What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 168 added, 134 removed, 254 unchanged (54% 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.

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.

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, including our financial outlook and profitability goals, available liquidity and access to financing sources, our business strategy, plans and objectives of management for future operations, including our international expansion and omni-channel strategy, consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the impact of macroeconomic events, including the COVID-19 pandemic, interest rates and rising inflation, and our response to such events, are forward-looking statements.

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

Forward-looking statements are based on current expectations of future events.

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• our ability to build and maintain strong brands;

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

• our ability to manage our growth and expansion initiatives;

• our ability to compete successfully;

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

• 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;

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

• disruptions, capacity constraints 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;

• world events, natural disasters, public health emergencies, including 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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We qualify all of our forward-looking statements by these cautionary statements.

All dollar and percentage comparisons made herein refer to the year ended December 31, 2022, compared with the year ended December 31, 2021, unless otherwise noted.

Refer to Part II, Item 7 of our Annual Report on Form 10-K for fiscal 2021 for a comparative discussion of our fiscal 2021 financial results as compared to fiscal 2020 filed with the SEC on February 24, 2022.

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 thirty-three million products from over 23,000 suppliers.

Through our e-commerce business model, we offer visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over 40 million products from over 20 thousand 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 family of 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 2022, 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 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.

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.

As of December 31, 2022, we had 22.1 million active customers, and 78% of fiscal year 2022 orders came from repeat buyers.

Macroeconomic weakness contributed to lower order volume, so we initiated a set of cost reduction efforts over the course of the year to reduce spending on labor and non-labor operational costs.

We also continued to manage our advertising spend according to a return on investment-oriented approach that carefully tracks and monitors the results of advertising campaigns as we seek to maintain appropriate return targets.

Global Considerations

We are continuing to closely monitor macroeconomic impacts, including, but not limited to, rising and fluctuating interest rates, inflation and the effects of the COVID-19 pandemic, on our business, results of operations and financial results.

These developments have and may continue to negatively impact global economic activity and consumer behavior, which have and may continue to adversely affect our business and our results of operations.

As our customers react to these global economic conditions, we may take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity.

While it is difficult to quantify and predict all of the impacts these global economic events, including rising and fluctuating inflation and interest rates, will have on our business and to predict consumer spending in the near term, we believe the long-term opportunity that we see for shopping for the home online remains unchanged.

We will continue to monitor economic conditions as we work to manage our business to meet the evolving needs of our customers, employees, suppliers, partners, stockholders and communities.

Factors Affecting our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed in Part I, Item 1A, Risk Factors .

Key Financial and Operating Metrics

We measure our business using key financial and operating metrics, as well as Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings (Loss) per Share (see “Non-GAAP Financial Measures”).

Our Free Cash Flow and Adjusted Diluted Earnings (Loss) per Share are measured on a consolidated basis, while our Adjusted EBITDA is measured on a consolidated and reportable segment basis.

We measure our business using key financial and operating metrics, as well as Adjusted EBITDA, Free Cash Flow and Adjusted Diluted (Loss) Earnings per share, see “Non-GAAP Financial Measures” below.

Our Free Cash Flow and Adjusted Diluted (Loss) Earnings per share are measured on a consolidated basis, while our Adjusted EBITDA is measured on a consolidated and reportable segment basis.

All other key financial and operating metrics are derived and reported from our consolidated net revenue.

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Diluted $ (12.54) $ (1.26) $ 1.86

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

Net cash (used in) provided by operating activities $ (674) $ 410 $ 1,417

Key Operating Metrics:

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LTM net revenue per active customer (2)

$ 553 $ 501 $ 453

Orders delivered (3)

Average order value (4)

$ 305 $ 265 $ 232

Non-GAAP Financial Measures:

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Free Cash Flow $ (1,132) $ 130 $ 1,082

Adjusted Diluted Earnings (Loss) per Share (5) $ 2.32 $ 5.04 $ (8.03)

Adjusted Diluted (Loss) Earnings per share (5)

$ (7.71) $ 2.32 $ 5.04

(1) The number of active customers represents the total number of individual customers who have purchased at least once directly from our sites during the preceding twelve-month period.

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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.

(5) Adjusted Diluted (Loss) Earnings per share for the year ended December 31, 2021 reflects our adoption of ASU 2020-06, effective January 1, 2021.

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.

For further information, refer to our fiscal 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

Results of Consolidated Operations

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.

In 2022, net revenue decreased by $1.5 billion, or 10.9% compared to 2021, which reflects recent macroeconomic pressures felt by consumers.

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 4.1% in 2022 compared to 2021.

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.

LTM net revenue per active customer increased by 10.2% in 2022 compared to 2021 driven by higher average order value.

In 2022, our United States (“U.S.”) net revenue decreased by $785 million, or 7.0% while our International net revenue decreased by $705 million, or 28.7% compared to 2021.

International Net Revenue Constant Currency Growth (see “Non-GAAP Financial Measures” below) was (23.8)% for the year ended December 31, 2022.

Year Ended December 31,

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Net revenue $ 12,218 $ 13,708 (10.9) %

For more information on our segments, see Note 13 to the consolidated financial statements, Segment and Geographic Information , included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

For more information on our segments, see Note 13, Segment and Geographic Information, 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.

Cost of goods sold

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 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.

In 2022, cost of goods sold decreased by $1.0 billion, or 10.3%, compared to 2021.

The decrease in cost of goods sold on an absolute dollar basis is primarily driven by a decrease in the number of orders delivered.

As a percentage of net revenue, cost of goods sold increased to 72.0% in 2022 as compared to 71.6% in 2021, partially due to mix shifts, lower operational efficiencies from fewer orders and rising logistics costs.

Year Ended December 31,

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Operating 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.

Operating expenses are comprised of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses, impairment and other related net charges and restructuring 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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Customer service and merchant fees (2)

$ 632 $ 584 8.2 %

Advertising 1,473 1,378 6.9 %

Selling, operations, technology, general and administrative (2)

Customer service center impairment and other charges 12 — — %

2,625 2,015 30.3 %

Impairment and other related net charges 39 12 225.0 %

Restructuring charges 31 — n.m.

Total operating expenses $ 4,800 $ 3,989 20.3 %

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Selling, operations, technology, general and administrative (2)

Customer service center impairment and other charges 0.1 % — %

21.5 % 14.7 %

Impairment and other related net charges 0.3 % 0.1 %

Restructuring charges 0.3 % — %

39.4 % 29.2 %

(1) Not meaningful (n.m.) year-over-year comparison

(2) Includes equity-based compensation and related taxes as follows:

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Selling, operations, technology, general and administrative $ 482 $ 335

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.

Our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $154 million, or 42.5% in 2022 compared to 2021 as a result of increased restricted stock units granted in 2022 compared to the same period in 2021.

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

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.

Excluding the impact of equity-based compensation, our expenses for customer service and merchant fees, increased by $41 million, or 7.4% in 2022 compared to 2021.

The increase in customer service and merchant fees is due to increased compensation costs.

As a percentage of net revenue, total customer service and merchant fees increased to 5.2% in 2022 compared to 4.3% in 2021 due to a decrease in net revenue.

In 2022, our advertising expenses increased by $95 million or 6.9% as compared to the same period in 2021.

The increase reflects our response to changing market conditions as we sought to maintain our return targets across various channels.

As a percentage of net revenue, advertising expenses increased to 12.1% in 2022 compared to 10.1% in 2021 due in part to changes in

advertising channel mix as well as lower direct traffic.

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 $121 million in 2021 compared to 2020.

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 21.5% in 2022 compared to 14.7% in 2021, 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.

Impairment and other related net charges

During the year ended December 31, 2022, we recorded $39 million of lease impairment and other related net charges primarily related to changes in market conditions around future sublease income for one of our office locations in the U.S.

During the year ended December 31, 2021, we recorded a charge of $12 million as a result of enacting a plan to consolidate certain customer service centers in identified U.S.

For further information, refer to Note 4, Property and Equipment, net and 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.

Restructuring charges

During the year ended December 31, 2022, we announced a workforce reduction involving approximately 870 employees in connection with our previously announced plans to manage operating expenses and realign investment priorities.

This reduction represented approximately 5% of our global workforce and approximately 10% of our corporate team at that time.

As a result of this workforce reduction, we incurred a total of $31 million of costs, consisting primarily of one-time employee severance and benefit costs.

Interest expense, net

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.

Our interest expense, net decreased by $5 million, or 15.6%, in 2022 compared to 2021, primarily driven by higher interest income.

Year Ended December 31,

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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.

Other expense, net remained constant in 2022 compared to 2021.

Included in our other expense, net are changes in unrealized gains (losses) from foreign currency transactions and income (losses) on our long-term investments.

Year Ended December 31,

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Other expense, net $ (4) $ (4) — %

Gain on debt extinguishment

During the year ended December 31, 2022, we used approximately $506 million of the net proceeds from the issuance of the 2027 Notes to repurchase for cash approximately $375 million aggregate principal amount of the 2024 Notes and approximately $229 million aggregate principal amount of the 2025 Notes, as well as aggregate accrued interest of $2 million for both the 2024 Notes and 2025 Notes, in privately negotiated repurchase transactions.

In accounting for the repurchases of the 2024 Notes and 2025 Notes, Wayfair recorded a $96 million gain on debt extinguishment, representing the difference between the cash paid for principal of $504 million and the combined net carrying value of the 2024 Notes and 2025 Notes of $600 million.

Refer to Note 6, Debt and Other Financing , included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Year Ended December 31,

2022 2021 % Change

(in millions)

Gain on debt extinguishment $ (96) $ — 100.0 %

Provision for income taxes, net

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.

Our provision for income taxes, net increased by $11 million in 2022 compared to 2021, primarily related to

the level and mix of income earned in the U.S.

and certain foreign jurisdictions and U.S.

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

Refer to Note 11, Income Taxes , included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Year Ended December 31,

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At December 31, 2022, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.3 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.

Additionally, we have a $600 million senior secured revolving credit facility that matures on March 24, 2026 (the “Revolver”).

As of December 31, 2022, there were no revolving loans outstanding under the Revolver.

We had outstanding letters of credit, primarily as security for certain lease agreements, for approximately $68 million as of December 31, 2022, 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, 2022 and 2021:

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Short-term investments 228 693

Working capital $ 795 $ 880

We believe that our existing cash and cash equivalents and investments, cash generated from operations and the borrowing availability under our Revolver will be sufficient to meet our anticipated cash needs for at least the foreseeable future.

Total liquidity $ 1,278 $ 2,399

However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect.

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The amounts involved may be material.

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 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.

Further, on January 20, 2023, we announced an update to our cost efficiency plan, including a workforce reduction involving approximately 1,750 employees.

As a result, we expect to incur between approximately $68 million and $78 million of costs, consisting primarily of employee severance and benefit costs, most of which are expected to be incurred in the first quarter of 2023.

In addition, macroeconomic events have caused disruption in the capital markets, including increased inflation and interest rates, 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 pandemic.

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

Credit Agreement and Convertible Debt

Under the terms of our Revolver, we may use proceeds to finance working capital and to provide funds for permitted acquisitions, repurchases of equity interests and other general corporate purposes.

As of December 31, 2022, we had $3.2 billion principal of indebtedness outstanding.

Under the terms of our Revolver, we may use proceeds to finance working capital, to refinance existing indebtedness and to provide funds for permitted acquisitions, repurchases of equity interests and other general corporate purposes.

Any amounts outstanding under the Revolver are due at maturity.

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 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.

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.

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 for more information regarding the repurchase of the 2024 Notes and the 2025 Notes.

The conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes were not triggered during the fourth quarter of 2022, and therefore the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible in the first quarter of 2023 pursuant to the applicable last reported sales price conditions.

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

During 2022, there were no conversions of the Notes.

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.

If one or more holders elect to convert

their Non-Accreting Notes at a time when any such Non-Accreting Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

For information regarding our credit agreement and convertible notes, see Note 6, Debt and Other Financing included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

If one or more holders elect to convert their Non-Accreting Notes at a time when any such Non-Accreting Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

The credit agreement and indentures governing our convertible notes contain restrictions and covenants that may limit our operating flexibility.

Specifically, the Revolver contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict our ability, subject to negotiated exceptions, to incur additional indebtedness and additional liens on our assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, or change the nature of our businesses.

The Revolver also requires us to maintain certain levels of performance in order to maintain our access to the Revolver.

For instance, we are required to maintain a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement) of 4.0 to 1.0, subject to a 0.5 step-up following certain permitted acquisitions.

For information regarding our credit agreement and convertible notes, 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.

During the year ended December 31, 2022, we were in compliance with all the terms and conditions of our debt agreements.

Stock 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 21, 2020, the Board authorized the repurchase of 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”).

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.

There is no stated expiration date for the Share Repurchase Programs.

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

The Repurchase Programs do not obligate us 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 us 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, 2022, we have repurchased 2,354,491 shares of Class A common stock for approximately $612 million under the Repurchase Programs.

During the year ended December 31, 2022, we repurchased 548,173 shares of Class A common stock for approximately $75 million under the Repurchase Programs.

Trends and Historical Cash Flows

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Net (loss) income $ (1,331) $ (131) $ 185

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

Net cash (used in) provided by operating activities $ (674) $ 410 $ 1,417

Net cash provided by (used in) investing activities $ 1 $ (515) $ (236)

Net cash provided by (used in) financing activities $ 16 $ (303) $ 353

Operating Activities

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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.

Cash flows used in operating activities increased by $1.1 billion in 2022 compared to 2021 primarily due to the increase in net loss adjusted for non-cash items of $1.0 billion and an increase of $69 million for cash used in operating assets and liabilities.

Investing Activities

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.

Cash flows provided by investing activities increased by $516 million in 2022 compared to 2021 primarily due to the decrease in purchases of short- and long-term investments of $559 million and increases in sales and maturities of short- and long-term investments of $140 million, partially offset by increases of cash used in site and software development costs of $93 million and purchases of property and equipment of $85 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 3.7% of net revenue for the year ended December 31, 2022 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.

On an absolute dollar basis, we expect Capital Expenditures for the first quarter of 2022 to be within the range of $95 million to $105 million as we continue to build out our technology and logistics network.

Financing 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.

Cash flows provided by financing activities increased by $319 million in 2022 compared to 2021, primarily due to $678 million of proceeds from the issuance of convertible notes, net of issuance costs and lower repurchases of our Class A common stock of $225 million, partially offset by an aggregate payment of $504 million to extinguish convertible debt and $80 million of premiums paid for capped call confirmations.

Off-Balance Sheet Arrangements

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Long-term debt (1)

$ 3,345 $ 42 $ 1,610 $ 1,693 $ —

Operating leases (2)

$ 1,345 $ 188 $ 392 $ 328 $ 437

Purchase obligations (3)

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Other commitments (4)

$ 279 $ 6 $ 39 $ 47 $ 187

(1) Represents future interest and principal payments on the Notes.

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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 and retail leases that have not yet commenced.

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

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

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 (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.

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, 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.

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis as these costs may vary independent of business performance.

In particular, we believe the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis as these costs may vary independent of business performance.

For instance, we exclude the impact of equity-based compensation and related taxes as we do not consider this item to be indicative of our core operating performance.

Investors should, however, understand that equity-based compensation and related taxes will be a significant recurring expense in our business and an important part of the compensation provided to our employees.

Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board.

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• Adjusted EBITDA does not reflect interest expenses associated with our borrowings;

• Adjusted EBITDA does not include other items not indicative of our ongoing performance;

• Adjusted EBITDA does not include other items not indicative of our ongoing operating performance;

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

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Interest expense, net 27 32 146

Other expense (income), net 4 9 (3)

Other expense, net 4 4 9

Provision for income taxes, net 12 1 20

Other (1) 12 4 —

Impairment and other related net charges (1)

Restructuring charges (2)

Gain on debt extinguishment (3)

Adjusted EBITDA $ (416) $ 614 $ 947

(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.

In the year ended December 31, 2022, we recorded $40 million of lease impairment and other related charges related to changes in market conditions around future sublease income for one of our office locations in the U.S.

In the fourth quarter of 2022, we recorded a $9 million recovery related to the termination of the lease.

Additionally, we recorded an impairment charge of $8 million related to construction in progress assets at an International warehouse.

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

In the year ended December 31, 2022, we recorded a $31 million charge to restructuring charges for severance costs associated with the August 2022 workforce reductions.

In the year ended December 31, 2020, we recorded a $4 million charge to restructuring charges for severance costs associated with February 2020 workforce reductions.

In the year ended December 31, 2022, we recorded a $96 million gain on debt extinguishment upon repurchase of $375 million aggregate principal amount of our 2024 Notes and $229 million aggregate principal amount of our 2025 Notes.

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 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.

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 provided by or used in operating activities less Capital Expenditures.

We have provided a reconciliation below of Free Cash Flow to net cash provided by or used in 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 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:

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

The following table presents a reconciliation of net cash (used in) provided by operating activities to Free Cash Flow for each of the periods indicated:

Year Ended December 31,

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(in millions)

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

Net cash (used in) provided by operating activities $ (674) $ 410 $ 1,417

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

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For example, Net Revenue Constant Currency Growth rates, by their nature, exclude the impact of foreign exchange, which may have a material impact on net revenue.

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 (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.

Adjusted Diluted Earnings (Loss) per Share has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

For example, Adjusted Diluted Earnings (Loss) per Share, by their nature, excludes 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.

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 (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:

Adjusted Diluted (Loss) Earnings 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 (Loss) Earnings 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 loss (income) before calculating per share amounts for all periods presented provides a more meaningful comparison between our operating results from period to period.

Adjusted Diluted (Loss) Earnings per Share has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

For example, Adjusted Diluted (Loss) Earnings per Share, by their nature, excludes 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.

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

Year Ended December 31,

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(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 (loss) income available to common stockholders after the effect of dilutive securities (131) 185 (985)

Numerator for diluted (loss) earnings per share - net (loss) income available to common stockholders after the effect of dilutive securities $ (1,331) $ (131) $ 185

Adjustments to net (loss) income

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Provision for income taxes, net 12 1 20

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

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

Effect of dilutive securities:

Restricted stock units — 3 —

Convertible debt instruments — — —

Dilutive potential common shares — 3 —

Denominator for diluted EPS - adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities 104 99 92

Impairment and other related net charges 39 12 —

Restructuring charges 31 — 4

Gain on debt extinguishment (96) — —

Numerator for Adjusted Diluted (Loss) Earnings per Share - Adjusted net loss (income)

$ (818) $ 276 $ 515

Denominator for diluted (loss) earnings per share - weighted-average number of shares of common stock outstanding after the effect of dilutive securities 106 104 99

Adjustments to effect of dilutive securities:

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Convertible debt instruments — 12 3

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

Denominator for Adjusted Diluted (Loss) Earnings per Share - Adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities

Diluted (Loss) Earnings per Share

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

Critical Accounting Policies

$ (12.54) $ (1.26) $ 1.86

Adjusted Diluted (Loss) Earnings per Share

$ (7.71) $ 2.32 $ 5.04

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the U.S.

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Revenue Recognition

We generate net revenue through product sales generated primarily through our family of sites.

We generate net revenue primarily through product sales on our family of sites.

We recognize revenue using the gross method for product sales generated through our family of sites only when we have concluded that Wayfair controls the product before it is transferred to the customer.

Wayfair controls products when it is the entity responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices and selects the suppliers of products sold.

Wayfair controls products when it is the entity

responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices and selects the suppliers of products sold.

We recognize net revenue when the product has been delivered to the customer.

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Allowances for sales returns are estimated and recorded based on prior returns history, recent trends and projections for returns on sales in the current period.

We recognize gift cards and site credits in the period they are redeemed.

We recognize revenue from gift cards and site credits in the period they are redeemed.

Unredeemed gift cards and site credits not subject to requirements to remit balances to governmental agencies are recognized as net revenue based on historical redemption patterns, which are substantially within twenty-four months of issuance.

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Revenue based on the spending activity of the underlying accounts is recognized as the respective card purchases occur and profit share is recognized based on the performance of the underlying portfolio.

We generally lease office and warehouse facilities under noncancelable agreements.

We generally lease office and warehouse facilities under non-cancelable agreements.

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.

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We adjust the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement.

The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

The IBR is determined at lease commencement and is subsequently reassessed upon a modification to the lease arrangement.

The ROU asset also includes any lease payments made prior to the commencement date and excludes lease incentives and initial direct costs incurred.

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Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

We review ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the ROU asset may not be recoverable.

When such events occur, we compare the carrying amount of the ROU asset to the undiscounted expected future cash flows related to the ROU asset.

If the comparison indicates that an impairment exists, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the ROU asset.

If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the ROU asset.

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.

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For information about recent accounting pronouncements, see Note 1, Summary of Significant Accounting Policies , 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.

We have considered recently issued accounting pronouncements and do not believe that any are applicable or expected to have a material impact on our consolidated financial statements.

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