What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 266 added, 349 removed, 699 unchanged (47% of the section changed)

37 unchanged sentences

Auditing the Company's measurement of sales return reserves on product revenue under its contracts with customers was especially challenging because the calculation involves subjective management assumptions about products delivered as of the balance sheet date that could be subject to return in future periods under the Company's returns policy.

Management bases the sales returns estimate on prior returns history, recent trends, and projections for returns on sales in the current period.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's sales return reserve process.

For example, we tested controls over management's assessment of the assumptions about expected returns by segment as of the balance sheet date.

For example, we tested controls over management's assessment of the assumptions about expected returns as of the balance sheet date.

To test the Company’s reserves for returns on product revenue, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the calculations and evaluating the significant assumptions used by management to estimate its reserves.

To test management’s significant assumptions, we (1) agreed revenues by month for each segment in the analysis to the Company’s sales order system (2) examined sales return levels in the last month of the year and after year-end for unusual items or trends not consistent with the Company’s analysis of product returns and (3) tested the accuracy of the Company’s reserves for returns on product revenue recorded in prior periods by comparing the reserve to returns actually processed.

To test management’s significant assumptions, we performed procedures which included (1) agreeing revenues by month in the analysis to the Company’s general ledger, (2) examining monthly sales return levels for the 12 months before year end and the period subsequent to year end for unusual items or trends not consistent with the Company’s historical analysis of product returns, and (3) testing the historical accuracy of the Company’s estimates of returns on product revenue recorded in prior periods by comparing the reserve to returns actually processed.

We also compared the Company’s projections of future sales returns as of the balance sheet date with actual returns made subsequent to year end.

48 unchanged sentences

Selling, operations, technology, general and administrative 2,625 2,015 1,826

Customer service center impairment and other charges 12 — —

Impairment and other related net charges 39 12 —

Restructuring charges 31 — 4

Total operating expenses 4,800 3,989 3,752

1 unchanged sentence

Interest expense, net ( 27 ) ( 32 ) ( 146 )

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

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

Gain on debt extinguishment 96 — —

(Loss) income before income taxes ( 1,319 ) ( 130 ) 205

15 unchanged sentences

Foreign currency translation adjustments 1 ( 2 ) ( 3 )

Net unrealized loss on available-for-sale investments ( 1 ) — —

Comprehensive (loss) income $ ( 1,331 ) $ ( 133 ) $ 182

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Balance at December 31, 2019 94 $ — $ 1,123 $ ( 2,065 ) $ ( 2 ) $ ( 944 )

Net loss — — — ( 985 ) — ( 985 )

Issuance of common stock upon vesting of RSUs 3 — — — — —

Shares withheld related to net settlement of RSUs — — ( 2 ) — — ( 2 )

Equity-based compensation expense — — 240 — — 240

Cumulative effect of adopting new leasing standard — — — 3 — 3

Equity component of issuance of convertible notes, net of premium paid on capped calls (Note 6) — — 131 — — 131

Balance at December 31, 2019 94 — 1,123 ( 2,065 ) ( 2 ) ( 944 )

Net income — — — 185 — 185

1 unchanged sentence

Issuance of common stock upon vesting of RSUs 3 — — — — —

Equity-based compensation expense — — 294 — — 294

Equity-based compensation — — 294 — — 294

Repurchase of common stock ( 1 ) — ( 380 ) — — ( 380 )

Shares issued upon conversion of convertible notes (Note 6) 4 — 426 — — 426

Reacquisition of equity component from repurchases and conversions of convertible notes, net of taxes (Note 6) — — ( 842 ) — — ( 842 )

Shares issued upon conversion of convertible notes 4 — 426 — — 426

Reacquisition of equity component from repurchases and conversions of convertible notes, net of taxes — — ( 842 ) — — ( 842 )

Cumulative effect of adopting new credit allowance standard — — — ( 6 ) — ( 6 )

Equity component of issuance of convertible notes, net of premium paid on capped calls (Note 6) — — 78 — — 78

Equity component of issuance of convertible notes, net of premium paid on capped calls — — 78 — — 78

Balance at December 31, 2020 100 — 699 ( 1,886 ) ( 5 ) ( 1,192 )

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Issuance of common stock upon vesting of RSUs 2 — — — —

Equity-based compensation expense — — 372 — — 372

Equity-based compensation — — 372 — — 372

Repurchase of common stock ( 1 ) — ( 300 ) — — ( 300 )

Shares issued upon conversion of convertible notes (Note 6) 4 — 265 — — 265

Shares issued upon conversion of convertible notes 4 — 265 — — 265

Cumulative effect of adopting new convertible debt standard — — ( 699 ) 68 — ( 631 )

Balance at December 31, 2021 105 — 337 ( 1,949 ) ( 7 ) ( 1,619 )

Net loss — — — ( 1,331 ) — ( 1,331 )

Issuance of common stock upon vesting of RSUs 5 — — — — —

Equity-based compensation — — 555 — — 555

Repurchase of common stock ( 1 ) — ( 75 ) — — ( 75 )

Premiums paid for capped calls — — ( 80 ) — — ( 80 )

Balance at December 31, 2022 109 $ — $ 737 $ ( 3,280 ) $ ( 7 ) $ ( 2,550 )

See notes to consolidated financial statements.

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(in millions)

Cash flows from (for) operating activities:

Cash flows (for) from operating activities:

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

Adjustments to reconcile net (loss) income to net cash flows from (for) operating activities

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities

Depreciation and amortization 371 322 286

Equity-based compensation 344 276 227

Equity-based compensation expense 513 344 276

Amortization of discount and issuance costs on convertible notes 8 7 134

Loss on impairment 12 — —

Impairment and other related net charges 39 12 —

Gain on debt extinguishment ( 96 ) — —

Other non-cash adjustments 41 6 13

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Other liabilities — 4 58

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

Cash flows for investing activities:

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

Cash flows from (for) investing activities:

Purchase of short- and long-term investments ( 430 ) ( 989 ) ( 481 )

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Other investing activities, net — 5 —

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

Cash flows (for) from financing activities:

Proceeds from borrowings — 200 —

Repayment of borrowings — ( 200 ) —

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

Cash flows from (for) financing activities:

Repurchase of common stock ( 75 ) ( 300 ) ( 380 )

Proceeds from issuance of convertible notes, net of issuance costs 678 — 2,028

Premiums paid for capped call confirmations ( 80 ) — ( 255 )

Payment of principal upon maturity of convertible debt ( 3 ) — —

Proceeds from borrowings — — 200

Repayment of borrowings — — ( 200 )

Payments to extinguish convertible debt ( 504 ) — ( 1,040 )

Repurchase of common stock ( 300 ) ( 380 ) —

Other financing activities, net — ( 3 ) —

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

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

Effect of exchange rate changes on cash and cash equivalents 1 ( 16 ) 13

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

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

Through its e-commerce business model, Wayfair offers visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over 40 million products from over 20 thousand suppliers.

These financial statements consolidate the operations and accounts of Wayfair Inc.

and its wholly-owned subsidiaries.

Unless the context indicates otherwise, references to “we,” “us” and “our” refer to Wayfair Inc.

Unless the context indicates otherwise, “Wayfair,” “the company," or similar terms refer to Wayfair Inc.

and its subsidiaries.

All intercompany accounts and transactions have been eliminated.

Below is a summary of Wayfair’s wholly-owned subsidiaries with operations:

Subsidiary Location

Wayfair LLC U.S.

CastleGate Logistics Inc.

CastleGate Trade Services LLC U.S.

SK Retail, Inc.

Wayfair Maine LLC U.S.

Wayfair Transportation LLC U.S.

Wayfair Securities Corporation U.S.

Fairway Insurance Inc.

Wayfair Stores Limited Republic of Ireland

Wayfair (UK) Limited United Kingdom

Wayfair Deutschland Ltd.

CastleGate Logistics Canada Inc.

Wayfair Canada ULC Canada

CastleGate Logistics Hong Kong Limited Hong Kong

Wayfair (BVI) Ltd.

British Virgin Islands

Wayfair Shanghai Ltd.

Wayfair Poland sp.

In the current year, Wayfair changed its presentation from thousands to millions.

As a result of the change in presentation, prior period amounts in the consolidated financial statements and notes thereto have been reclassified to conform to current period presentation and certain current and prior period amounts may not recalculate due to rounding.

Use of Estimates

We prepared the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP").

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

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Cash equivalents, which consist primarily of money market accounts and certificates of deposits with original maturities of three months or less, are carried at cost, which approximates fair value.

Notes to Consolidated Financial Statements (Continued)

Wayfair classifies investments in certificates of deposits and marketable securities with original maturities of greater than three months as short-term investments and long-term investments on our consolidated balance sheets.

Wayfair classifies investments in certificates of deposits and marketable securities with original maturities of greater than three months as short-term investments on the consolidated balance sheets.

Short-term investments mature in less than twelve months from the balance sheet date.

We determine the cost basis of an investment sold using the specific identification method.

The cost basis of an investment sold is determined using the specific identification method.

To the extent the amortized cost basis of the available-for-sale debt securities exceeds the fair value, management assesses the debt securities for credit loss.

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When assessing the risk of credit loss, management considers factors such as the severity and the reason of the decline in value (i.e., any changes to the rating of the security by a rating agency or other adverse conditions specifically related to the security) and management’s intended holding period and time horizon for selling.

From time to time, Wayfair may enter into equity investments that align with our organizational strategies and growth initiatives.

Equity investments in companies for which we do not have the ability to exercise significant influence are accounted for at estimated fair value, with adjustments for observable changes in prices or impairments, and are classified as other non-current assets on our consolidated balance sheets with adjustments recognized in other (expense) income, net on our consolidated statements of operations.

Each reporting period, we perform a qualitative assessment to evaluate whether each investment is impaired.

Our assessment includes a review of recent operating results and trends, recent sales or acquisitions of the investee securities and other readily observable information.

If the investment is impaired, we write it down to its estimated fair value.

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee, and we classify equity-method investments as other non-current assets on our consolidated balance sheets.

Our share of the earnings or losses as reported by equity-method investees, amortization of basis differences, related gains or losses, and impairments, if any, are recognized in our consolidated statements of operations.

Each reporting period, we evaluate whether declines in fair value below carrying value are other-than-temporary and if so, we write down the investment to its estimated fair value.

From time to time, Wayfair may enter into equity investments that align with organizational strategies and growth initiatives.

Equity investments in companies for which the Company does not have the ability to exercise significant influence are accounted for as equity securities.

These are measured at fair value and classified as other non-current assets within the consolidated balance sheets with observable changes recorded within other expense, net on the consolidated statements of operations.

Equity Method Investments

Wayfair accounts for investments using the equity method of accounting when the Company has the ability to exercise significant influence, but not controlling financial interest over an investee.

The equity method investments are classified as other non-current assets within the consolidated balance sheets and the proportional share of income or loss is recorded within other expense, net on the consolidated statements of operations.

Equity method investments are reviewed for indicators of impairment on a quarterly basis.

An equity method investment is written down to the estimated fair value if there is evidence of a loss in value which is other-than-temporary.

Notes to Consolidated Financial Statements (Continued)

Concentrations of Credit Risk

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Uncollectible amounts are written off against the allowance after all collection efforts have been exhausted.

Wayfair's exposure to credit loss is minimized through fraud assessments performed prior to customer checkout and Wayfair's policy of monitoring the creditworthiness of its customers to which it grants credit terms in the normal course of business.

Wayfair's exposure to credit loss is minimized through customer risk assessments performed prior to customer checkout and Wayfair's policy of monitoring the creditworthiness of its customers to which it grants credit terms in the normal course of business.

Further, management believes credit risk is mitigated since approximately 98 % of the net revenue recognized for the twelve months ended December 31, 2022 was collected in advance of recognition.

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Deferred costs in-transit to customers are recorded in prepaid expenses and other current assets.

Notes to Consolidated Financial Statements (Continued)

Property and Equipment, Net

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

Notes to Consolidated Financial Statements (Continued)

Wayfair generally leases office and warehouse facilities under noncancelable 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 right-of-use ("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 as a single lease component for our corporate headquarters offices and field offices.

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

Operating lease ROU assets are classified in operating lease right-of-use assets in the consolidated balance sheets.

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

Wayfair has arrangements with lease and non-lease components, and accounts for lease and non-lease components as a single lease component for corporate headquarters offices and field offices.

All other lease arrangements for lease and non-lease components are accounted for separately.

Operating lease ROU assets are classified in operating lease right-of-use assets within the consolidated balance sheets.

Operating lease liabilities are classified as other current liabilities and operating lease liabilities based on when lease payments are due.

As of December 31, 2021 and 2020 we did no t have material finance lease arrangements.

As of December 31, 2022 and 2021 Wayfair did no t 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.

As most of our leases do not provide an implicit rate, we use an estimated incremental borrowing rate (“IBR”) based on the information available at the commencement date of the respective lease to determine the present value of future payments.

As most of the leases do not provide an implicit rate, Wayfair uses an estimated IBR based on the information available at the commencement date of the respective lease to determine the present value of future payments.

The determination of the IBR requires judgment and is primarily based on publicly available information for companies within the same industry and with similar credit profiles.

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.

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

The IBR is determined at lease commencement and is subsequently reassessed as necessary 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.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

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.

Notes to Consolidated Financial Statements (Continued)

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

Contingent Liabilities

Wayfair has certain contingent liabilities that arise in the ordinary course of business activities.

Wayfair accrues for loss contingencies when losses become probable and are reasonably estimable.

Certain contingent liabilities that arise in the ordinary course of business activities are accrued for as loss contingencies when losses become probable and are reasonably estimable.

If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability.

Wayfair does not accrue for contingent losses that, in our judgment, we consider to be reasonably possible, but not probable;

however, we disclose the range of such reasonably possible losses.

After applying judgement, Wayfair does not accrue for contingent losses that are considered to be reasonably possible, but not probable;

however, the range of such reasonably possible losses is disclosed.

Foreign Currency Translation

The functional currency of Wayfair is the U.S.

dollar, while the functional currencies of certain wholly-owned subsidiaries outside the U.S.

are as follows:

Subsidiary Functional Currency

Wayfair Stores Limited Euro

Wayfair Deutschland Ltd & Co KG Euro

Wayfair (BVI) Ltd.

Wayfair (UK) Limited Pound sterling

CastleGate Logistics Canada Inc.

Canadian dollar

Wayfair Canada ULC Canadian dollar

CastleGate Logistics Hong Kong Limited Hong Kong dollar

Wayfair Shanghai Ltd.

Wayfair Poland sp.

The financial statements of Wayfair are translated to U.S.

dollars using year-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses.

These financial statements are consolidated and presented in the U.S.

Subsidiaries with non-U.S.

dollar functional currencies are translated to the U.S.

dollar using year-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses.

Capital accounts are translated at their historical exchange rates when the capital transaction occurred.

Translation adjustments arising from the use of differing exchange rates from period to period are included in other comprehensive (loss) income below net (loss) income and accumulated other comprehensive loss within total stockholders’ deficit.

Transaction gains and losses are included in other (expense) income, net, which is reflected in net (loss) income.

Transaction gains and losses are included in other expense, net, which is reflected in net (loss) income.

Revenue Recognition

Wayfair primarily generates net revenue through product sales on its family of sites.

Wayfair generates net revenue primarily through product sales on its family of sites.

Wayfair recognizes net revenue on product sales through Wayfair's family of sites using the gross method when Wayfair has concluded it 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 as 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 recognizes net revenue from sales of its products upon delivery to the customer.

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Cash discounts and rebates earned by customers at the time of purchase and estimates for sales return allowances are deducted from gross revenue in determining net revenue.

Wayfair maintains a membership rewards program for customer purchases made with our private label Wayfair credit card and co-branded Mastercard ("Credit Card Program").

In exchange for providing intellectual property as part of the Credit Card Program, we record net revenues based on spending activity and the profitability of the card portfolio.

Wayfair maintains a membership rewards program for customer purchases made with the Credit Card Program.

In exchange for providing intellectual property as part of the Credit Card Program, Wayfair records net revenue based on spending activity and

Notes to Consolidated Financial Statements (Continued)

the profitability of the card portfolio.

Spending activity of the underlying accounts represents customer purchases used with their respective cards, and the profitability of the card portfolio is based on the financial performance of the underlying credit portfolio.

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Refer to Note 13, Segment and Geographic Information , for additional detail.

Notes to Consolidated Financial Statements (Continued)

Wayfair has three types of contractual liabilities:

Wayfair primarily has three types of contractual liabilities:

(i) cash collections from its customers prior to delivery of products purchased, which are initially recorded in unearned revenue within other current liabilities, and are recognized as net revenue when the products are delivered, (ii) unredeemed gift cards and site credits, which are initially recorded in unearned revenue within other current liabilities, and are recognized in the period they are redeemed, and (iii) membership rewards redeemable for future purchases, which are earned by customers on purchases made through the Credit Card Program, and are initially recorded in other current liabilities, and recognized as net revenue when redeemed.

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Product Costs:

Wayfair capitalizes into inventory the price we pay to suppliers for products purchased by Wayfair, direct and indirect labor costs, rent, depreciation and inbound shipping and handling costs.

Wayfair capitalizes into inventory the price paid to suppliers for products purchased by Wayfair, direct and indirect labor costs, rent, depreciation and inbound shipping and handling costs.

Product costs are offset by rebates Wayfair earns through allowances and supplier incentive programs.

Wayfair earns rebates when goods are shipped, and amounts earned and due from suppliers under these rebate programs are included in other current assets and are reflected as a reduction of cost of goods sold.

Vendor allowances earned on Wayfair owned inventory reduce the carrying cost of inventory and are recognized in cost of goods sold when the inventory is sold.

Product costs are also offset by media and merchandising offerings provided to our suppliers, which are not considered distinct from the purchase of goods from those suppliers.

Wayfair receives vendor allowances or discounts from certain vendors.

These vendor allowances reduce the carrying cost of the inventory and related cost of goods sold when the inventory is sold.

Product costs are also offset by media and merchandising offerings provided to suppliers, which are not considered distinct from the purchase of goods from those suppliers.

Shipping and Fulfillment Costs:

Shipping costs include outbound shipping costs.

Fulfillment costs include costs incurred to operate and staff our fulfillment centers and provide other inbound supply chain services such as ocean freight and drayage.

Fulfillment costs include costs incurred to operate and staff the fulfillment centers and provide other inbound supply chain services such as ocean freight and drayage.

Costs to operate and staff the CastleGate and WDN networks include rent and depreciation expenses associated with various facilities, costs to receive, inspect, pick, package and prepare customer orders for delivery, and direct and indirect labor costs including payroll, payroll-related benefits and equity-based compensation.

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Customer Service and Merchant Fees

Customer service and merchant fees consist of labor-related costs, including payroll, payroll-related benefits and equity-based compensation of our employees involved in customer service activities, merchant processing fees associated with customer payments made by credit cards and debit cards and other variable fees.

Customer service and merchant fees consist of labor-related costs, including payroll, payroll-related benefits and equity-based compensation of employees involved in customer service activities, merchant processing fees associated with customer payments made by credit cards and debit cards and other variable fees.

Merchant processing fees totaled $ 258 million, $ 275 million and $ 268 million in the years ended December 31, 2022, 2021 and 2020.

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Prepayments for advertising that has not been incurred are included in prepaid expenses and other current assets, and advertising costs that have been incurred but not paid are included in other current liabilities.

Notes to Consolidated Financial Statements (Continued)

Selling, Operations, Technology, General and Administrative

Selling, operations, technology, general and administrative expenses primarily include labor-related costs, including equity-based compensation, of our operations group, which includes our supply chain and logistics team, our technology team that builds and supports our sites, category managers, buyers, site merchandisers, merchants, marketers and the team who executes our advertising strategy, and our corporate general and administrative team, which includes human resources, finance and accounting personnel.

Selling, operations, technology, general and administrative expenses primarily include labor-related costs, including equity-based compensation, of the operations group, which includes the supply chain and logistics team, the technology team that builds and supports sites, category managers, buyers, site merchandisers, merchants, marketers and the team who executes the advertising strategy and the corporate general and administrative team, which includes human resources, finance and accounting personnel.

Also included are administrative and professional service fees which include audit and legal fees, insurance, depreciation, rent and other corporate expenses.

Notes to Consolidated Financial Statements (Continued)

Equity-Based Compensation

Wayfair recognizes its equity-based payments to employees and non-employees as gross expense over the service period based on their grant date fair values with actual forfeitures recognized as they occur.

Wayfair has granted stock options, restricted common stock and restricted stock units.

Restricted stock values are determined based on the quoted market price of our Class A common stock on the date of grant.

Wayfair has restricted common stock and restricted stock units.

Restricted stock values are determined based on the quoted market price of Wayfair’s Class A common stock on the date of grant.

Income taxes are accounted for under the asset and liability method.

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The tax benefit to be recognized of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.

We evaluate at the end of each reporting period whether some or all of the undistributed earnings of our foreign subsidiaries are permanently reinvested.

Our position is based upon several factors including management's evaluation of Wayfair and its subsidiaries' financial requirements, the short- and long-term operational and fiscal objectives of Wayfair and the tax consequences associated with the repatriation of earnings.

Wayfair evaluates at the end of each reporting period whether some or all of the undistributed earnings of foreign subsidiaries are permanently reinvested.

The position is based upon several factors including management's evaluation of Wayfair and its subsidiaries' financial requirements, the short- and long-term operational and fiscal objectives of Wayfair and the tax consequences associated with the repatriation of earnings.

(Loss) Earnings per Share

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Basic (loss) earnings per share is computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted (loss) earnings per share is computed using the weighted-average number of shares of common stock outstanding during the period plus, if dilutive, common stock equivalents outstanding during the period and stock issuable upon conversion of our convertible debt instruments.

Wayfair's common stock equivalents consist of shares issuable upon the release of restricted stock units, and to a lesser extent, the incremental shares of common stock issuable upon the exercise of stock options.

The dilutive effect of these common stock equivalents is reflected in diluted (loss) earnings per share by application of the treasury stock method.

The dilutive effect of shares issuable upon conversion of our convertible debt instruments are included in the calculation of diluted (loss) earnings per share under the if-converted method.

The dilutive effect of shares issuable upon conversion of the convertible debt instruments are included in the calculation of diluted (loss) earnings per share under the if-converted method.

For periods in which Wayfair has reported net losses, diluted (loss) earnings per share is the same as basic (loss) earnings per share, as the effects of common stock equivalents outstanding and shares issuable upon conversion of convertible debt instruments are antidilutive and therefore excluded from the calculation of diluted (loss) earnings per share.

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As a result, basic and diluted (loss) earnings per Class A and Class B shares are equivalent.

Adoption of New Accounting Principles

Convertible Debt

Notes to Consolidated Financial Statements (Continued)

Previously Adopted Accounting Pronouncements

Convertible Debt

Wayfair adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06") on January 1, 2021 using the modified retrospective approach for all financial instruments that are outstanding as of the adoption date.

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If those terms allowed the issuer to include cash as part of the settlement of the conversion feature, the issuer will first reduce the carrying amount of the convertible debt, including any unamortized premium, discount or issuance costs, by the value of the cash or other assets transferred and then recognize the remaining carrying value of the debt in the capital accounts.

The adoption of ASU 2020-06 resulted in the following adjustments to the consolidated balance sheets:

January 1, 2021 Adoption of ASU 2020-06 December 31,

(in millions)

Balance sheet line item:

Long-term debt $ 3,310 $ 651 $ 2,659

Other non-current liabilities $ 47 $ ( 20 ) $ 67

Additional paid-in capital

$ — $ ( 699 ) $ 699

Accumulated deficit $ ( 1,818 ) $ 68 $ ( 1,886 )

The adoption of ASU 2020-06 resulted in the following adjustments to our calculations of basic and diluted loss per share for the year ended December 31, 2021:

Under ASU 2020-06 Difference Under Legacy Accounting

Loss per share:

Basic $ ( 1.26 ) $ 1.33 $ ( 2.59 )

Diluted $ ( 1.26 ) $ 1.33 $ ( 2.59 )

The adoption of ASU 2020-06 did not materially impact our cash flows or compliance with debt covenants.

Wayfair adopted ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes on January 1, 2021, using the modified retrospective approach.

This ASU simplifies the accounting for income taxes, removes certain exceptions to the general principles in Topic 740, and clarifies and amends existing guidance to improve consistent application.

The effect of adoption of the new guidance was not material to our consolidated financial statements.

Notes to Consolidated Financial Statements (Continued)

Supplemental Financial Statement Disclosures

Accounts Receivable, Net

As of December 31, 2021, we reported accounts receivable of $ 226 million, net of allowance for credit losses of $ 12 million.

As of December 31, 2020, we reported accounts receivable of $ 110 million, net of allowance for credit losses of $ 21 million.

As of December 31, 2022, accounts receivable was $ 272 million, net of allowance for credit losses of $ 24 million.

As of December 31, 2021, accounts receivable was $ 226 million, net of allowance for credit losses of $ 12 million.

The changes in the allowance for credit losses were not material for the year ended December 31, 2022.

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Goodwill and intangible assets, net $ 15 $ 16

Long-term investments 11 8

Other non-current assets 8 11

Total other non-current assets $ 34 $ 35

Notes to Consolidated Financial Statements (Continued)

Amortization expense related to intangible assets was $ 1 million, $ 1 million and $ 2 million for the years ended December 31, 2022, 2021 and 2020.

Goodwill was $ 0.4 million for the years ended December 31, 2022 and 2021.

For the years ended December 31, 2021, 2020 and 2019, no impairment of goodwill or intangible assets had been recorded.

Notes to Consolidated Financial Statements (Continued)

For the years ended December 31, 2022, 2021 and 2020, no indicators of impairment of goodwill or intangible assets were identified and therefore no impairment has been recorded.

Other Current Liabilities

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Employee compensation and related benefits 102 176

Short-term lease liability (Note 5)

Current operating lease liabilities (Note 5)

Advertising 98 83

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Total other current liabilities $ 868 $ 1,051

Contractual liabilities included in unearned revenue and other accrued expenses and current liabilities were $ 299 million and $ 7 million, respectively, at December 31, 2021, and $ 293 million and $ 6 million, respectively, at December 31, 2020.

Contractual liabilities included in unearned revenue and other accrued expenses and current liabilities were $ 214 million and $ 10 million, at December 31, 2022, and $ 299 million and $ 7 million, at December 31, 2021.

During the year ended December 31, 2022, Wayfair recognized $ 216 million and $ 4 million of net revenue included in unearned revenue and other accrued expenses and current liabilities, which was recorded as of December 31, 2021.

Restructuring Charges

During the third quarter of 2022, Wayfair announced a workforce reduction involving approximately 870 employees in connection with its previously announced plans to manage operating expenses and realign investment priorities.

During the year ended December 31, 2022, Wayfair incurred a total of $ 31 million of costs, consisting primarily of one-time employee severance and benefit costs, recorded to restructuring charges within the consolidated and condensed statements of operations.

As of December 31, 2022, substantially all payments related to the employee severance and benefits costs were paid.

On January 20, 2023, Wayfair announced an update to the Company’s cost efficiency plan, including a workforce reduction involving approximately 1,750 employees.

As a result of this workforce reduction, Wayfair expects 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.

Cash and Cash Equivalents, Investments and Fair Value Measurements

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During the year ended December 31, 2020, Wayfair collected $ 161 million of proceeds from the sale of long-term investments and recognized a realized gain of $ 1 million.

During the years ended December 31, 2021, December 31, 2020 and December 31, 2019, Wayfair did not recognize any credit losses related to its available-for-sale debt securities.

Further, as of December 31, 2021 and December 31, 2020, Wayfair did not record an allowance for credit losses related to its available-for-sale debt securities.

In the second quarter of 2021, Wayfair entered into an agreement with a vendor in which Wayfair received warrants to acquire shares of the vendor’s common stock.

In the third quarter of 2021, the vendor completed an initial public offering of its common stock.

As of December 31, 2021, these warrants, which vest over a five-year period, were valued at approximately $ 3 million and were classified in other non-current assets.

We recorded a decrease in the fair value of the warrants in the year ended December 31, 2021 of $ 3 million in other (expense) income, net on our consolidated statements of operations.

Furthermore, we have committed to make $ 20 million of other equity investments in connection with our impact investment initiatives.

In 2021, Wayfair made a $ 5 million initial investment which was accounted for under the equity method and presented in other non-current assets.

During the years ended December 31, 2022, 2021 and 2020, Wayfair recorded interest income, including interest earned from cash and cash equivalents and the marketable securities, of $ 13 million, $ 5 million and $ 6 million.

During the years ended December 31, 2022, 2021 and 2020, Wayfair did not recognize any credit losses related to its available-for-sale debt securities.

Further, as of December 31, 2022 and 2021, Wayfair did not record an allowance for credit losses related to its available-for-sale debt securities.

Notes to Consolidated Financial Statements (Continued)

The following tables present details of Wayfair’s investment securities as of December 31, 2022 and 2021:

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Total $ 229 $ — $ ( 1 ) $ 228

Notes to Consolidated Financial Statements (Continued)

December 31, 2021

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This hierarchy requires Wayfair to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

We classify our cash equivalents and certificate of deposits within Level 1 because we value these investments using quoted market prices.

The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security.

We classify short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active.

None of our assets are classified as Level 3.

Notes to Consolidated Financial Statements (Continued)

Wayfair classifies cash equivalents and certificate of deposits within Level 1 because these are valued using quoted market prices.

The fair value of Level 1 financial assets is based on quoted market prices of the identical underlying security.

Wayfair classifies short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active.

Wayfair does not have assets that are classified as Level 3.

The following tables set forth the fair value of Wayfair's financial assets measured at fair value on a recurring basis as of December 31, 2022 and 2021:

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Total $ 1,050 $ 228 $ — $ 1,278

Notes to Consolidated Financial Statements (Continued)

December 31, 2021

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Investment securities — 693 — 693

Other non-current assets:

Certificate of deposit 5 — — 5

Total $ 1,706 $ 693 $ — $ 2,399

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Depreciation and amortization expense was $ 370 million, $ 322 million and $ 284 million, of which $ 224 million, $ 171 million and $ 132 million was attributable to the amortization expense of site and software development costs for the years ended December 31, 2022, 2021 and 2020.

For the year ended December 31, 2021, in connection with the consolidation of certain customer service centers in identified U.S.

locations, we recorded a charge of $ 5 million for the non-cash accelerated depreciation of fixed assets.

Refer to Note 5, Leases , for additional detail.

For the years ended December 31, 2020 and 2019, no impairment of long-lived assets had been recorded.

Total costs capitalized of site and software development costs, net of accumulated amortization, totaled $ 283 million and $ 193 million as of December 31, 2022 and 2021.

Notes to Consolidated Financial Statements (Continued)

Impairment and other related net charges

For the year ended December 31, 2022, Wayfair recorded a charge of $ 15 million for the non-cash impairment of fixed assets.

This is inclusive of $ 7 million, related to an impairment of a U.S.

office location due to current sublease market conditions and $ 8 million for other non-cash impairment charges, related to construction in progress assets at an International warehouse.

For the year ended December 31, 2021, in connection with the consolidation of certain customer service centers in identified U.S.

locations, Wayfair recorded a charge of $ 5 million for the non-cash impairment of fixed assets.

For further information, refer to Note 5 , Leases.

For the year ended December 31, 2020, no impairment of long-lived assets had been recorded.

Wayfair has lease arrangements for warehouses, Wayfair Delivery Network facilities, which includes consolidation centers, cross docks and last mile delivery facilities and office spaces.

These leases expire at various dates through 2043.

Operating lease expense was $ 160 million, $ 159 million and $ 122 million in 2021, 2020 and 2019.

Sublease income was $ 17 million in 2021 and $ 11 million in 2020 and immaterial in 2019.

Operating lease expense was $ 180 million, $ 160 million and $ 159 million for the years ended December 31, 2022, 2021 and 2020.

Sublease income was $ 14 million, $ 17 million, and $ 11 million for the years ended December 31, 2022, 2021 and 2020.

Notes to Consolidated Financial Statements (Continued)

The following table presents other information related to leases:

Year Ended December 31,

2021 2020 2019

(in millions)

Supplemental cash flows information:

Supplemental cash flow information:

Cash payments included in operating cash flows from lease arrangements $ 189 $ 169

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December 31, 2022 December 31,

2020 December 31,

Additional lease information:

Weighted average remaining lease term 8 years 8 years 10 years

Weighted average remaining lease term 8 years 8 years

Weighted average discount rate 6.8 % 6.0 %

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The following table presents total operating leases liabilities:

December 31, 2021 December 31,

(in millions)

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Other current liabilities $ 125 $ 110

Operating lease liabilities 892 870

Operating lease liabilities, net of current 893 892

Total operating leases liabilities $ 1,018 $ 1,002

As of December 31, 2021, the Company has entered into $ 304 million of additional operating leases, primarily related to build-to-suit warehouse and retail leases that have not yet commenced.

As the Company does not control the underlying assets during the construction period, the company is not considered the owner of the construction project for accounting purposes.

As of December 31, 2022, Wayfair has entered into $ 279 million of additional operating leases, primarily related to warehouse and retail leases that have not yet commenced.

As there is no control of the underlying assets during the construction period, Wayfair is not considered the owner of the construction project for accounting purposes.

These operating leases will commence between 2023 and 2027 with lease terms of 10 to 12 years.

Impairment and other related net charges

During the year ended December 31, 2022, Wayfair identified an indicator of impairment for one of the U.S.

office locations, which was primarily due to current sublease market conditions.

Wayfair performed an analysis and determined that the carrying amount of the asset group exceeded its fair value, which was calculated based on estimated future sublease income.

As a result, Wayfair recorded a charge of $ 40 million during the year ended December 31, 2022, which included $ 32 million of non-cash impairment of the ROU asset, $ 7 million for the non-cash impairment of fixed assets and the remainder for other items.

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

Notes to Consolidated Financial Statements (Continued)

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.

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

As a result, Wayfair 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 impairment of fixed assets and the remainder for other items.

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

Debt and Other Financing

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2026 Notes 949 ( 7 ) 942 949 ( 9 ) 940

2027 Notes 690 ( 12 ) 678 — — —

2025 Accreting Notes 37 — 37 36 ( 1 ) 35

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Revolving Credit Facility

On March 24, 2021, Wayfair and certain of its subsidiaries (together, the “Guarantors”) and Wayfair LLC, a wholly-owned subsidiary of Wayfair, as borrower (the “Borrower”), entered into a new credit agreement (the “Credit Agreement”) with the lending institutions from time-to-time parties thereto and Citibank, N.A., in its capacity as administrative agent, collateral agent, swingline lender and a letter of credit issuer.

On March 24, 2021, Wayfair and certain of its subsidiaries (together, the “Guarantors”), and Wayfair’s wholly-owned subsidiary Wayfair LLC, as borrower (the “Borrower”), entered into a new credit agreement (the “Credit Agreement”) with the lending institutions from time-to-time parties thereto and Citibank, N.A., in its capacity as administrative agent, collateral agent, swingline lender and a letter of credit issuer.

The Credit Agreement provides for a $ 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 (the “Previous Revolver”), which was set to mature on February 21, 2022.

The Revolver replaced the previous $ 200 million senior secured revolving credit facility (the “Previous Revolver”), which was set to mature on February 21, 2022.

Wayfair paid all amounts owed under the Previous Revolver and terminated all lending commitments thereunder.

Debt issuance costs for the Revolver are included in other non-current assets and are amortized to interest expense over the Revolver’s term.

There were no revolving loans outstanding under the Revolver as of December 31, 2021.

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

Under the Credit Agreement, the Borrower may, from time to time, request letters of credit, which reduce the availability of credit under the Revolver.

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The obligations of the Borrower and the Guarantors are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including, with certain exceptions, all of the capital stock of Wayfair’s domestic subsidiaries and 65 % of the capital stock of Wayfair’s first-tier foreign subsidiaries.

Notes to Consolidated Financial Statements (Continued)

On October 11, 2021, the parties amended the Credit Agreement (“Amendment No.

1") to reflect technical and administrative changes related to the phase out of LIBOR and the implementation of SONIA with respect to loans denominated in Pounds Sterling.

1”) to reflect technical and administrative changes related to the phaseout of LIBOR and the implementation of SONIA with respect to loans denominated in Pounds Sterling.

Following Amendment No.

1, the Revolver borrowings bear interest through maturity at a variable rate based upon, at the Borrower’s option, (i) the LIBOR rate, (ii) the base rate (which is the highest of (x) the prime rate, (y) one-half of 1.00 % in excess of the federal funds effective rate and (z) 1.00 % in excess of the one-month LIBOR rate) or (3) with respect to loans denominated in Pounds Sterling, the RFR rate (which is the greater of (x) the SONIA rate and (y) 0.00 %), plus, in each case an applicable margin.

As of December 31, 2021, the applicable margin for LIBOR loans is 1.25 % per annum, the applicable

Notes to Consolidated Financial Statements (Continued)

margin for base rate loans is 0.25 % per annum and the applicable margin for RFR loans is 1.2826 % per annum.

As of December 31, 2022, the applicable margin for LIBOR loans is 1.25 % per annum, the applicable margin for base rate loans is 0.25 % per annum and the applicable margin for RFR loans is 1.2826 % per annum.

The applicable margin is subject to specified changes depending on Wayfair’s Consolidated Senior Secured Debt to Consolidated EBITDA Ratio, as defined in the Credit Agreement.

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In addition, the Credit Agreement requires Wayfair 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.

We do not expect any of these restrictions to affect or limit our ability to conduct business in the ordinary course.

Wayfair does not expect any of these restrictions to affect or limit the ability to conduct business in the ordinary course.

As of December 31, 2022, Wayfair was in compliance with all covenants.

Convertible Non-Accreting Notes

The following table summarizes certain terms related to our outstanding convertible notes, excluding the 2025 Accreting Notes:

The following table summarizes certain terms related to the outstanding convertible notes, excluding the 2025 Accreting Notes:

Convertible Non-Accreting Notes Maturity Date Annual Coupon Rate Annual Effective Interest Rate Payment Dates for Semi-Annual Interest Payments in Arrears

2022 Notes September 1, 2022 0.375 % 0.9 % March 1 and September 1

2024 Notes November 1, 2024 1.125 % 1.5 % May 1 and November 1

2026 Notes August 15, 2026 1.00 % 1.2 % February 15 and August 15

2025 Notes October 1, 2025 0.625 % 0.9 % April 1 and October 1

In September 2017, Wayfair issued $ 431.25 million in aggregate principal amount of 0.375 % Convertible Senior Notes due 2022 (the "2022 Notes"), which includes the exercise in full of a $ 56.25 million option granted to the initial purchasers.

In connection with the 2022 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2022 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2022 Notes (the “2022 Capped Calls”).

2026 Notes August 15, 2026 1.000 % 1.2 % February 15 and August 15

2027 Notes September 15, 2027 3.250 % 3.6 % March 15 and September 15

In November 2018, Wayfair issued $ 575.0 million in aggregate principal amount of 1.125 % Convertible Senior Notes due 2024 (the “2024 Notes”), which included the exercise in full of a $ 75.0 million option granted to the initial purchasers.

In connection with the 2024 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2024 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2024 Notes (the “2024 Capped Calls”).

In September 2022, in connection with the issuance of the 2027 Notes, as defined below, Wayfair repurchased for cash approximately $ 375 million aggregate principal amount of the 2024 Notes.

For more information, see “Extinguishment and Conversions of Notes” below.

In August 2020, Wayfair issued $ 1.518 billion in aggregate principal amount of 0.625 % Convertible Senior Notes due 2025 (the “2025 Notes”), which included the exercise in full of a $ 198.0 million option granted to the initial purchasers.

In connection with the issuance of the 2025 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2025 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2025 Notes (the “2025 Capped Calls”).

In September 2022, in connection with the issuance of the 2027 Notes, as defined below, Wayfair repurchased for cash approximately $ 229 million aggregate principal amount of the 2025 Notes.

For more information, see “Extinguishment and Conversions of Notes” below.

In August 2019, Wayfair issued $ 948.75 million in aggregate principal amount of 1.00 % Convertible Senior Notes due 2026 (the “2026 Notes”), which included the exercise in full of a $ 123.75 million option granted to the initial purchasers.

In connection with the 2026 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2026 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes (the “2026 Capped Calls”).

In August 2020, Wayfair issued $ 1.518 billion in aggregate principal amount of 0.625 % Convertible Senior Notes due 2025 (the “2025 Notes”, and together with the 2022 Notes, 2024 Notes, 2026 Notes, the “Non-Accreting Notes”), which included the exercise in full of a $ 198.0 million option granted to the initial purchasers.

Notes to Consolidated Financial Statements (Continued)

In September 2022, Wayfair issued $ 690.0 million in aggregate principal amount of 3.25 % Convertible Senior Notes due 2027 (the “2027 Notes”), and together with the 2024 Notes, 2025 Notes, 2026 Notes, the “Non-Accreting Notes”), which included the exercise in full of a $ 90.0 million option granted to the initial purchasers.

In connection with the issuance of the 2027 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2027 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2027 Notes (the “2027 Capped Calls”).

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In April 2020, Wayfair issued $ 535.0 million in aggregate original principal amount of 2.50 % Accreting Convertible Senior Notes due 2025 (the “2025 Accreting Notes”, and collectively with the Non-Accreting Notes, the “Notes”) to Great Hill, CBEP Investments, LLC (“Charlesbank”) and The Spruce House Partnership LLC.

The 2025 Accreting Notes are fully and unconditionally guaranteed on a senior unsecured basis by Wayfair LLC, a wholly-owned subsidiary of Wayfair Inc., as

Notes to Consolidated Financial Statements (Continued)

The 2025 Accreting Notes are fully and unconditionally guaranteed on a senior unsecured basis by Wayfair LLC, a wholly-owned subsidiary of Wayfair Inc., as guarantor.

No cash interest is payable on the 2025 Accreting Notes.

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The annual effective interest rate of the 2025 Accreting Notes is 2.7 %.

Seniority of Notes

Seniority of the Notes

The Notes are general senior unsecured obligations of Wayfair.

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2024 Notes November 1, 2024 August 1, 2024 8.5910 $ 116.40 May 8, 2022

2026 Notes August 15, 2026 May 15, 2026 6.7349 $ 148.48 August 20, 2023

2025 Notes October 1, 2025 July 1, 2025 2.3972 $ 417.15 October 4, 2022

2026 Notes August 15, 2026 May 15, 2026 6.7349 $ 148.48 August 20, 2023

2027 Notes September 15, 2027 June 15, 2027 15.7597 $ 63.45 September 20, 2025

2025 Accreting Notes April 1, 2025 - 13.7931 $ 72.50 May 9, 2023

The conversion rate is subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of Wayfair’s Class A common stock, but will not be adjusted for accrued and unpaid interest.

During the third quarter of 2022, upon maturity of the 2022 Notes, Wayfair paid in cash the remaining outstanding principal to the holders of the 2022 Notes.

Notes to Consolidated Financial Statements (Continued)

Wayfair will settle any conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or a combination thereof, with the form of consideration determined at Wayfair’s election.

The holders of the Non-Accreting Notes may convert all or a portion of the notes prior to certain conversion dates (the “Free Convertibility Date”) under the following circumstances (in each case, as applicable to each series of Non-Accreting Notes):

The holders of the Non-Accreting Notes may convert all or a portion of such Notes prior to certain specified dates (each, a “Free Convertibility Date”) under the following circumstances (in each case, as applicable to each series of Non-Accreting Notes):

• during any calendar quarter (and only during such calendar quarter), if the last reported sale price of Wayfair’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

• during the five business day period after any ten consecutive trading day period (the “measurement period") in which the trading price (as defined in the applicable indenture) per $ 1,000 principal amount of the notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Wayfair’s Class A common stock and the conversion rate on each such trading day;

• if Wayfair calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date;

Notes to Consolidated Financial Statements (Continued)

• if Wayfair calls the notes for redemption, at any time prior to 5:00 p.m.

(New York City time) (“the close of business”) on the second scheduled trading day immediately preceding the redemption date;

• upon the occurrence of specified corporate events (as set forth in the applicable indenture).

On or after the applicable Free Convertibility Date until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, holders of the Non-Accreting Notes may convert their Non-Accreting Notes at any time.

The following Non-Accreting Notes are convertible during the calendar quarter ended March 31, 2022:

the 2022 Notes, the 2024 Notes and the 2026 Notes.

The 2025 Notes are not convertible during the first quarter of 2022.

The holders of the 2025 Accreting Notes may convert all or a portion of their 2025 Accreting Notes at any time prior to the second business day immediately preceding the maturity date.

Because the conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes were not triggered during the calendar quarter ended December 31, 2022, the 2024 Notes, 2025 Notes, 2026 Notes, and 2027 Notes are not convertible during the calendar quarter ended March 31, 2023.

The holders of the 2025 Accreting Notes may convert all or a portion of their 2025 Accreting Notes at any time prior to the close of business on the second business day immediately preceding the maturity date.

Wayfair will settle any conversion of 2025 Accreting Notes with a number of shares of Wayfair’s Class A common stock per $ 1,000 original principal amount of 2025 Accreting Notes equal to the accreted principal amount of such original principal amount of 2025 Accreting Notes divided by the conversion price.

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On or after the applicable Redemption Date, Wayfair may redeem for cash all or part of the applicable series of Notes if the last reported sale price of Wayfair’s Class A common stock equals or exceeds 130 % (Non-Accreting Notes) or 276 % (2025 Accreting Notes) of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the five trading days immediately preceding the date on which Wayfair provides notice of redemption, during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which Wayfair provides notice of the redemption.

The redemption price will be either 100 % of the principal amount (or accreted principal amount) of the notes to be redeemed, plus accrued and unpaid interest, if any, or the if-converted value holder elects to convert their Notes upon receiving notice of redemption.

Accounting for the Notes After the Adoption of ASU 2020-06

Wayfair adopted ASU 2020-06 on January 1, 2021 as further described in Note 1, Summary of Significant Accounting Policies .

Following the adoption of ASU 2020-06, the Notes are recorded as a single unit within liabilities in the consolidated balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and the Notes do not involve a substantial premium.

Transaction costs to issue the Notes were recorded as direct deductions from the related debt liabilities and amortized to interest expense using the effective interest method over the terms of the corresponding Notes.

Interest for the Accreting Notes is amortized to interest expense, net using the effective interest method over the term of the Accreting Notes and recorded to other long-term liabilities in the consolidated balance sheets.

Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair will reclassify the interest accrued as of that date to long-term debt.

The redemption price will be either 100 % of the principal amount (or accreted principal amount) of the notes to be redeemed, plus accrued and unpaid interest, if any, or the if-converted value if the holder elects to convert their Notes upon receiving notice of redemption.

Notes to Consolidated Financial Statements (Continued)

Accounting for the Notes Before the Adoption of ASU 2020-06

Prior to the adoption of ASU 2020-06, in accounting for the issuance of the Non-Accreting Notes, Wayfair separated the Non-Accreting Notes into liability and equity components.

The carrying amount of each Non-Accreting Note's liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature.

The carrying amount of each Non-Accreting Note's equity component, representing the conversion option, which does not meet the criteria for separate accounting as a derivative as it is indexed to Wayfair's own stock, was determined by deducting the fair value of the Non-Accreting Note's liability component from the par value of the Non-Accreting Note.

The difference between the carrying amount of the Non-Accreting Note and the liability component represents the debt discount for the Non-Accreting Note, which was recorded as a direct deduction from the related debt liabilities and is amortized to interest expense using the effective interest method over the term of the Non-Accreting Note.

The equity components of the 2022 Notes, 2024 Notes, 2026 Notes and 2025 Notes of approximately $ 96 million, $ 182 million, $ 280 million and $ 297 million, respectively, were included in additional paid-in capital and were not remeasured as long as they continued to meet the conditions for equity classification.

Wayfair allocated transaction costs related to the components of the Non-Accreting Notes using the same proportions as the proceeds from the corresponding Non-Accreting Notes.

Transaction costs attributable to the liability components were recorded as direct deductions from the related debt liabilities and amortized to interest expense over the terms of the corresponding Non-Accreting Notes, and transaction costs attributable to the equity components were netted with the corresponding equity components in shareholders’ deficit.

In accounting for the issuance of the 2025 Accreting Notes, Wayfair determined there was a beneficial conversion feature, which represented the excess of the fair value of the underlying common stock at the commitment date less the effective conversion price of the shares convertible at that time.

The beneficial conversion feature of $ 39 million was recorded to additional paid-in capital and represented a debt discount to the 2025 Accreting Notes, which was recorded as a direct deduction from the related debt liability.

It is amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes.

All transaction costs incurred were recorded as a direct deduction from the related debt liability and were amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes.

Interest for the 2025 Accreting Notes was amortized to interest expense using the effective interest method over the term of the 2025 Accreting Notes and recorded to other long-term liabilities.

Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair reclassified the interest accrued as of that date to long-term debt.

The beneficial conversion feature for additional shares, which would be issued upon conversion of paid-in-kind interest, was recorded as additional interest expense and additional paid-in capital over the term of the 2025 Accreting Notes as such interest accrued.

Accounting for the Notes

The Notes are recorded as a single unit within liabilities in the consolidated and condensed balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and the Notes do not involve a substantial premium.

Transaction costs to issue the Notes were recorded as direct deductions from the related debt liabilities and amortized to interest expense, net using the effective interest method over the terms of the corresponding Notes.

Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair will reclassify the interest accrued as of that date to long-term debt.

Proceeds from Notes Transactions

The net proceeds from the sale of the 2022 Notes, 2024 Notes, 2026 Notes, 2025 Notes and 2025 Accreting Notes were approximately $ 420 million, $ 562 million, $ 935 million, $ 1.5 billion and $ 527 million, respectively, after deducting the initial purchasers’ discounts, if applicable, and the offering expenses payable by Wayfair.

We used approximately $ 44 million, $ 93 million, $ 146 million and $ 255 million of the net proceeds from the 2022 Notes, 2024 Notes, 2026 Notes and 2025 Notes, respectively, to purchase the Capped Calls.

We intend to use the remainder of the net proceeds from the Notes for working capital and general corporate purposes, including, but not limited to, operating and capital expenditures.

We may also use a portion of the net proceeds to finance acquisitions, strategic transactions, investments, repurchases of our Class A common stock or the repayment, redemption, purchase or exchange of indebtedness (including the Notes).

Conversions of Notes in 2021 After the Adoption of ASU 2020-06

During the year ended December 31, 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.

During the year ended December 31, 2021, 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.

In aggregate, these conversions increased additional paid-in capital by $ 265 million for the year ended December 31, 2021

Notes to Consolidated Financial Statements (Continued)

Extinguishment and Conversions of Notes in 2020 Before the Adoption of ASU 2020-06

During the year ended December 31, 2020, Wayfair used $ 1.0 billion of the net proceeds from the issuance of the 2025 Notes to repurchase for cash in privately negotiated repurchase transactions $ 343 million in aggregate principal amount of the 2022 Notes.

Additionally, in 2020, $ 70 million aggregate principal of the 2022 Notes were settled upon conversion by the holders for 670,610 shares of Wayfair’s Class A common stock.

In accounting for these transactions, Wayfair allocated $ 380 million of the total fair value of the consideration received from the 2025 Notes to the debt component of the repurchased 2022 Notes by estimating the fair value of a similar liability that did not have an associated convertible feature.

The $ 13 million loss on extinguishment of the 2022 Notes recorded to other (expense) income, net, primarily represents the difference between the total fair value of consideration allocated to the debt component and the $ 369 million carrying value, net of the remaining unamortized debt discount and debt issuance costs.

Wayfair applied the $ 832 million residual value of the total fair value of the consideration to the equity component in additional paid-in capital.

During the year ended December 31, 2020, Charlesbank converted $ 253 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair’s Class A common stock.

Upon Charlesbank's conversion of the 2025 Accreting Notes, the remaining debt discount for those notes of $ 20 million was immediately recognized as interest expense in the fourth quarter of 2020.

The net proceeds from the sale of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes were approximately $ 562 million, $ 1.5 billion, $ 935 million, $ 678 million and $ 527 million, after deducting the initial purchasers’ discounts, if applicable, and the offering expenses payable by Wayfair.

Wayfair used approximately $ 93 million, $ 255 million, $ 146 million and $ 80 million of the net proceeds from the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes, to purchase the Capped Calls.

Wayfair intends to use the remainder of the net proceeds from the Notes for working capital and general corporate purposes, including, but not limited to, operating and capital expenditures.

Wayfair may also use a portion of the net proceeds to finance acquisitions, strategic transactions, investments, repurchases of Class A common stock or the repayment, redemption, purchase or exchange of indebtedness (including the Notes).

Partial Extinguishment of 2024 Notes and 2025 Notes

During the year ended December 31, 2022, Wayfair 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.

Conversions of Notes

During the year ended December 31, 2022, there were no conversions of the Notes.

Interest Expense

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Year Ended December 31,

Convertible Notes Contractual Interest Expense Debt Discount Amortization Total Interest Expense Contractual Interest Expense Debt Discount Amortization Total Interest Expense

2022 2021 2020

Convertible Notes Contractual Interest Expense Debt Discount Amortization Total Interest Expense Contractual Interest Expense Debt Discount Amortization Total Interest Expense Contractual Interest Expense Debt Discount Amortization Total Interest Expense

(in millions)

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2026 Notes 9 2 11 9 2 11 10 35 45

2027 Notes 7 1 8 — — — — — —

2025 Accreting Notes 1 — 1 ( 1 ) — ( 1 ) 8 26 34

Total $ 31 $ 8 $ 39 $ 25 $ 7 $ 32 $ 29 $ 123 $ 152

Notes to Consolidated Financial Statements (Continued)

Fair Value of Notes

The estimated fair value of the 2022 Notes, 2024 Notes, 2026 Notes, 2025 Notes and 2025 Accreting Notes was $ 5 million, $ 1.0 billion, $ 1.4 billion, $ 1.4 billion and $ 95 million, respectively, as of December 31, 2021.

The estimated fair value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes was $ 169 million, $ 836 million, $ 553 million, $ 515 million and $ 17 million, as of December 31, 2022.

The estimated fair value of the Non-Accreting Notes was determined through consideration of quoted market prices.

The estimated fair value of the 2025 Accreting Notes was determined through an option pricing model using Level 3 inputs including volatility and credit spread.

The fair values of the Non-Accreting Notes and the 2025 Accreting Notes are classified as Level 2 and Level 3, respectively, as defined in Note 3, Cash and Cash Equivalents, Investments and Fair Value Measurements .

The if-converted value of the 2022 Notes, 2024 Notes, 2026 Notes and 2025 Accreting Notes exceeded the principal value by $ 2 million, $ 363 million, $ 265 million and $ 59 million, respectively, as of December 31, 2021.

The if-converted value of the 2025 Notes did not exceed the principal value as of December 31, 2021.

The 2022 Capped Calls, 2024 Capped Calls, 2026 Capped Calls and 2025 Capped Calls (collectively, the "Capped Calls") are expected generally to reduce the potential dilution and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the applicable Capped Call (which corresponded to the initial conversion price of the applicable Non-Accreting Notes and is subject to certain adjustments under the terms of the applicable Capped Call), with such reduction and/or offset subject to a cap based on the cap price of the applicable Capped Calls (the "Initial Cap Price").

The Capped Calls

Notes to Consolidated Financial Statements (Continued)

can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date.

The fair values of the Non-Accreting Notes and the 2025 Accreting Notes are classified as Level 2 and Level 3, as defined in Note 3, Cash and Cash Equivalents, Investments and Fair Value Measurements .

The if-converted value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes did not exceed the principal value as of December 31, 2022.

The 2024 Capped Calls, 2025 Capped Calls, 2026 Capped Calls and 2027 Capped Calls (collectively, the “Capped Calls”) are expected generally to reduce the potential dilution and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Non-Accreting Notes upon conversion of the Non-Accreting Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the applicable Capped Call (which correspond to the initial conversion price of the applicable Non-Accreting Notes and is subject to certain adjustments under the terms of the applicable Capped Call), with such reduction and/or offset subject to a cap based on the cap price of the applicable Capped Calls (the “Initial Cap Price”).

The Capped Calls can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date.

Each of the Capped Calls has an initial cap price per share of Wayfair’s Class A common stock, which represented a premium over the last reported sale price (or, with respect to the 2025 Capped Calls, the volume-weighted average price) of Wayfair’s Class A common stock on the date the corresponding Non-Accreting Notes were priced (the “Cap Price Premium”), and is subject to certain adjustments under the terms of the corresponding agreements.

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Capped Calls Maturity Date Initial Cap Price Cap Price Premium

2022 Capped Calls September 1, 2022 $ 154.16 100 %

2024 Capped Calls November 1, 2024 $ 219.63 150 %

2026 Capped Calls August 15, 2026 $ 280.15 150 %

2025 Capped Calls October 1, 2025 $ 787.08 150 %

2026 Capped Calls August 15, 2026 $ 280.15 150 %

2027 Capped Calls September 15, 2027 $ 97.62 100 %

The Capped Calls are separate transactions from the Non-Accreting Notes, are not subject to the terms of the Non-Accreting Notes and will not affect any holder’s rights under the Non-Accreting Notes.

Similarly, holders of the Non-Accreting Notes do not have any rights with respect to the Capped Calls.

The Capped Calls do not meet the criteria for separate accounting as a derivative as they are indexed to Wayfair's stock.

The premiums paid for the Capped Calls were included as a net reduction to additional paid-in capital within shareholders’ deficit.

The Capped Calls do not meet the criteria for separate accounting as a derivative as they are indexed to Wayfair's stock and meet the requirements to be classified in equity.

The premiums paid for the Capped Calls were included as a net reduction to additional paid-in capital within stockholders’ deficit when they were entered.

Commitments and Contingencies

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Wayfair has entered into purchase obligations that represent enforceable and legally binding software license and freight commitments.

Our payments due under these purchase obligations are $ 237 million in 2022, $ 36 million in 2023, $ 29 million in 2024, $ 1 million in 2025, and no other commitments thereafter.

Payments due under these purchase obligations are $ 210 million in 2023, $ 184 million in 2024, $ 185 million in 2025, $ 2 million in 2026, $ 2 million in 2027 and none thereafter.

These payments exclude payments for contracts that are able to be canceled, both in full or in part, since they do not represent legally binding arrangements.

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Wayfair has historically collected and remitted sales tax based on the locations of its physical operations.

On June 21, 2018, the U.S.

Supreme Court rendered a 5-4 majority decision in South Dakota v.

Wayfair Inc., 17-494.

Among other things, the Court held that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent.

Supreme Court's decision in South Dakota v.

Wayfair, Inc., removed a significant impediment to the enactment of laws imposing sales tax collection obligations on out-of-state e-commerce companies.

Several states and other taxing jurisdictions have presented, or indicated that they may present, Wayfair with sales tax assessments.

The aggregate assessments received as of December 31, 2022 are not material to Wayfair's business and Wayfair does not expect the Court's decision to have a significant impact on its business.

Notes to Consolidated Financial Statements (Continued)

Legal Matters

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In addition, Wayfair may also find itself at greater risk to outside party claims as it increases its operations in jurisdictions where the laws with respect to the potential liability of online retailers are uncertain, unfavorable, or unclear.

On November 18, 2020, certain of our present and former directors, along with Great Hill Partners, L.P., Great Hill, Charlesbank Capital Partners, LLC and Charlesbank, were named as defendants in a shareholder derivative lawsuit filed in the Court of Chancery of the State of Delaware by the Equity-League Pension Trust Fund.

Wayfair was named as a nominal defendant.

The derivative complaint primarily alleged that the director defendants breached their fiduciary duties with respect to Wayfair’s issuance of the 2025 Accreting Notes, and further alleged that the non-director defendants were unjustly enriched on the basis of the issuance.

The complaint asserted causes of action for breach of fiduciary duty and unjust enrichment and sought

Notes to Consolidated Financial Statements (Continued)

disgorgement of proceeds received as a result of the issuance, other equitable relief and damages and attorneys’ fees and costs.

On February 16, 2021, the named director defendants and Wayfair filed motions to dismiss the complaint with prejudice and Great Hill and Charlesbank each filed separate motions to dismiss the complaint.

On November 30, 2021, the court issued an order dismissing all claims.

The plaintiff did not appeal the dismissal by the December 30, 2021 appeal deadline.

Employee Benefit Plans

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The amounts deferred by the employee and the matching amounts contributed by Wayfair both vest immediately.

The amount expensed under the plan totaled approximately $ 35 million, $ 32 million and $ 28 million in the years ended December 31, 2021, 2020 and 2019.

The amount expensed under the plan totaled approximately $ 43 million, $ 35 million and $ 32 million in the years ended December 31, 2022, 2021 and 2020, respectively.

Stockholders’ Deficit

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

During the years ended December 31, 2021 and December 31, 2020, Wayfair repurchased $ 300 million and $ 380 million under authorized stock repurchase programs at an average price of $ 305.43 and $ 302.71 per share of Class A common stock, respectively.

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

During the years ended December 31, 2022 and December 31, 2021, Wayfair repurchased 548,173 and 982,848 shares of Class A common stock for $ 75 million and $ 300 million, respectively, under authorized stock repurchase programs .

Notes to Consolidated Financial Statements (Continued)

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The Board adopted the 2014 Incentive Award Plan (“2014 Plan”) to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent.

The 2014 Plan is administered by the Board for awards to non-employee directors and by the compensation committee of the Board for other participants and provides for the issuance of stock options, SARs, restricted common stock, restricted stock units ("RSUs"), performance shares, stock payments, cash payments, dividend awards and other incentives.

Prior to the adoption of the 2014 Plan, Wayfair LLC issued certain equity awards pursuant to the Wayfair LLC Amended and Restated Common Unit Plan (the "2010 Plan"), which was administered by the Board of Wayfair LLC.

Awards issued under the 2010 Plan that remain outstanding currently represent Class A or Class B common stock of Wayfair Inc.

The 2014 Plan initially made 8,603,066 shares of Class A common stock available for future award grants.

The 2014 Plan also contains an evergreen provision whereby the shares available for future grants are increased on the first day of each calendar year from January 1, 2016 through and including January 1, 2024.

As of January 1, 2022, 6,443,150 shares of Class A common stock were available for future grant under the 2014 Plan.

Shares or RSUs forfeited, withheld for minimum statutory tax obligations, and unexercised stock option lapses from the 2010 and 2014 Plans are available for future grants under the 2014 Plan.

The following table presents activity relating to stock options for the year ended December 31, 2021:

Shares Weighted-Average

Exercise Price Weighted-Average

Contractual Term

Outstanding at December 31, 2020 19,046 $ 2.99 0.5

Options exercised ( 19,026 ) $ 2.99

Options forfeited/canceled ( 20 ) 3.42

Outstanding and exercisable at December 31, 2021 — $ — —

The intrinsic value of stock options exercised was $ 6 million and $ 5 million for the years ended December 31, 2021 and 2020.

In October 2022, the 2014 Plan was amended (the “Amended 2014 Plan”) by the stockholders of Wayfair to increase the aggregate number of shares of Class A common stock authorized for issuance under the 2014 Plan by 5,000,000 shares.

The Amended 2014 Plan is administered by the Board for awards to non-employee directors and by the compensation committee of the Board for other participants and provides for the issuance of stock options, SARs, restricted common stock, restricted stock units (“RSUs”), performance shares, stock payments, cash payments, dividend awards and other incentives.

The Amended 2014 Plan initially made 8,603,066 shares of Class A common stock available for future award grants.

The Amended 2014 Plan also contains an evergreen provision whereby the shares available for future grants are increased on the first day of each calendar year from January 1, 2016 through and including January 1, 2024.

As of January 1, 2023, 4,379,140 shares of Class A common stock were available for future grant under the Amended 2014 Plan.

Shares or RSUs forfeited, withheld for minimum statutory tax obligations, and unexercised stock option lapses from the Amended 2014 Plan are available for future grant under the Amended 2014 Plan.

The following table presents activity relating to RSUs for the year ended December 31, 2022:

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RSUs forfeited/canceled ( 2,194,929 ) $ 151.84

Outstanding as of December 31, 2021 5,229,708 $ 208.62

The intrinsic value of RSUs vested was $ 735 million and $ 562 million for the years ended December 31, 2021 and 2020.

The aggregate intrinsic value of RSUs unvested was $ 1.0 billion as of December 31, 2021.

Unrecognized equity-based compensation expense related to RSUs expected to vest over time is $ 992 million with a weighted-average remaining vesting term of 1.3 years as of December 31, 2021.

Notes to Consolidated Financial Statements (Continued)

Unvested at December 31, 2022

10,170,203 $ 100.13

The intrinsic value of RSUs vested was $ 291 million, $ 735 million, and $ 562 million and for the years ended December 31, 2022, 2021 and 2020.

The aggregate intrinsic value of RSUs unvested was $ 334 million as of December 31, 2022.

Unrecognized equity-based compensation expense related to RSUs expected to vest over time is $ 886 million with a weighted-average remaining vesting term of 1.0 year as of December 31, 2022.

Equity-based compensation was classified as follows in the consolidated statements of operations for the years ended December 31:

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Selling, operations, technology, general and administrative 469 307 252

Total equity-based compensation $ 344 $ 276 $ 227

Equity-based compensation costs capitalized as site and software development costs were $ 28 million and $ 17 million for the years ended December 31, 2021 and December 31, 2020.

The amount qualifying for capitalization during the year ended December 31, 2019 was not material.

Total equity-based compensation expense $ 513 $ 344 $ 276

Equity-based compensation costs capitalized as site and software development costs were $ 43 million, $ 28 million and $ 17 million for the years ended December 31, 2022, 2021 and 2020.

Notes to Consolidated Financial Statements (Continued)

The components of the provision for income taxes, net for the years ended December 31, 2022, 2021 and 2020 are presented below:

Year Ended December 31,

2022 2021 2020

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(in millions)

(Benefit) provision for income taxes at the federal statutory rate $ ( 27 ) $ 43 $ ( 206 )

State income tax expense, net of federal benefit ( 1 ) 19 ( 40 )

Provision (benefit) for income taxes at the federal statutory rate $ ( 277 ) $ ( 27 ) $ 43

State income tax expense (benefit), net of federal impact 9 ( 1 ) 19

Foreign tax rate differential 28 26 19

Non-deductible equity-based compensation expense 16 9 7

Windfall benefits from equity-based compensation ( 70 ) ( 51 ) ( 29 )

Windfall (shortfall) benefit (expense) from equity-based compensation 41 ( 70 ) ( 51 )

Change in valuation allowance 214 97 ( 27 )

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Intangible property basis step-up — ( 43 ) —

Other ( 23 ) 4 2

Provision for income taxes, net $ 12 $ 1 $ 20

Notes to Consolidated Financial Statements (Continued)

The components of (loss) income before income taxes determined by tax jurisdiction, are as follows:

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Total $ ( 1,319 ) $ ( 130 ) $ 205

Notes to Consolidated Financial Statements (Continued)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities for the periods presented are as follows:

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Accrued expenses and reserves 27 22

Capitalized technology 16 —

Leases 279 269

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The valuation allowance increased by $ 241 million during 2022.

The increase in the valuation allowance is the result of Wayfair establishing a valuation allowance related to the current year operating losses, the adoption of ASU 2020-06, the basis adjustment to intangible property, and adjustments to our operating loss carryforwards when we filed our returns.

The increase in the valuation allowance is the result of Wayfair establishing a valuation allowance related to the current year operating losses, and adjustments to our operating loss carryforwards when we filed our returns.

In determining the need for a valuation allowance, Wayfair has given consideration to the cumulative book income and loss positions of each of its entities as well as its worldwide cumulative income position.

We have assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income.

At December 31, 2021, we maintained a full valuation allowance against substantially all of our worldwide net deferred tax assets.

Notes to Consolidated Financial Statements (Continued)

Wayfair has assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income.

At December 31, 2022, Wayfair maintained a full valuation allowance against substantially all of the worldwide net deferred tax assets.

As of December 31, 2022, Wayfair had federal net operating loss carryforwards available to offset future federal taxable income of $ 2.0 billion.

In addition, Wayfair had state net operating loss carryforwards available in the amount of $ 1.8 billion which are available to offset future state taxable income.

Of the federal net operating loss carryforwards, $ 163 million begin to expire in the year ending December 31, 2037.

The remaining $ 1.2 billion of federal net operating loss carryforwards do not expire.

Of the federal net operating loss carryforwards, $ 205 million begin to expire in the year ending December 31, 2037 if unused.

Federal net operating loss carryforwards of $ 1.8 billion do not expire.

The state net operating loss carryforwards begin to expire in the year ending December 31, 2023.

Our ability to utilize these federal and state net operating loss carryforwards may be limited in the future if we experience an ownership change pursuant to Internal Revenue Code Section 382.

An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period.

Through December 31, 2021, we have determined that none of our tax attributes were subject to such a restrictive limitation.

The ability to utilize these federal and state net operating loss carryforwards may be limited in the future if Wayfair experiences an ownership change pursuant to Internal Revenue Code Section 382.

An ownership change occurs when the ownership percentages of 5% or greater stockholders

Notes to Consolidated Financial Statements (Continued)

change by more than 50% over a three-year period.

Through December 31, 2022, Wayfair has determined that the ability to use tax attributes is not impacted by such a restrictive limitation.

As of December 31, 2022, Wayfair also had foreign net operating loss carryforwards available to offset future foreign income of $ 1.5 billion.

The Canadian net operating loss of $ 33 million will expire in the year ending December 31, 2038.

Foreign net operating loss of $ 39 million will expire in the year ending December 31, 2038.

The remaining foreign net operating loss carryforwards do not expire.

As of December 31, 2022, Wayfair has not provided for deferred income taxes on outside basis differences in its foreign subsidiaries of approximately $ 300 million since these basis differences are deemed to be indefinitely reinvested, or it is within the control of Wayfair to recognize these basis differences on a tax-free basis.

Upon realization of the outside basis differences in the form of dividends or otherwise, we could be subject to income taxes as well as withholding taxes.

Upon realization of the outside basis differences in the form of dividends or otherwise, Wayfair could be subject to income taxes as well as withholding taxes.

The amount of taxes attributable to the outside basis differences, if realized, is expected to be immaterial.

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The tax reserves are analyzed periodically and adjustments are made as events occur to warrant adjustment to the reserve.

Reserves for uncertain tax positions as of December 31, 2021 and 2020 are not material and would not impact the effective tax rate if recognized as a result of the valuation allowance maintained against our net deferred tax assets.

Reserves for uncertain tax positions as of December 31, 2022 and 2021 are not material and would not impact the effective tax rate if recognized as a result of the valuation allowance maintained against the net deferred tax assets.

Wayfair's policy is to recognize interest and penalties related to unrecognized tax benefits and penalties as a component of the provision for income taxes, net.

Related to the unrecognized tax benefits noted above, we did not accrue any penalties and interest during 2021, 2020 or 2019 because we believe that such additional interest and penalties would be insignificant.

Related to the unrecognized tax benefits noted above, Wayfair did not accrue any penalties and interest during 2022, 2021 or 2020 because it is believed that such additional interest and penalties would be insignificant.

Wayfair's tax jurisdictions include the U.S., the UK, Germany, Ireland, Canada, Hong Kong and the British Virgin Islands.

The statute of limitations with respect to our U.S.

The statute of limitations with respect to U.S.

federal income taxes has expired for years prior to 2019.

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state statutes vary and years prior to 2016 are generally closed.

The statute of limitations for our foreign income taxes vary, but have expired for years prior to 2016.

The statute of limitations for foreign income taxes vary, but have expired for years prior to 2016.

However, preceding years remain open to examination by U.S.

federal and state and foreign taxing authorities to the extent of future utilization of net operating losses generated in each preceding year.

Notes to Consolidated Financial Statements (Continued)

(Loss) Earnings per Share

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(in millions, except per share data)

Numerator for basic EPS - 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 )

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

Numerator for basic and diluted (loss) earnings per share - net (loss) income

$ ( 1,331 ) $ ( 131 ) $ 185

Denominator for basic (loss) earnings per share - weighted-average number of shares of common stock outstanding

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

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

(Loss) earnings per share:

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Diluted $ ( 12.54 ) $ ( 1.26 ) $ 1.86

Notes to Consolidated Financial Statements (Continued)

The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted (loss) earnings per share were as follows:

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T he Capped Calls are generally expected to reduce the potential dilution of Wayfair's Class A common stock upon any conversion of the Notes and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes to the extent the market price per share of Wayfair’s Class A common stock is greater than the strike price of the Capped Calls (which corresponds to the initial conversion prices of the Non-Accreting Notes, subject to certain adjustments under the terms of the Capped Calls), with such reduction and/or offset capped at the Initial Cap Price.

As of December 31, 2021, the number of shares of Wayfair's Class A common stock potentially issuable at the respective conversion prices of the 2022 Notes, 2024 Notes, 2026 Notes, 2025 Notes and 2025 Accreting Notes is 25,976 shares, 4,939,825 shares, 6,389,662 shares, 3,638,950 shares and 500,917 shares.

Under the Capped Calls outstanding as of December 31, 2021, the maximum cash value obtainable of the 2022 Capped Calls, 2024 Capped Calls, 2026 Capped Calls and 2025 Capped Calls, if exercised at maturity, is $ 208 million, $ 510 million, $ 841 million and $ 1.3 billion.

For more information on the structure of the Notes and the Capped Calls, see Note 6, Debt and Other Financing .

Notes to Consolidated Financial Statements (Continued)

Segment and Geographic Information

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These segments reflect the way the CODM allocates resources and evaluates financial performance, which is based upon each segment's Adjusted EBITDA.

Adjusted EBITDA is defined 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.

Adjusted EBITDA is defined 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 ongoing operating performance.

These charges are excluded from the evaluation of segment performance because it facilitates reportable segment performance comparisons on a period-to-period basis as these costs may vary independent of business performance.

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Wayfair allocates certain operating expenses to the operating and reportable segments, including customer service and merchant fees and selling, operations, technology, general and administrative expenses based on the usage and relative contribution provided to the segments.

It excludes from the allocations certain operating expense lines, including depreciation and amortization, equity-based compensation and related taxes, interest expense, net, other (expense) income, net and provision for income taxes, net.

There are no revenue transactions between Wayfair's reportable segments.

It excludes from the allocations certain operating expense lines, including depreciation and amortization, equity-based compensation and related taxes, impairment and other related net charges and restructuring charges, as well as interest expense, net, other expense, net, gain on debt extinguishment and provision for income taxes, net.

There are no net revenue transactions between Wayfair's reportable segments.

segment primarily consists of amounts earned through product sales through Wayfair's family of sites in the U.S.

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provided greater than 10% of consolidated net revenue.

The following tables present net revenues and Adjusted EBITDA attributable to Wayfair’s reportable segments for the periods presented:

Notes to Consolidated Financial Statements (Continued)

The following tables present net revenue and Adjusted EBITDA attributable to Wayfair’s reportable segments for the periods presented:

Year Ended December 31,

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reconciling items (1)

( 915 ) ( 745 ) ( 762 )

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

Notes to Consolidated Financial Statements (Continued)

(1) The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net (loss) income:

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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 (a)

Restructuring charges (b)

Gain on debt extinguishment (c)

Total reconciling items $ 915 $ 745 $ 762

(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.

In 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, Wayfair recorded $ 40 million of lease impairment and other related charges related to changes in market conditions around future sublease income for one of the office locations in the U.S.

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

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

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

In the year ended December 31, 2022, Wayfair 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, Wayfair recorded a $ 4 million charge to restructuring charges for severance costs associated with February 2020 workforce reductions.

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

Notes to Consolidated Financial Statements (Continued)

The following table presents long-lived assets attributable to Wayfair's reportable segments reconciled to the amounts:

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and International long-lived assets consist of property and equipment, net and operating lease ROU assets.

Corporate long-lived assets consist of property and equipment, net and operating lease ROU assets at our corporate facilities.

Corporate long-lived assets consist of property and equipment, net and operating lease ROU assets at corporate facilities.

The following table presents total assets attributable to Wayfair's reportable segments reconciled to consolidated amounts:

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and International segment assets consist primarily of accounts receivable, net, inventories, prepaid expenses and other current assets, property and equipment, net and operating lease ROU assets.

Corporate assets include cash and cash equivalents, short-term investments, long-lived assets at our corporate facilities, capitalized internal-use software and website development costs and other non-current assets.

Notes to Consolidated Financial Statements (Continued)

Related Party Transactions

As discussed in Note 6, Debt and Other Financing , in April 2020, pursuant to the terms of the amended and restated purchase agreement, dated April 7, 2020 (the "Purchase Agreement"), Wayfair issued $ 535 million in aggregate original principal amount of 2025 Accreting Notes.

The issuance of the 2025 Accreting Notes constitutes a related party transaction because of Michael W.

Choe's positions as a director of Wayfair (as of May 12, 2020) and Managing Director and Chief Executive Officer of Charlesbank Capital Partners, LLC, the sole owner of the ultimate general partner of Charlesbank, a party to the Purchase Agreement;

Michael Kumin's positions as a director of Wayfair and a Managing Partner at Great Hill Partners, LP, Manager of the ultimate general partner of Great Hill, a party to the Purchase Agreement;

and the limited partnership interests held by Niraj Shah and Steve Conine, Wayfair's co-founders and co-chairmen, in affiliates of Great Hill and Charlesbank.

Corporate assets include cash and cash equivalents, short-term investments, long-lived assets at corporate facilities, capitalized internal-use software and website development costs and other non-current assets.

Subsequent Events

On January 20, 2023, Wayfair announced an update to the Company’s cost efficiency plan, including a workforce reduction involving approximately 1,750 employees.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data