Wayfair Inc. 10-Q

Item 1. Financial Statements WAYFAIR INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2023 2022 (Unaudited) (in millions, except share and per share data) Assets: Current assets Cash and cash equivalents $ 970 $ 1,050 Short-term investments 78 228 Accounts receivable, net 181 272 Inventories 83 90 Prepaid expenses and other current assets 295 293 Total current assets 1,607 1,933 Operating lease right-of-use assets 809 839 Property and equipment, net 762 774 Other non-current assets 34 34 Total assets $ 3,212 $ 3,580 Liabilities and Stockholders' Deficit: Current liabilities Accounts payable $ 1,058 $ 1,204 Other current liabilities 851 868 Total current liabilities 1,909 2,072 Long-term debt 3,138 3,137 Operating lease liabilities, net of current 867 893 Other non-current liabilities 43 28 Total liabilities 5,957 6,130 Commitments and contingencies (Note 5) Stockholders’ deficit: Convertible preferred stock, $ 0.001 par value per share: 10,000,000 shares authorized and none issued at March 31, 2023 and December 31, 2022 — — Class A common stock, par value $ 0.001 per share, 500,000,000 shares authorized, 85,546,393 and 82,903,862 shares issued and outstanding at March 31, 2023 and December 31, 2022 — — Class B common stock, par value $ 0.001 per share, 164,000,000 shares authorized, 25,691,352 and 25,691,397 shares issued and outstanding at March 31, 2023 and December 31, 2022 — — Additional paid-in capital 894 737 Accumulated deficit ( 3,635 ) ( 3,280 ) Accumulated other comprehensive loss ( 4 ) ( 7 ) Total stockholders' deficit ( 2,745 ) ( 2,550 ) Total liabilities and stockholders' deficit $ 3,212 $ 3,580 See notes to unaudited condensed consolidated financial statements. 1 Table of Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2023 2022 (in millions, except per share data) Net revenue $ 2,774 $ 2,993 Cost of goods sold 1,953 2,190 Gross profit 821 803 Operating expenses: Customer service and merchant fees 139 151 Advertising 327 336 Selling, operations, technology, general and administrative 624 626 Impairment and other related net charges 13 — Restructuring charges 65 — Total operating expenses 1,168 1,113 Loss from operations ( 347 ) ( 310 ) Interest expense, net ( 5 ) ( 8 ) Other expense, net ( 1 ) — Loss before income taxes ( 353 ) ( 318 ) Provision for income taxes, net 2 1 Net loss $ ( 355 ) $ ( 319 ) Loss per share: Basic $ ( 3.22 ) $ ( 3.04 ) Diluted $ ( 3.22 ) $ ( 3.04 ) Weighted-average number of shares of common stock outstanding used in computing per share amounts: Basic 110 105 Diluted 110 105 See notes to unaudited condensed consolidated financial statements. 2 Table of Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) Three Months Ended March 31, 2023 2022 (in millions) Net loss $ ( 355 ) $ ( 319 ) Other comprehensive loss: Foreign currency translation adjustments 2 ( 1 ) Net unrealized gain (loss) on available-for-sale investments 1 ( 2 ) Comprehensive loss $ ( 352 ) $ ( 322 ) See notes to unaudited condensed consolidated financial statements. 3 Table of Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Unaudited) Three Months Ended Class A and Class B Common Stock Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit (in millions) Balance at December 31, 2021 105 $ — $ 337 $ ( 1,949 ) $ ( 7 ) $ ( 1,619 ) Net loss — — — ( 319 ) — ( 319 ) Other comprehensive loss — — — — ( 3 ) ( 3 ) Issuance of common stock upon vesting of RSUs 1 — — — — — Equity-based compensation — — 112 — — 112 Repurchase of common stock ( 1 ) — ( 75 ) — — ( 75 ) Balance at March 31, 2022 105 $ — $ 374 $ ( 2,268 ) $ ( 10 ) $ ( 1,904 ) Balance at December 31, 2022 109 $ — $ 737 $ ( 3,280 ) $ ( 7 ) $ ( 2,550 ) Net loss — — — ( 355 ) — ( 355 ) Other comprehensive income — — — — 3 3 Issuance of common stock upon vesting of RSUs 2 — — — — — Equity-based compensation — — 157 — — 157 Balance at March 31, 2023 111 $ — $ 894 $ ( 3,635 ) $ ( 4 ) $ ( 2,745 ) See notes to unaudited condensed consolidated financial statements. 4 Table of Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2023 2022 (in millions) Cash flows for operating activities: Net loss $ ( 355 ) $ ( 319 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 104 85 Equity-based compensation expense 144 104 Amortization of discount and issuance costs on convertible notes 1 2 Impairment and other related net charges 13 — Other non-cash adjustments — 4 Changes in operating assets and liabilities: Accounts receivable, net 91 ( 45 ) Inventories 8 ( 11 ) Prepaid expenses and other current assets 19 ( 20 ) Accounts payable and other current liabilities ( 171 ) ( 26 ) Other liabilities ( 1 ) — Net cash used in operating activities ( 147 ) ( 226 ) Cash flows from (for) investing activities: Purchase of short- and long-term investments — ( 226 ) Sale and maturities of short- and long-term investments 151 130 Purchase of property and equipment ( 34 ) ( 40 ) Site and software development costs ( 53 ) ( 65 ) Net cash provided by (used in) investing activities 64 ( 201 ) Cash flows for financing activities: Repurchase of common stock — ( 75 ) Net cash used in financing activities — ( 75 ) Effect of exchange rate changes on cash and cash equivalents 3 ( 4 ) Net decrease in cash and cash equivalents ( 80 ) ( 506 ) Cash and cash equivalents: Beginning of period $ 1,050 $ 1,706 End of period $ 970 $ 1,200 Supplemental Cash Flow Information: Cash paid for interest on long-term debt $ 20 $ 9 Purchase of property and equipment included in accounts payable and other liabilities $ 12 $ 39 See notes to unaudited condensed consolidated financial statements. 5 Table of Contents Wayfair Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are those of Wayfair Inc. and its wholly-owned subsidiaries. Unless the context indicates otherwise, “Wayfair,” “the company," or similar terms refer to Wayfair Inc. and its subsidiaries. In the company’s opinion, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2022. Furthermore, interim results are not necessarily indicative of the results for the full year ended December 31, 2023 or future periods. The Company has identified the significant accounting policies that are critical to understanding its business and results of operations. Wayfair believes that there have been no significant changes during the three months ended March 31, 2023 to the items disclosed in Note 1, Summary of Significant Accounting Policies , included in Part II, Item 8, Financial Statements and Supplementary Data , of the company’s Annual Report on Form 10-K for the year ended December 31, 2022. 2. Supplemental Financial Statement Disclosures Accounts Receivable, Net As of March 31, 2023, accounts receivable was $ 181 million, net of allowance for credit losses of $ 35 million. As of December 31, 2022, accounts receivable was $ 272 million, net of allowance for credit losses of $ 24 million. The changes in the allowance for credit losses were not material for the three months ended March 31, 2023. Management believes credit risk is mitigated since approximately 99 % of the net revenue recognized for the three months ended March 31, 2023 was collected in advance of recognition. Contract Liabilities Contractual liabilities included in other current liabilities was $ 236 million at March 31, 2023 and $ 224 million at December 31, 2022. During the three months ended March 31, 2023, Wayfair recognized $ 135 million of net revenue that was included within other current liabilities as of December 31, 2022. Net revenue from contracts with customers is disaggregated by geographic region because this manner of disaggregation best depicts how the nature, amount, timing, and uncertainty of net revenue and cash flows are affected by economic factors. Refer to Note 10, Segment and Geographic Information, for additional detail. Impairment and Other Related Net Charges During the three months ended March 31, 2023, Wayfair recorded charges of $ 5 million related to consolidation of certain customer service centers in identified U.S. locations and $ 8 million related to construction in progress assets at identified U.S. locations. These charges are recorded within impairment and other related net charges on the condensed consolidated statements of operations. Restructuring Charges 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, during the three months ended March 31, 2023, Wayfair incurred $ 65 million of charges recorded within restructuring charges on the condensed consolidated statements of operations. Wayfair does not expect to incur any further material charges related to this workforce reduction. The charges consist primarily of one-time employee severance and benefit costs. As of March 31, 2023, $ 11 million is accrued within other current liabilities for employee severance benefits which are expected to be paid in the second quarter of 2023. 6 Table of Contents 3. Cash and Cash Equivalents, Investments and Fair Value Measurements Investments As of March 31, 2023 and December 31, 2022, all of Wayfair’s marketable securities, which primarily consisted of corporate bonds and other government obligations that are priced at fair value, were classified as available-for-sale investments. During the three months ended March 31, 2023 and 2022, Wayfair did not have any realized gains or losses. During the three months ended March 31, 2023 and 2022, Wayfair did not recognize any credit losses related to its available-for-sale debt securities. Further, as of March 31, 2023 and December 31, 2022, Wayfair did not record an allowance for credit losses related to its available-for-sale debt securities. The following tables present details of Wayfair’s investment securities: March 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in millions) Short-term: Investment securities $ 78 $ — $ — $ 78 Total $ 78 $ — $ — $ 78 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in millions) Short-term: Investment securities $ 229 $ — $ ( 1 ) $ 228 Total $ 229 $ — $ ( 1 ) $ 228 Fair Value Measurements Wayfair's financial assets and liabilities are measured at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The three levels of inputs used to measure fair value are as follows: ▪ Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities ▪ Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full-term of the asset or liability ▪ Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability This hierarchy requires Wayfair to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. 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. 7 Table of Contents The following tables set forth the fair value of Wayfair's financial assets measured at fair value on a recurring basis: March 31, 2023 Level 1 Level 2 Level 3 Total (in millions) Cash and cash equivalents: Cash $ 762 $ — $ — $ 762 Cash equivalents 208 — — 208 Total cash and cash equivalents 970 — — 970 Short-term investments: Investment securities — 78 — 78 Total $ 970 $ 78 $ — $ 1,048 December 31, 2022 Level 1 Level 2 Level 3 Total (in millions) Cash and cash equivalents: Cash $ 430 $ — $ — $ 430 Cash equivalents 620 — — 620 Total cash and cash equivalents 1,050 — — 1,050 Short-term investments: Investment securities — 228 — 228 Total $ 1,050 $ 228 $ — $ 1,278 4. Debt and Other Financing The following table presents the outstanding principal amount and carrying value of debt and other financing: March 31, 2023 December 31, 2022 Debt Instrument Principal Amount Unamortized Debt Discount Net Carrying Amount Principal Amount Unamortized Debt Discount Net Carrying Amount (in millions) Revolving Credit Facility $ — $ — 2024 Notes $ 200 $ ( 1 ) 199 $ 200 $ ( 1 ) 199 2025 Notes 1,289 ( 8 ) 1,281 1,289 ( 8 ) 1,281 2026 Notes 949 ( 7 ) 942 949 ( 7 ) 942 2027 Notes 690 ( 11 ) 679 690 ( 12 ) 678 2025 Accreting Notes 37 — 37 37 — 37 Total Debt $ 3,138 $ 3,137 Short-term debt — — Long-term debt $ 3,138 $ 3,137 8 Table of Contents Revolving Credit Facility Wayfair has a five-year senior secured revolving credit facility (the “Revolver”), which matures on March 24, 2026, and provides for non-amortizing revolving loans in an aggregate amount of $ 600 million. Under the Revolver, Wayfair may, from time to time, request letters of credit, which reduce the availability of credit under the Revolver. Wayfair had approximately $ 77 million in outstanding letters of credit as of March 31, 2023, primarily as security for lease agreements. As of March 31, 2023, there were no revolving loans outstanding under the Revolver. Convertible Non-Accreting Notes The following table summarizes certain terms related to the company’s current outstanding non-accreting convertible notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”): Convertible Non-Accreting Notes Maturity Date Annual Coupon Rate Annual Effective Interest Rate Payment Dates for Semi-Annual Interest Payments in Arrears 2024 Notes November 1, 2024 1.125 % 1.5 % May 1 and November 1 2025 Notes October 1, 2025 0.625 % 0.9 % April 1 and October 1 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 Convertible Accreting Notes No cash interest is payable on the 2025 Accreting Notes. Instead, the 2025 Accreting Notes accrue interest at a rate of 2.50 % per annum, which accretes to the principal amount on April 1 and October 1 of each year. The 2025 Accreting Notes will mature on April 1, 2025, unless earlier purchased, redeemed or converted. The annual effective interest rate of the 2025 Accreting Notes is 2.7 %. Conversion and Redemption Terms of the Notes Wayfair's Notes will mature at their maturity date unless earlier purchased, redeemed or converted. The Notes’ initial conversion terms are summarized below: Convertible Notes Maturity Date Free Convertibility Date Initial Conversion Rate per $1,000 Principal Initial Conversion Price Redemption Date 2024 Notes November 1, 2024 August 1, 2024 8.5910 $ 116.40 May 8, 2022 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. 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 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; 9 Table of Contents • 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; and • 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. Because the conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes were not triggered during the calendar quarter ended March 31, 2023, the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible during the calendar quarter ended June 30, 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. Upon the occurrence of a fundamental change (as defined in the applicable indenture), holders of the Notes may require Wayfair to repurchase all or a portion of the Notes for cash at a price equal to 100 % of the principal amount (or accreted principal amount) of the Notes to be repurchased plus any accrued but unpaid interest to, but excluding, the fundamental change repurchase date (such interest to be included in the accreted principal amount for the 2025 Accreting Notes). Holders of the Non-Accreting Notes who convert their respective notes in connection with a make-whole fundamental change or a notice of redemption (each as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate of the respective notes. Holders of the 2025 Accreting Notes who convert in connection with a make-whole fundamental change (as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate. Wayfair may not redeem the Notes prior to certain dates (the “Redemption Date”). 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 if the holder elects to convert their Notes upon receiving notice of redemption. Conversions of Notes During the three months ended March 31, 2023, there were no conversions of the Notes. Interest Expense During the three months ended March 31, 2023, Wayfair recognized contractual interest expense and debt discount amortization of $ 11 million and $ 1 million, respectively, and during the three months ended March 31, 2022, contractual interest expense and debt discount amortization of $ 6 million and $ 2 million, respectively. Fair Value of Notes As of March 31, 2023, the estimated fair value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes was $ 173 million, $ 937 million, $ 627 million, $ 591 million and $ 18 million, respectively. 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 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes did not exceed the principal value as of March 31, 2023. Capped Calls 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 10 Table of Contents 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 corresponds 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. Collectively, the Capped Calls cover, initially, the number of shares of Wayfair’s Class A common stock underlying the Non-Accreting Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Non-Accreting Notes. The initial terms for the Capped Calls are presented below: Capped Calls Maturity Date Initial Cap Price Cap Price Premium 2024 Capped Calls November 1, 2024 $ 219.63 150 % 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 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. 5. Commitments and Contingencies Legal Matters From time to time, Wayfair is involved in claims that arise during the ordinary course of business. The company records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Although litigation is inherently unpredictable and claims cannot be predicted with certainty, Wayfair does not currently believe that the outcome of any legal matters will have a material adverse effect on Wayfair's results of operation or financial condition. Regardless of the outcome, litigation can be costly and time consuming, as it can divert management's attention from important business matters and initiatives, negatively impacting Wayfair's overall operations. 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. 6. Stockholders’ Deficit Common Stock Since Wayfair's initial public offering through March 31, 2023, 56,347,062 shares of Class B common stock were converted to the same number of shares of Class A common stock. Stock Repurchase Programs During the three months ended March 31, 2023, Wayfair did not repurchase any shares of Class A Common stock under its stock repurchase programs. During the three months ended March 31, 2022, Wayfair repurchased 548,173 shares of Class A Common stock for $ 75 million . 11 Table of Contents 7. Equity-Based Compensation On April 25, 2023 (the “2023 Plan Effective Date”), Wayfair’s stockholders approved the 2023 Incentive Award Plan (the “2023 Plan”) to replace Wayfair’s 2014 Incentive Award Plan, as amended (the “2014 Plan” and, together with the 2023 Plan, the “Incentive Plans”). The Incentive Plans were adopted by the board of directors (the “Board’) to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent. The Incentive Plans are administered by the Board for awards to non-employee directors and by the compensation committee of the Board for other participants and provide for the issuance of equity-based awards including stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and stock payments. Under the 2014 Plan, 8,603,066 shares of Class A common stock initially were available for future award grants. The 2014 Plan also contained an evergreen provision whereby the shares available for future grants were increased on the first day of each calendar year. In October 2022, Wayfair’s stockholders amended the 2014 Plan to increase the aggregate number of shares of Class A common stock authorized for issuance under the 2014 Plan by 5,000,000 shares. As of March 31, 2023, 5,378,097 shares of Class A common stock remained available for future grant under the 2014 Plan. Under the 2023 Plan, the number of Class A common stock reserved for future award grants is the sum of (i) 15,000,000 shares of Class A common stock, (ii) any shares of Class A common stock which remained available for grant under the 2014 Plan as of the 2023 Plan Effective Date and (iii) any shares of Class A common stock subject to 2014 Plan awards that become available for issuance under the 2023 Plan pursuant to its terms after the 2023 Plan Effective Date. The following table presents activity relating to RSUs for the three months ended March 31, 2023: Shares Weighted-Average Grant Date Fair Value Unvested at December 31, 2022 10,170,203 $ 100.05 RSUs granted 245,425 $ 41.63 RSUs vested ( 2,650,815 ) $ 64.42 RSUs forfeited/canceled ( 1,244,382 ) $ 105.61 Unvested at March 31, 2023 6,520,431 $ 111.24 The intrinsic value of RSUs that vested during the three months ended March 31, 2023 and 2022 was $ 117 million and $ 106 million, respectively. As of March 31, 2023, the aggregate intrinsic value of unvested RSUs was $ 224 million. As of March 31, 2023, unrecognized equity-based compensation expense related to RSUs expected to vest over time is $ 608 million with a weighted-average remaining vesting term of 1.1 years. Equity-based compensation was classified as follows in the condensed consolidated statements of operations: Three Months Ended March 31, 2023 2022 (in millions) Cost of goods sold $ 3 $ 3 Customer service and merchant fees 8 7 Selling, operations, technology, general and administrative 133 94 Total equity-based compensation expense $ 144 $ 104 Equity-based compensation costs capitalized as site and software development costs were $ 13 million and $ 8 million for the three months ended March 31, 2023 and 2022, respectively. 12 Table of Contents 8. Income Taxes The provision for income taxes, net recorded during the three months ended March 31, 2023 is primarily related to income tax benefits for tax losses earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes, as well as related changes in increases in the company’s valuation allowance on deferred tax assets, as well as some U.S. state minimum and foreign taxes. Wayfair had no material unrecognized tax benefits as of March 31, 2023 and December 31, 2022. 9. Loss per Share The following table presents the calculation of basic and diluted loss per share: Three Months Ended March 31, 2023 2022 (in millions, except per share data) Numerator: Numerator for basic and diluted loss per share - net loss $ ( 355 ) $ ( 319 ) Denominator: Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding 110 105 Loss per share Basic $ ( 3.22 ) $ ( 3.04 ) Diluted $ ( 3.22 ) $ ( 3.04 ) The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted loss per share were as follows: Three Months Ended March 31, 2023 2022 (in millions) Unvested restricted stock units 7 5 Shares related to convertible debt instruments 23 15 Total 30 20 Wayfair may settle conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or any combination thereof at its election. Wayfair will settle conversions of the 2025 Accreting Notes in shares. 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. For more information on the structure of the Notes and the Capped Calls, see Note 4, Debt and Other Financing . 10. Segment and Geographic Information Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. Wayfair’s CODM is its Chief Executive Officer. Wayfair's operating and reportable segments are the U.S. and International. 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 income or loss before depreciation and amortization, equity-based compensation and related taxes, interest income or expense, net, other income or expense, net, provision or benefit 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. 13 Table of Contents 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, impairment and other related net charges and restructuring charges, as well as interest income or expense, net, other income or expense, net, gain or loss on debt extinguishment and provision or benefit for income taxes, net. There are no net revenue transactions between Wayfair's reportable segments. U.S. The U.S. segment primarily consists of amounts earned through product sales through Wayfair's family of sites in the U.S. International The International segment primarily consists of amounts earned through product sales through Wayfair's international sites. Net revenue from external customers for each group of similar products and services are not reported to the CODM. Separate identification of this information for purposes of segment disclosure is impractical, as it is not readily available and the cost to develop it would be excessive. No individual country outside the U.S. provided greater than 10% of consolidated net revenue. The following tables present net revenue and Adjusted EBITDA attributable to Wayfair’s reportable segments for the periods presented: Three Months Ended March 31, 2023 2022 (in millions) U.S. net revenue $ 2,415 $ 2,542 International net revenue 359 451 Total net revenue $ 2,774 $ 2,993 Three Months Ended March 31, 2023 2022 (in millions) Adjusted EBITDA: U.S. $ 29 $ ( 30 ) International ( 43 ) ( 83 ) Total reportable segments Adjusted EBITDA ( 14 ) ( 113 ) Less: reconciling items (1) ( 341 ) ( 206 ) Net loss $ ( 355 ) $ ( 319 ) 14 Table of Contents (1) The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net loss: Three Months Ended March 31, 2023 2022 (in millions) Depreciation and amortization $ 104 $ 85 Equity-based compensation and related taxes 151 112 Interest expense, net 5 8 Other expense, net 1 — Provision for income taxes, net 2 1 Other: Impairment and other related net charges (a) 13 — Restructuring charges (b) 65 — Total reconciling items $ 341 $ 206 (a) During the three months ended March 31, 2023, Wayfair recorded charges of $ 5 million related to consolidation of certain customer service centers in identified U.S. locations and $ 8 million related to construction in progress assets at identified U.S. locations. (b) During the three months ended March 31, 2023, Wayfair incurred $ 65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions. See “Non-GAAP Financial Measures” in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q for more information regarding our use of Adjusted EBITDA.