared to 2019.

net revenue increased 53.3% in 2020 from 2019, while our International net revenue increased 64.8% year over year.

International Net Revenue Constant Currency Growth (see “Non-GAAP Measures” below) was 64.9% in 2020 from 2019.

In 2021, net revenue decreased by $437 million, or 3.1% compared to 2020, which reflects some normalization in consumer behavior since the onset of the COVID-19 pandemic.

The decrease in net revenue was driven by lower orders, partially offset by higher average order values.

There was a decrease in order frequency, with LTM orders per active customer decreasing by 3.6% in 2021 compared to 2020.

LTM net revenue per active customer increased 10.6% in 2021 compared to 2020 driven by higher average order value due in part to inflationary pressures in the supply chain.

net revenue decreased 5.5% in 2021 from 2020, while our International net revenue increased 9.6% year over year.

International Net Revenue Constant Currency Growth (see “Non-GAAP Financial Measures” below) was 2.1% in 2021 from 2020.

Year Ended December 31,

2021 2020 % Change

(in thousands)

(in millions)

net revenue $ 11,249 $ 11,901 (5.5) %

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Cost of goods sold is sensitive to many factors, including quarter-to-quarter variability in product mix, pricing strategies, changes in wholesale, shipping and fulfillment costs and fees earned for supplier services rendered.

In 2020, cost of goods sold increased by $3.1 billion, or 43.7%, compared to 2019.

Of the increase in cost of goods sold, $2.5 billion was due to the increase in products sold to our larger customer base.

In addition, shipping and fulfillment costs increased $0.6 billion as a result of the increase in products delivered during the period.

The increase in cost of goods sold is primarily driven by an increase in the number of orders delivered, partially offset by efficiencies gained in shipping costs from our logistics network.

The decrease in cost of goods sold as a percentage of net revenue is primarily a result of unlocking incremental margin from merchandising investments and efficiencies generated from our logistics network.

In 2021, cost of goods sold decreased by $220 million, or 2.2%, compared to 2020.

The decrease in cost of goods sold is primarily driven by a decrease in the number of orders delivered partially offset by higher fulfillment costs.

The increase in cost of goods sold as a percentage of net revenue is partly due to lower operational efficiency from fewer orders and inflationary pressures in the supply chain relative to the same period in 2020.

Year Ended December 31,

2021 2020 % Change

(in thousands)

(in millions)

Cost of goods sold $ 9,813 $ 10,033 (2.2) %

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Operating expenses

Operating expenses are comprised of customer service and merchant fees, advertising and selling, operations, technology, general and administrative expenses.

Operating expenses are comprised of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses and customer service center impairment and other charges.

We disclose separately the equity-based compensation and related taxes that are included in customer service and merchant fees and selling, operations, technology and general and administrative expenses.

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2021 2020 % Change

(in thousands)

(in millions)

Customer service and merchant fees (1) $ 584 $ 510 14.5 %

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Selling, operations, technology, general and administrative (1) 2,015 1,830 10.1 %

Customer service center impairment and other charges 12 — — %

Total operating expenses $ 3,989 $ 3,752 6.3 %

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Selling, operations, technology, general and administrative (1) 14.7 % 12.9 %

Customer service center impairment and other charges 0.1 % — %

29.2 % 26.5 %

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Year Ended December 31,

(in thousands)

(in millions)

Customer service and merchant fees $ 27 $ 16

Selling, operations, technology, general and administrative $ 335 $ 271

Our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $51.1 million in 2020 compared to 2019 as a result of increased restricted stock units awarded in 2020 from 2019.

Our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $75 million in 2021 compared to 2020 as a result of increased restricted stock units awarded in 2021 at a higher average grant date fair value than in 2020.

The following table summarizes operating expenses as a percentage of net revenue, excluding equity-based compensation and related taxes:

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Customer Service and Merchant Fees

Excluding the impact of equity-based compensation and related taxes, our expenses for customer service and merchant fees increased by $146.2 million in 2020 compared to 2019, primarily due to the increase in net revenue during 2020.

Expenses for customer service and merchant fees, both including and excluding equity-based compensation and related taxes, as a percentage of net revenues declined in 2020 from 2019, primarily due to order volumes that increased faster than our customer service hiring to serve the increased orders.

Our advertising expenses increased by $316.3 million in 2020 compared to 2019, primarily as a result of an increase in online advertising.

Advertising decreased as a percentage of net revenue in 2020 compared to 2019, primarily attributable to efficiencies in our advertising spend and partially offset by increased investment to generate future customer growth.

Expenses for customer service and merchant fees, including and excluding the impact of equity-based compensation and related taxes and as a percentage of net revenues, increased in the year ended December 31, 2021, as compared to the same period in 2020, due to increased compensation costs and a decrease in net revenue.

Our advertising expenses decreased by $34 million in 2021 compared to 2020, which reflects our response to changing market conditions as we sought to maintain our efficiency targets across various channels.

As a percentage of net revenue, advertising expenses remained relatively constant in 2021 compared to 2020, as we aimed to deploy advertising dollars within our efficiency parameters.

Selling, operations, technology, general and administrative

Excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities increased by $160.9 million in 2020 compared to 2019, primarily attributable to increases in personnel costs, rent, information technology and depreciation and amortization.

As a percentage of net revenue, selling, operations, technology, general and administrative expenses decreased to 12.9% in 2020 compared to 17.8% in 2019, primarily due to the pace of corporate headcount net hiring relative to the increase in net revenue.

The increase is primarily attributable to higher personnel costs, and to a lesser extent higher information technology costs and depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses increased to 14.7% in 2021 compared to 12.9% in 2020, primarily due to the decrease in net revenue.

Customer service center impairment and other charges

During the year ended December 31, 2021, we enacted a plan to consolidate certain customer service centers in identified U.S.

As a result, we recorded a charge of $12 million during the year ended December 31, 2021, which included $6 million for the non-cash impairment of ROU assets, $5 million for the non-cash accelerated depreciation of fixed assets and the remainder for other items.

Interest (expense), net

Our interest (expense), net increased by $91.9 million in 2020 compared to 2019, primarily attributable to new issuances of convertible notes.

Our interest expense, net decreased by $114 million in 2021 compared to 2020, primarily attributable to the adoption of ASU 2020-06 on January 1, 2021.

Year Ended December 31,

2021 2020 % Change

(in thousands)

(in millions)

Interest (expense), net $ (32) $ (146) (78.1) %

Other (expense) income, net

Our other (expense) income, net increased by $11.5 million in 2020 compared to 2019, primarily attributable to the $12.8 million loss for the extinguishment of debt for the 2022 Notes.

Other (expense), net

We incurred other (expense), net of $4 million primarily as a result of the fair value losses related to the adjustments of our warrants of $3 million and our net foreign currency revaluation losses of $1 million.

We incurred $9 million other (expense), net, in 2020, primarily attributable to the $13 million loss for the extinguishment of debt for the 2022 Note partially offset by net foreign currency revaluation gains of $4 million.

Year Ended December 31,

2021 2020 % Change

(in thousands)

Other (expense) income, net $ (8,633) $ 2,881 (399.7) %

(in millions)

Other (expense), net $ (4) $ (9) (55.6) %

Provision for income taxes, net

Our provision for income taxes, net increased by $17.3 million in 2020 compared to 2019, primarily related to income earned in the U.S.

and certain foreign jurisdictions and U.S.

state income taxes, offset by the recognition of a discrete tax benefit related to excess tax benefits on equity awards for U.S.

Our provision for income taxes, net decreased by $19 million in 2021 compared to 2020, primarily related to reduced income earned in the U.S.

and certain foreign jurisdictions and the recognition of a tax benefit related to excess tax benefits on equity awards for U.S.

employees, offset by the increase in our valuation allowance.

Year Ended December 31,

2021 2020 % Change

(in thousands)

(in millions)

Provision for income taxes, net $ 1 $ 20 (95.0) %

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Sources of Liquidity

At December 31, 2020, our principal source of liquidity was cash and cash equivalents and short- and long-term investments totaling $2.6 billion.

In addition, we have a $200 million senior secured revolving credit facility that matures on February 21, 2022 (the “Revolver”).

Wayfair had issued letters of credit, primarily as security for certain lease agreements, for approximately $57.0 million as of December 31, 2020, which reduces the availability of credit under the Revolver.

At December 31, 2021, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $2.4 billion.

In addition, on March 24, 2021, Wayfair and certain of its subsidiaries entered a new credit agreement and $600 million senior secured revolving credit facility that matures on March 24, 2026 (the “Revolver”).

The Revolver replaced our previous $200 million senior secured revolving credit facility, which was set to mature on February 21, 2022.

Wayfair had outstanding letters of credit, primarily as security for certain lease agreements, for approximately $59 million as of December 31, 2021, which reduced the availability of credit under the Revolver.

Excluding liquidity available through our Revolver, the following table shows sources of liquidity as of December 31, 2021 and 2020:

(in thousands)

(in millions)

Cash and cash equivalents $ 1,706 $ 2,130

Short-term investments $ 693 $ 462

Long-term investments $ — $ 155,690

Working capital $ 795 $ 880

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Our future capital requirements and the adequacy of available funds will depend on many factors, including those described herein and in our other filings with the SEC, including those set forth in Part I, Item 1A, Risk Factors .

In addition, the COVID-19 outbreak and related measures to contain its impact have caused disruption in the capital markets, which could make obtaining financing more difficult and/or expensive.

In addition, the COVID-19 pandemic and related measures to contain its impact have caused disruption in the global capital markets, which could make obtaining financing more difficult and/or expensive.

As a consequence, we may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all.

If we raise additional funds through the issuance of equity, equity-linked or debt financing arrangements, those securities and instruments may have rights, preferences or privileges senior to the rights of our common stock, and the holders of our equity securities may experience dilution.

We will continue to monitor our liquidity during this time of historic disruption and volatility in the global capital markets due to the COVID-19 outbreak.

We will continue to monitor our liquidity during this time of historic disruption and volatility in the global capital markets due to the COVID-19 pandemic.

Credit Agreement and Convertible Debt

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As of December 31, 2021, we had $3.1 billion of indebtedness outstanding.

The conditional conversion features of the 2022 Notes, 2024 Notes and 2026 Notes were triggered during the fourth quarter of 2020, and the 2022 Notes, 2024 Notes and 2026 Notes therefore became convertible in the first quarter of 2021 pursuant to the applicable last reported sales price conditions.

The conditional conversion feature of the 2025 Notes was not triggered during the fourth quarter of 2020, and the 2025 Notes were therefore not convertible in the first quarter of 2021 pursuant to the applicable last reported sales price conditions.

The conditional conversion features of the 2022 Notes, 2024 Notes and 2026 Notes were triggered during the fourth quarter of 2021, and the 2022 Notes, 2024 Notes and 2026 Notes therefore are convertible in the first quarter of 2022 pursuant to the applicable last reported sales price conditions.

The conditional conversion feature of the 2025 Notes was not triggered during the fourth quarter of 2021, and the 2025 Notes are therefore not convertible in the first quarter of 2022 pursuant to the applicable last reported sales price conditions.

The 2025 Accreting Notes are convertible at any time prior to the second business day immediately preceding the maturity date.

There have been no material conversions to date of the 2024 Notes, 2025 Notes or 2026 Notes.

During 2020, Charlesbank converted $253.1 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair’s Class A common stock.

In January 2021, Great Hill converted $253.1 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair's Class A common stock.

During 2021, holders of the 2022 Notes and 2026 Notes converted $15 million of aggregate principal and received 147,414 shares of Wayfair’s Class A common stock, and GHEP VII Aggregator, L.P ("Great Hill") converted $253 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair's Class A common stock.

Whether any of the Non-Accreting Notes will be convertible in future quarters will depend on the satisfaction of the applicable last reported sales price condition or another conversion condition in the future.

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Stock Repurchase Program

On August 21, 2020, the Board authorized Wayfair to repurchase, from time to time, up to $700 million of our Class A common stock in the open market, through privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan (the “2020 Repurchase Program”).

The 2020 Repurchase Program replaced our previous $200 million stock repurchase authorization approved by the Board in 2018 (the “2018 Repurchase Program”).

Wayfair repurchased 432,548 shares of Class A common stock for approximately $143.0 million under the 2018 Repurchase Program before it was simultaneously terminated and replaced by the 2020 Repurchase Program.

The 2020 Repurchase Program does not obligate Wayfair to purchase any shares of Class A common stock and has no expiration but may be suspended or terminated by the Board at any time.

The actual timing, number and value of shares repurchased in the future will be determined by Wayfair in its discretion and will depend on a number of factors, including market conditions, applicable legal requirements, our capital needs and whether there is a better alternative use of capital.

As of December 31, 2020, Wayfair has repurchased 823,470 shares of Class A common stock for approximately $237.2 million under the 2020 Repurchase Program.

On August 21, 2020, the Board authorized the repurchase of up to $700 million of Wayfair’s Class A common stock in the open market, through privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan (the “2020 Repurchase Program”).

On August 10, 2021, the Board authorized a new $1.0 billion share repurchase program on the same terms (the “2021 Repurchase Program” together with the 2020 Repurchase Program, the “Repurchase Programs”).

There is no stated expiration for the share repurchase programs.

Wayfair will begin repurchasing shares under the 2021 Repurchase Program upon the completion of the 2020 Repurchase Program.

The Repurchase Programs do not obligate Wayfair to purchase any shares of Class A common stock and have no expiration but may be suspended or terminated by the Board at any time.

The actual timing, number and value of shares repurchased under the Repurchase Programs in the future will be determined by Wayfair in its discretion and will depend on a number of factors, including market conditions, applicable legal requirements, our capital needs and whether there is a better alternative use of capital.

As of December 31, 2021, Wayfair has repurchased 1,806,318 shares of Class A common stock for approximately $537 million under the Repurchase Programs.

In 2022, Wayfair repurchased 548,173 shares of Class A common stock for approximately $75 million under the Repurchase Programs at an average price of $136.80 per share.

Trends and Historical Cash Flows

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2021 2020 2019

(in thousands)

Net income (loss) $ 184,996 $ (984,584) $ (504,080)

Net cash from (for) operating activities $ 1,416,731 $ (196,818) $ 84,861

Net cash for investing activities $ (236,075) $ (854,837) $ (260,287)

Net cash from financing activities $ 352,588 $ 786,504 $ 467,463

(in millions)

Net (loss) income $ (131) $ 185 $ (985)

Net cash flows from (for) operating activities $ 410 $ 1,417 $ (197)

Net cash flows for investing activities $ (515) $ (236) $ (855)

Net cash flows (for) from financing activities $ (303) $ 353 $ 787

Operating Activities

Cash flows in connection with operating activities consisted of net income (loss) adjusted for certain non-cash items including depreciation and amortization, equity-based compensation and certain other non-cash expenses, as well as the effect of changes in working capital and other activities.

Operating cash flows can be volatile and are sensitive to many factors, including changes in working capital and our net income (loss).

Cash from operating activities in 2020 increased by $1.6 billion from 2019 primarily due the increase in net income (loss) of $1.2 billion, increase in cash from operating assets and liabilities of $215.4 million, increase in depreciation and amortization expense of $93.3 million, increase in amortization of discount and issuance costs related to our convertible notes of $72.2 million, increase in equity-based compensation of $48.8 million and increase in other non-cash items of $14.3 million.

Cash flows in connection with operating activities consisted of net (loss) income adjusted for certain non-cash items including depreciation and amortization, equity-based compensation and certain other non-cash expenses, as well as the effect of changes in working capital and other activities.

Operating cash flows can be volatile and are sensitive to many factors, including changes in working capital and our net (loss) income.

Cash flows from operating activities in 2021 decreased by $1.0 billion from 2020 primarily due the decrease in net (loss) income of $316 million, decrease in cash from operating assets and liabilities of $673 million, decrease in amortization of discount and issuance costs related to our convertible notes of $127 million, and decrease in other non-cash items of $7 million, partially offset by the increase in depreciation and amortization expense of $36 million, increase in equity-based compensation of $68 million and loss on impairment of $12 million.

Investing Activities

Cash for investing activities in 2020 decreased $618.8 million from 2019 due to the increase in sales and maturities of short- and long-term investments of $464.7 million, decrease in purchases of property and equipment of $85.7 million, decrease in purchases of short- and long-term investments of $72.2 million and decrease in other investing activities of $15.5 million, partially offset by the increase of site and software development costs of $19.3 million.

Cash flows for investing activities in 2021 increased $279 million from 2020 due to the increase in purchases of short- and long-term investments of $508 million and increase of site and software development costs of $30 million, partially offset by the increase in sales and maturities of short- and long-term investments of $169 million, decrease in purchases of property and equipment of $85 million, and increase in other investing activities of $5 million.

Purchases of property and equipment and site and software development costs (collectively, "Capital Expenditures") were 2.0% of net revenue for the year ended December 31, 2021 and related primarily to equipment purchases and improvements for leased warehouses within our expanding logistics network and ongoing investments in our proprietary technology and operational platform.

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Financing Activities

Cash from financing activities in 2020 decreased $433.9 million from 2019 due to the payments to partially extinguish our 2022 Notes of $1.0 billion, $380.2 million of Class A common stock repurchased through stock repurchase programs, repayment of $200.0 million of the outstanding balance under our Revolver, partially offset by the $200.0 million proceeds from the borrowing under our Revolver during 2020.

The decrease is also attributable to the increase for premiums paid for our 2026 Capped Calls and 2025 Capped Calls of $109.3 million, partially offset by the increase of $1.1 billion for proceeds from the issuance of our 2025 Notes and 2025 Accreting Notes and increase of $3.4 million other investing activities.

Cash flows for financing activities in 2021 was $303 million due to the repurchase of Class A common stock under the Repurchase Programs of $300 million in the period, as well as other financing activities of $3 million.

This compared to $353 million of cash flows from financing activities in 2020, primarily due to the $2.0 billion of proceeds from the issuance of convertible notes, net of issuance costs, partially offset by an aggregate payment of $1.0 billion to partially extinguish convertible debt, $255 million of premiums paid for capped call confirmations and the repurchase of Class A common stock of $380 million during the period.

Off-Balance Sheet Arrangements

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Years More than

(in thousands)

(in millions)

Long-term debt (1) $ 3,189 $ 28 $ 626 $ 2,535 $ —

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For information regarding our lease obligations, see Note 5, Leases , in the notes to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

(3) Represents the future payments for enforceable and legally binding software license commitments.

(3) Represents the future payments for enforceable and legally binding software license and freight commitments.

For information regarding our purchase obligations, see Note 7, Commitments and Contingencies, in the notes to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

(4) Represents the future minimum lease payments for additional, non-cancellable operating leases, primarily related to build-to-suit warehouse leases that have not yet commenced.

(4) Represents the future minimum lease payments for additional, non-cancellable operating leases, primarily related to build-to-suit warehouse and retail leases that have not yet commenced.

This amount includes $18 million of total expected reimbursements related to tenant improvements under such leases.

For more information see Note 5, Leases , in the notes to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this Annual Report on Form 10-K Adjusted EBITDA, a non-GAAP financial measure that we calculate as net income (loss) before depreciation and amortization, equity-based compensation and related taxes, interest (expense), net, other (expense) income, net, provision for income taxes, net, non-recurring items and other items not indicative of our ongoing operating performance.

We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this Annual Report on Form 10-K Adjusted EBITDA, a non-GAAP financial measure that we calculate as net (loss) income before depreciation and amortization, equity-based compensation and related taxes, interest expense, net, other (expense) income, net, provision for income taxes, net, non-recurring items and other items not indicative of our ongoing operating performance.

We have provided a reconciliation below of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and the Board to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.

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• Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results.

The following table reflects the reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net (loss) income and our other GAAP results.

The following table reflects the reconciliation of net (loss) income to Adjusted EBITDA for each of the periods indicated:

Year Ended December 31,

2021 2020 2019

(in thousands)

(in millions)

Reconciliation of Adjusted EBITDA:

Net income (loss) $ 184,996 $ (984,584) $ (504,080)

Net (loss) income $ (131) $ 185 $ (985)

Depreciation and amortization 322 286 192

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Adjusted EBITDA $ 614 $ 947 $ (497)

(1) We recorded a $4.0 million loss related to severance costs associated with February 2020 workforce reductions.

The values were recorded in selling, operations, technology, general and administrative expenses.

In 2018, we terminated the lease of a warehouse we had vacated in 2017 and recorded a one-time gain of $1.7 million related to the difference in the expected future net lease commitments and the actual costs incurred to terminate the lease.

(1) In the year ended December 31, 2021, we recorded $12 million of customer service center impairment and other charges related to our plan to consolidate customer service centers.

During the year ended December 31, 2020, we

recorded a $4 million charge in selling, operations, technology, general and administrative expenses for severance costs associated with February 2020 workforce reductions.

Free Cash Flow

To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this Annual Report on Form 10-K Free Cash Flow, a non-GAAP financial measure that we calculate as net cash from or for operating activities less Capital Expenditures.

We have provided a reconciliation below of Free Cash Flow to net cash from or for operating activities, the most directly comparable GAAP financial measure.

To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this Annual Report on Form 10-K Free Cash Flow, a non-GAAP financial measure that we calculate as net cash flows from or for operating activities less Capital Expenditures.

We have provided a reconciliation below of Free Cash Flow to net cash flows from or for operating activities, the most directly comparable GAAP financial measure.

We have included Free Cash Flow in this Annual Report on Form 10-K because it is an important indicator of our business performance as it measures the amount of cash we generate.

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Accordingly, you should not consider Free Cash Flow in isolation or as a substitute for analysis of our results as reported under GAAP.

Because of these limitations, you should consider Free Cash Flow alongside other financial performance measures, including net cash from or for operating activities, Capital Expenditures, and our other GAAP results.

The following table presents a reconciliation of net cash from or for operating activities to Free Cash Flow for each of the periods indicated:

Because of these limitations, you should consider Free Cash Flow alongside other financial performance measures, including net cash flows from or for operating activities, Capital Expenditures, and our other GAAP results.

The following table presents a reconciliation of net cash flows from or for operating activities to Free Cash Flow for each of the periods indicated:

Year Ended December 31,

2021 2020 2019

(in thousands)

Net cash from (for) operating activities $ 1,416,731 $ (196,818) $ 84,861

(in millions)

Net cash flows from (for) operating activities $ 410 $ 1,417 $ (197)

Purchase of property and equipment (101) (186) (272)

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Adjusted Diluted Earnings (Loss) per Share

To provide investors with additional information regarding our financial results, we have disclosed in this Annual Report on Form 10-K Adjusted Diluted Earnings (Loss) per Share, a non-GAAP financial measure that we calculate as net income (loss) plus equity-based compensation and related taxes, provision for income taxes, net, non-recurring items, other items not indicative of our ongoing operating performance, and, if dilutive, interest expense associated with convertible debt instruments under the if-converted method divided by the weighted-average number of shares of common stock used in the computation of diluted earnings (loss) per share.

To provide investors with additional information regarding our financial results, we have disclosed in this Annual Report on Form 10-K Adjusted Diluted Earnings (Loss) per Share, a non-GAAP financial measure that we calculate as net (loss) income plus equity-based compensation and related taxes, provision for income taxes, net, non-recurring items, other items not indicative of our ongoing operating performance, and, if dilutive, interest expense associated with convertible debt instruments under the if-converted method divided by the weighted-average number of shares of common stock used in the computation of diluted (loss) earnings per share.

Accordingly, we believe that these adjustments to our adjusted diluted net income (loss) before calculating per share amounts for all periods presented provides a more meaningful comparison between our operating results from period to period.

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Because of these limitations, you should consider Adjusted Diluted Earnings (Loss) per Share alongside other financial performance measures.

A reconciliation of the numerator and denominator for diluted earnings (loss) per share, the most directly comparable GAAP financial measure, and the numerator and denominator for Adjusted Diluted Earnings (Loss) per Share, is as follows:

A reconciliation of the numerator and denominator for diluted (loss) earnings per share, the most directly comparable GAAP financial measure, and the numerator and denominator for Adjusted Diluted Earnings (Loss) per Share, is as follows:

Year Ended December 31,

2021 2020 2019

(in thousands, except per share data)

Net income (loss) $ 184,996 $ (984,584) $ (504,080)

(in millions, except per share data)

Net (loss) income $ (131) $ 185 $ (985)

Effect of dilutive securities:

Interest expense associated with convertible debt instruments — — —

Numerator for diluted EPS - net income (loss) available to common stockholders after the effect of dilutive securities 184,996 (984,584) (504,080)

Adjustments to net income (loss)

Numerator for diluted EPS - net (loss) income available to common stockholders after the effect of dilutive securities (131) 185 (985)

Adjustments to net (loss) income

Interest expense associated with convertible debt instruments 20 9 —

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Provision for income taxes, net 1 20 3

Other 3,956 — (1,664)

Numerator for Adjusted Diluted EPS - Adjusted net income (loss) $ 276 $ 515 $ (741)

$ 514,937 $ (740,596) $ (367,292)

Denominator for basic EPS - weighted-average number of shares of common stock outstanding 104 96 92

Effect of dilutive securities:

Employee stock options 29 — —

Restricted stock units — 3 —

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Adjustments to effect of dilutive securities:

Employee stock options — — —

Restricted stock units 3 — —

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Denominator for Adjusted Diluted EPS - adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities 119 102 92

Diluted Earnings (Loss) per Share $ 1.86 $ (10.68) $ (5.63)

Diluted (Loss) Earnings per Share $ (1.26) $ 1.86 $ (10.68)

Adjusted Diluted Earnings (Loss) per Share $ 2.32 $ 5.04 $ (8.03)

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Upon each agreement's commencement date, we determine if the agreement is part of an arrangement that is or that contains a lease, determine the lease classification and recognize ROU assets and lease liabilities for all leases with the exception of leases with terms of 12 months or less.

We have arrangements with lease and non-lease components, and we account for lease and non-lease components separately for our warehouse and fulfillment center arrangements.

For all other lease arrangements, we account for lease and non-lease components as a single lease component.

As of December 31, 2020 and 2019 we did no t have material finance lease arrangements.

We have arrangements with lease and non-lease components, and we account for lease and non-lease components as a single lease component for our corporate headquarters and field offices.

For all other lease arrangements, we account for lease and non-lease components separately.

As of December 31, 2021 and 2020 we did not have material finance lease arrangements.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term at the lease commencement date.

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For additional information regarding our lease arrangements, see Note 5, Leases , in the notes to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Convertible Debt

Upon the issuance of convertible debt with debt and equity components, we evaluate the different components and features of the hybrid instrument and determine whether certain elements are embedded derivative instruments that require bifurcation.

Components of convertible debt instruments that upon conversion may be settled fully in cash or partly in cash based on a net-share settlement basis are accounted for separately as long-term debt and equity when the conversion feature of the convertible bonds constitute an embedded equity instrument.

When an equity instrument is identified, proceeds from issuance are allocated between debt and equity by measuring first the liability component and then determining the equity component as the residual amount.

The liability component is measured as the fair value of a similar nonconvertible debt, which results in the recognition of a debt discount.

In subsequent periods, we amortize the debt discount to interest (expense), net within the consolidated statements of operations, using the interest method based on the expected maturity of the debt.

The equity component is reported in additional paid-in capital within the consolidated statement of stockholders' deficit and is not remeasured as long as it continues to meet the conditions for equity classification.

We allocate transaction costs to issue the convertible debt using the same proportions applied to the proceeds from the convertible debt.

Transaction costs attributable to the liability component are recorded as a direct deduction from the related debt liability in the consolidated balance sheets, and they are amortized to interest (expense), net within the consolidated statements of operations over the term of the convertible debt using the effective interest rate method.

Transaction costs attributable to the equity component are netted within additional paid-in capital within the consolidated statement of stockholders' deficit.

For additional information regarding our convertible debt, see Note 6, Debt and Other Financing , in the notes to the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis