What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 210 added, 88 removed, 249 unchanged (54% of the section changed)

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our investment plans and anticipated returns on those investments, our future customer growth, our future results of operations and financial position, including our financial outlook and profitability goals, the financial impact and expected savings of our recent reduction in workforce, available liquidity and access to financing sources, our business strategy, plans and objectives of management for future operations, including our international expansion and omni-channel strategy, consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the impact of macroeconomic events, including the COVID-19 pandemic, interest rates and rising inflation, and our response to such events, are forward-looking statements.

All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our investment plans and anticipated returns on those investments, our future customer growth, our future results of operations and financial position, including our financial outlook and profitability goals, the financial impact and expected savings of our recent reduction in workforce, available liquidity and access to financing sources, our business strategy, plans and objectives of management for future operations, including our international expansion and omni-channel strategy, consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the impact of macroeconomic events, interest rates and rising inflation, and our response to such events, are forward-looking statements.

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

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Investors are therefore cautioned not to place undue reliance on any forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise.

Factors that could cause or contribute to differences in our future results include, without limitation, the following:

• adverse macroeconomic conditions, including inflation, slower growth or the potential for recession, and other conditions affecting the retail environment for products we sell, and other matters that influence consumer spending and preferences;

• the ongoing impacts of the COVID-19 pandemic, including disruptions to the global supply chain, including many of our suppliers, logistics providers and other partners;

• adverse macroeconomic conditions, including inflation, slower growth or the potential for recession, disruptions in the global supply chain and other conditions affecting the retail environment for products we sell, and other matters that influence consumer spending and preferences;

• our ability to manage our growth and the impacts of our internal restructuring and workforce reduction;

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• disruptions, capacity constraints or inefficiencies in our information systems network, or any potential cybersecurity incident;

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

• world events, natural disasters, public health emergencies, civil disturbances and terrorist attacks;

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

A further list and description of risks, uncertainties and other factors that could cause or contribute to differences in our future results include the cautionary statements herein and in our other filings with the Securities and Exchange Commission, including those set forth under Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022.

A further list and description of risks, uncertainties and other factors that could cause or contribute to differences in our future results include the cautionary statements in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission, including those set forth under Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022.

We qualify all of our forward-looking statements by these cautionary statements.

All dollar and percentage comparisons made herein refer to the quarter ended March 31, 2023, compared with the quarter ended March 31, 2022, unless otherwise noted.

All dollar and percentage comparisons made refer to the three and six ended June 30, 2023, compared with the three and six ended June 30, 2022, unless otherwise noted.

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

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

In the first quarter of 2023, our business generated lower sales volumes compared to the first quarter of 2022.

As of March 31, 2023, we had 21.7 million active customers, and 79.1% of first quarter 2023 orders came from repeat buyers.

Macroeconomic weakness contributed to lower order volume and we continued our cost efficiency efforts to reduce spending on labor and non-labor operational costs, including through our workforce reduction in January.

In the second quarter of 2023, our business generated lower sales compared to the second quarter of 2022.

As of June 30, 2023, we had 22 million active customers, and 80.1% of second quarter 2023 orders came from repeat buyers.

The lower sales were a function of normalization in average order value as we lapped a period of intense inflation in 2022, which was offset by a recovery in order volume, which showed positive growth year-over-year.

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

Global Considerations

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

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

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

As our customers react to these global

economic conditions, we may take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity.

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

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

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We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022.

Key Financial and Operating Metrics

Key Financial Statement and Operating Metrics

We measure our business using the key financial statement and operating metrics that are reflected in the below table.

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

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

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

We use the following metrics to assess the near and longer-term performance of our overall business:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(in millions, except LTM net revenue per active customer, average order value and per share data)

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Diluted $ (0.41) $ (3.59) $ (3.60) $ (6.62)

Net cash used in operating activities $ (147) $ (226)

Net cash provided by (used in) operating activities $ 217 $ (115) $ 70 $ (341)

Key Operating Metrics:

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LTM net revenue per active customer (2)

$ 545 $ 537 $ 545 $ 537

Orders delivered (3)

Average order value (4)

$ 307 $ 330 $ 297 $ 308

Non-GAAP Financial Measures:

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Free Cash Flow $ 128 $ (244) $ (106) $ (575)

Adjusted Diluted Loss per share

Adjusted Diluted Earnings (Loss) per share

$ 0.21 $ (1.94) $ (0.90) $ (3.90)

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Results of Consolidated Operations

Comparison of the three months ended March 31, 2023 and 2022

During the three months ended March 31, 2023, net revenue decreased by $219 million, or 7.3%, compared to the same period in 2022, which reflects recent macroeconomic pressures felt by consumers.

The decrease in net revenue was driven by decreased orders delivered and order frequency, with LTM orders per active customer decreasing by 3.2% during the three months ended March 31, 2023 compared to the same period in 2022.

LTM net revenue per active customer increased 6.2% during the three months ended March 31, 2023, compared to the same period in 2022, driven by higher average order value due, in part, to inflationary pressures in the supply chain.

During the three months ended March 31, 2023, our United States (“U.S.”) net revenue decreased by 5.0% and International net revenue decreased by 20.4% compared to the same period in 2022.

During the three months ended March 31, 2023, International Net Revenue Constant Currency Growth was (14.4)% (see “Non-GAAP Financial Measures” below).

Three Months Ended March 31,

Comparison of the three months ended June 30, 2023 and 2022

During the three months ended June 30, 2023, net revenue decreased by $113 million, or 3.4%, compared to the same period in 2022, which reflects recent macroeconomic pressures felt by consumers.

The decrease in net revenue was due to lower average order value due, in part, to normalization of inflationary pressures in the supply chain compared to the same period in 2022.

During the three months ended June 30, 2023, our United States (“U.S.”) net revenue decreased by 0.4% and International net revenue decreased by 20.9% compared to the same period in 2022.

During the three months ended June 30, 2023, International Net Revenue Constant Currency Growth was (18.2)% (see “Non-GAAP Financial Measures” below).

Three Months Ended June 30,

2023 2022 % Change

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

During the three months ended March 31, 2023, cost of goods sold decreased by $237 million, or 10.8%, as compared to the same period in 2022.

The decrease in cost of goods sold is primarily driven by a decrease in the number of orders delivered.

The decrease in cost of goods sold as a percentage of net revenue is due to mix shifts, operational efficiencies and decreased logistics costs relative to the same period in 2022.

Three Months Ended March 31,

During the three months ended June 30, 2023, cost of goods sold decreased by $202 million, or 8.5%, as compared to the same period in 2022.

The decrease in cost of goods sold is primarily driven by operational cost savings initiatives.

As a percentage of net revenue, cost of goods sold decreased to 68.9% for the three months ended June 30, 2023 compared to 72.7% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.

Three Months Ended June 30,

2023 2022 % Change

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Operating expenses

Operating expenses consist of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses, impairment and other related net charges and restructuring charges.

Operating expenses consist of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses and impairment and other related net charges.

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

Three Months Ended March 31,

Three Months Ended June 30,

2023 2022 % Change

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630 688 (8.4) %

Impairment and other related net charges 13 — n.m.

Impairment and other related net charges 1 40 (97.5) %

Total operating expenses $ 1,127 $ 1,268 (11.1) %

As a percentage of net revenue:

Customer service and merchant fees (1)

Advertising 11.1 % 11.5 %

Selling, operations, technology, general and administrative (1)

19.9 % 21.0 %

Impairment and other related net charges — % 1.2 %

35.5 % 38.6 %

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

Three Months Ended June 30,

(in millions)

Customer service and merchant fees $ 8 $ 9

Selling, operations, technology, general and administrative $ 157 $ 121

During the three months ended June 30, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $35 million, or 26.9% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.

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

Three Months Ended June 30,

Customer service and merchant fees 4.3 % 4.7 %

Selling, operations, technology, general and administrative 14.9 % 17.3 %

Customer Service and Merchant Fees

During the three months ended June 30, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $17 million, or 11.1%, compared to the same period in 2022.

The decrease in customer service and merchant fees is due to the decrease in net revenue in 2023 compared to the same period in 2022.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.5% for the three months ended June 30, 2023 compared to 4.9% in the same period in 2022 due to decreased compensation costs.

During the three months ended June 30, 2023, our advertising expenses decreased by $26 million, or 6.9%, as compared to the same period in 2022.

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

As a percentage of net revenue, advertising expenses decreased to 11.1% for the three months ended June 30, 2023 compared to 11.5% in the same period in 2022 due, in part, to changes in advertising channel mix and our efforts to drive efficiency across our channel portfolio.

Selling, operations, technology, general and administrative

During the three months ended June 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $94 million, or 16.6% as compared to the same period in 2022.

The decrease is primarily due to lower personnel and information technology costs, partially offset by increases in depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses decreased to 19.9% for the three months ended June 30, 2023 compared to 21.0% in the same period in 2022, primarily due to decreased compensation costs.

Impairment and other related net charges

During the three months ended June 30, 2023, impairment and other related charges decreased by $39 million or 97.5% as compared to the same period in 2022.

As a percentage of net revenue, impairment and other related net charges decreased to an immaterial percentage from 1.2% in the same period in 2022.

During the three months ended June 30, 2023, we recorded a charge of $1 million related to construction in progress assets at identified U.S.

Interest expense, net

During the three months ended June 30, 2023, our interest expense, net decreased by $1 million, or 16.7% compared to the same period in 2022, primarily due to higher interest income.

Three Months Ended June 30,

2023 2022 % Change

(in millions)

Interest expense, net $ (5) $ (6) (16.7) %

Other income, net

During the three months ended June 30, 2023, other income, net increased by $2 million or 200.0% compared to the same period in 2022.

Included in our other income, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.

Three Months Ended June 30,

2023 2022 % Change

(in millions)

Other income, net $ 3 $ 1 200.0 %

Gain on debt extinguishment

During the three months ended June 30, 2023, we used $514 million of the net transaction amount from the issuance of the 2028 Notes to repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions.

In accounting for the repurchases of the 2024 Notes and 2025 Notes, we recorded a $100 million gain on debt extinguishment, representing the difference between the cash paid for principal of $514 million and the combined net carrying value of the 2024 Notes and 2025 Notes of $614 million.

Refer to Note 4, Debt and Other Financing , included in Part I, Item 1, Financial Statements , of this Quarterly Report on Form 10-Q for additional information.

Three Months Ended June 30,

2023 2022 % Change

(in millions)

Gain on debt extinguishment $ 100 $ — n.m.

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

Provision for income taxes, net

During the three months ended June 30, 2023, our provision for income taxes, net increased by $1 million or 100.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S.

and certain foreign jurisdictions and U.S.

state income taxes.

Refer to Note 8, Income Taxes , included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q for additional information.

Three Months Ended June 30,

2023 2022 % Change

(in millions)

Provision for income taxes, net $ 2 $ 1 100.0 %

Comparison of the six months ended June 30, 2023 and 2022

During the six months ended June 30, 2023, net revenue decreased by $332 million, or 5.3%, compared to the same period in 2022, which reflects recent macroeconomic pressures felt by consumers.

The decrease in net revenue was due to lower average order value due, in part, to normalization of inflationary pressures in the supply chain compared to the same period in 2022.

During the six months ended June 30, 2023, our U.S net revenue decreased by 2.6% and International net revenue decreased by 20.7% compared to the same period in 2022.

During the six months ended June 30, 2023, International Net Revenue Constant Currency Growth was (16.4)% (see “Non-GAAP Financial Measures” below).

Six Months Ended June 30,

2023 2022 % Change

(in millions)

net revenue $ 5,200 $ 5,338 (2.6) %

International net revenue 745 939 (20.7) %

Net revenue $ 5,945 $ 6,277 (5.3) %

For more information on our segments, see Note 10 Segment and Geographic Information , included in Part I, Item 1, Financial Statements , in this Quarterly Report on Form 10-Q.

Cost of goods sold

During the six months ended June 30, 2023, cost of goods sold decreased by $439 million, or 9.6%, compared to the same period in 2022.

The decrease in cost of goods sold is primarily driven by operational cost savings initiatives.

As a percentage of net revenue, cost of goods sold decreased to 69.6% for the six months ended June 30, 2023 compared to 72.9% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.

Six Months Ended June 30,

2023 2022 % Change

(in millions)

Cost of goods sold $ 4,139 $ 4,578 (9.6) %

As a percentage of net revenue 69.6 % 72.9 %

Operating expenses

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

Six Months Ended June 30,

2023 2022 % Change

(in millions)

Customer service and merchant fees (2)

$ 283 $ 313 (9.6) %

Advertising 679 714 (4.9) %

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

1,254 1,314 (4.6) %

Impairment and other related net charges 14 40 (65.0) %

Restructuring charges 65 — n.m.

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38.6 % 37.9 %

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

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

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

Three Months Ended March 31,

Six Months Ended June 30,

(in millions)

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Selling, operations, technology, general and administrative $ 297 $ 222

During the three months ended March 31, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $39 million, or 35.8% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.

During the six months ended June 30, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $74 million, or 31.0% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.

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

Three Months Ended March 31,

Six Months Ended June 30,

Customer service and merchant fees 4.5 % 4.7 %

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Customer Service and Merchant Fees

During the three months ended March 31, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $12 million, or 8.4%, compared to the same period in 2022.

The decrease in customer service and merchant fees is due to the decrease in net revenue in 2023 compared to the same period in 2022.

As a percentage of net revenue, total customer service and merchant fees remained constant at 5.0% for the three months ended March 31, 2023 and 2022.

During the three months ended March 31, 2023, our advertising expenses decreased by $9 million, or 2.7%, as compared to the same period in 2022.

During the six months ended June 30, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $29 million, or 9.8% compared to the same period in 2022.

The decrease in customer service and merchant fees is due to decreased compensation costs.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.8% for the six months ended June 30, 2023 compared to 5.0% in the same period in 2022 due to a decrease in net revenue.

During the six months ended June 30, 2023, our advertising expenses decreased by $35 million or 4.9% as compared to the same period in 2022.

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

As a percentage of net revenue, advertising expenses increased to 11.8% for the three months ended March 31, 2023 compared to 11.2% in the same period in 2022 due, in part, to changes in advertising channel mix as well as lower direct traffic.

As a percentage of net revenue, advertising expenses remained constant at 11.4% for the six months ended June 30, 2023 and 2022 due in part to maintaining efficiencies in our advertising channel mix.

Selling, operations, technology, general and administrative

During the three months ended March 31, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $41 million, or 7.8% as compared to the same period in 2022.

The decrease is primarily due to lower personnel costs, partially offset by increases in information technology costs and depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses increased to 22.5% for the three months ended March 31, 2023 compared to 20.9% in the same period in 2022, primarily due to the decrease in net revenue.

During the six months ended June 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $135 million, or 12.4% compared to the same period in 2022.

The decrease is primarily due to lower personnel and information technology costs, partially offset by increases in depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses increased to 21.1% for the six months ended June 30, 2023 compared to 20.9% in the same period in 2022, primarily due to the decrease in net revenue.

Impairment and other related net charges

During the three months ended March 31, 2023, we 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.

During the six months ended June 30, 2023, impairment and other related charges decreased by $26 million or 65.0% as compared to the same period in 2022.

As a percentage of net revenue, impairment and other related net charges decreased to 0.2% from 0.6% in the same period in 2022.

During the six months ended June 30, 2023, we recorded charges of $14 million, inclusive of $5 million related to consolidation of certain customer service centers and $9 million related to construction in progress assets at identified U.S.

Restructuring charges

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

As a result of this workforce reduction, during the three months ended March 31, 2023, we incurred $65 million of charges, consisting primarily of one-time employee severance and benefit costs.

As a result of this workforce reduction, during the six months ended June 30, 2023, we incurred $65 million of charges, consisting primarily of one-time employee severance and benefit costs.

Interest expense, net

During the three months ended March 31, 2023, our interest expense, net decreased by $3 million, or 37.5% compared to the same period in 2022, primarily due to by higher interest income.

Three Months Ended March 31,

During the six months ended June 30, 2023, our interest expense, net decreased by $4 million, or 28.6%, compared to the same period in 2022, primarily driven by higher interest income.

Six Months Ended June 30,

2023 2022 % Change

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Interest expense, net $ (10) $ (14) (28.6) %

Other expense, net

During the three months ended March 31, 2023, other expense, net increased by $1 million compared to the same period in 2022.

Included in our other expense, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.

Three Months Ended March 31,

Other income, net

During the six months ended June 30, 2023, other income, net increased by $1 million, or 100.0% compared to the same period in 2022.

Included in our other income, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.

Six Months Ended June 30,

2023 2022 % Change

(in millions)

Other expense, net $ (1) $ — n.m.

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

Other income, net $ 2 $ 1 100.0 %

Gain on debt extinguishment

During the six months ended June 30, 2023, we used $514 million of the net transaction amount from the issuance of the 2028 Notes to repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions.

Refer to Note 4, Debt and Other Financing , included in Part I, Item 1, Financial Statements and Supplementary Data , of this Quarterly Report on Form 10-Q for additional information.

Six Months Ended June 30,

2023 2022 % Change

(in millions)

Gain on debt extinguishment $ 100 $ — n.m.

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

Provision for income taxes, net

During the three months ended March 31, 2023, our provision for income taxes, net increased by $1 million or 100.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S.

During the six months ended June 30, 2023, our provision for income taxes, net increased by $2 million or 100.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S.

and certain foreign jurisdictions and U.S.

state income taxes.

Refer to Note 8, Income Taxes , included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q.

Three Months Ended March 31,

Refer to Note 8, Income Taxes , included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q for additional information.

Six Months Ended June 30,

2023 2022 % Change

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Sources of Liquidity

At March 31, 2023, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.0 billion.

At June 30, 2023, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.3 billion.

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

As of March 31, 2023, there were no revolving loans outstanding under the Revolver.

We had outstanding letters of credit, primarily as security for certain lease agreements, for approximately $77 million as of March 31, 2023, which reduced the availability of credit under the Revolver.

As of June 30, 2023, there were no revolving loans outstanding under the Revolver.

We had outstanding letters of credit, primarily as security for certain lease agreements, for $77 million as of June 30, 2023, which reduced the availability of credit under the Revolver.

Excluding liquidity available through our Revolver, the following table shows sources of liquidity for the periods presented:

March 31, December 31,

June 30, December 31,

(in millions)

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The amounts involved may be material.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those described herein and in our other filings with the SEC, including those set forth in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in this Quarterly Report on Form 10-Q and in our other filings with the SEC, including those set forth in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

In addition, macroeconomic events have caused disruption in the capital markets, including increased inflation and interest rates, which could make obtaining financing more difficult and/or expensive.

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Credit Agreement and Convertible Debt

As of March 31, 2023, we had $3.2 billion principal amount of indebtedness outstanding.

As of June 30, 2023, we had $3.2 billion principal amount of indebtedness outstanding.

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

Any amounts outstanding under the Revolver are due at maturity.

The conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”) were not triggered during the first quarter of 2023, and therefore the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible in the second quarter of 2023 pursuant to the applicable last reported sales price conditions.

During the second quarter of 2023, we used $514 million of the net transaction amount from the issuance of the 2028 Notes to repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions.

See Note 4, Debt and Other Financing , included in Part I, Item 1, Financial Statements , in this Quarterly Report on Form 10-Q.

The conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”) were not triggered during the second quarter of 2023, and therefore the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible in the third quarter of 2023 pursuant to the applicable last reported sales price conditions.

The conditional conversion features of the 2028 Notes are not applicable until the calendar quarter ending December 31, 2023.

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

During the period ended March 31, 2023, there were no conversions of the Notes.

During the period ended June 30, 2023, there were no conversions of the Notes.

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

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

For information regarding our credit agreement and convertible notes, see Note 4, Debt and Other Financing , included in Part I, Item 1, Financial Statements , in this Quarterly Report on Form 10-Q and Note 6, Debt ond Other Financing , included in Part II, Item 8, Financial Statements and Supplementary Data, in our Annual Report on Form 10-K for the year ended December 31, 2022.

During the three months ended March 31, 2023, we were in compliance with all the terms and conditions of our debt agreements.

For information regarding our credit agreement and convertible notes, see Note 4, Debt and Other Financing , included in Part I, Item 1, Financial Statements , in this Quarterly Report on Form 10-Q and Note 6, Debt and Other Financing , included in Part II, Item 8, Financial Statements and Supplementary Data, in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, we were in compliance with all the terms and conditions of our debt agreements.

Stock Repurchase Program

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

As of March 31, 2023, we have repurchased 2,354,491 shares of Class A common stock for approximately $612 million under the Repurchase Programs.

As of June 30, 2023, we have repurchased 2,354,491 shares of Class A common stock for approximately $612 million under the Repurchase Programs.

Trends and Historical Cash Flows

Three Months Ended March 31,

Six Months Ended

(in millions)

Net loss $ (401) $ (697)

Net cash used in operating activities $ (147) $ (226)

Net cash provided by (used in) operating activities $ 70 $ (341)

Net cash provided by (used in) investing activities $ 49 $ (189)

Net cash used in financing activities $ — $ (75)

Net cash provided by (used in) financing activities $ 77 $ (75)

Operating Activities

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

Cash flows used in operating activities decreased by $79 million during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to the decrease in net loss adjusted for non-cash items of $31 million and a decrease of $48 million for cash used in operating assets and liabilities.

Cash flows provided by operating activities increased by $411 million during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to an increase in net cash adjusted for non-cash items of $239 million and an increase of $172 million for cash provided by operating assets and liabilities.

Investing Activities

Cash flows provided by investing activities increased by $265 million during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to the decrease in purchases of short- and long-term investments of $226 million, an increase in sales and maturities of short- and long-term investments of $21 million and a net decrease of cash used in purchases property and equipment and site and software development costs of $18 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 3.1% of net revenue for the three months ended March 31, 2023 and related primarily to equipment purchases and improvements for leased warehouses within our expanding logistics network and ongoing investments in our proprietary technology and operational platform.

Cash flows provided by investing activities increased by $238 million during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to increases in sales and maturities of short- and long-term investments of $222 million, decreases in purchases of short- and long-term investments of $402 million and decreases in purchases property and equipment and site and software development costs of $58 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 3.0% of net revenue for the six months ended June 30, 2023 and related primarily to equipment purchases and improvements for leased warehouses within our expanding logistics network and ongoing investments in our proprietary technology and operational platform.

Financing Activities

Cash flows used in financing activities decreased by $75 million during the three months ended March 31, 2023 compared to the same period in 2022, due to $75 million of repurchases of our Class A common stock during the three months ended March 31, 2022.

Cash flows provided by financing activities increased by $152 million during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to $678 million of proceeds from the issuance of convertible notes, net of issuance costs, partially offset by an aggregate payment of $514 million to extinguish convertible debt and $87 million of premiums paid for capped call confirmations.

The remaining increase is due to $75 million of repurchases of our Class A common stock during the six months ended June 30, 2022.

Contractual Obligations

During the first quarter of 2023, Wayfair entered into contractual obligations of $124 million for certain enforceable and legally binding software license and freight commitments.

During the six months ended June 30, 2023, we entered into contractual obligations of $124 million for certain enforceable and legally binding software license and freight commitments.

Other than the foregoing additional obligations, there have been no material changes to our contractual obligations and estimates as compared to the contractual obligations described in Contractual Obligations included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(in millions)

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Interest expense, net 5 6 10 14

Other expense, net 1 —

Other income, net (3) (1) (2) (1)

Provision for income taxes, net 2 1 4 2

1 unchanged sentence

Restructuring charges (2)

Gain on debt extinguishment (3)

(100) — (100) —

Adjusted EBITDA $ 128 $ (108) $ 114 $ (221)

During the three months ended March 31, 2023, we 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.

During the three months ended March 31, 2023, we incurred $65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions.

During the six months ended June 30, 2023, we recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S.

During the three and six months ended June 30, 2023, we recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S.

During the three and six months ended June 30, 2022, we recorded $40 million of lease impairment and other charges related to changes in market conditions around future sublease income for one of our office locations in the U.S.

During the six months ended June 30, 2023, we incurred $65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions.

During the three and six months ended June 30, 2023, we recorded a $100 million gain on debt extinguishment upon repurchase of $83 million in aggregate principal amount of our 2024 Notes and $535 million in aggregate principal amount of our 2025 Notes.

Free Cash Flow

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(in millions)

Net cash used in operating activities $ (147) $ (226)

Net cash provided by (used in) operating activities $ 217 $ (115) $ 70 $ (341)

Purchase of property and equipment (37) (53) (71) (93)

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(in millions, except per share data)

5 unchanged sentences

Restructuring charges — — 65 —

Numerator for Adjusted Diluted Loss per Share - Adjusted net loss

Gain on debt extinguishment (100) — (100) —

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

$ 24 $ (204) $ (100) $ (410)

Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding 112 105 111 105

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

Adjustments to effect of dilutive securities:

Restricted stock units 1 — — —

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

113 105 $ 111 105

Diluted Loss per Share $ (0.41) $ (3.59) $ (3.60) $ (6.62)

Adjusted Diluted Loss per Share $ (1.13) $ (1.96)

Adjusted Diluted Earnings (Loss) per Share $ 0.21 $ (1.94) $ (0.90) $ (3.90)

Net Revenue Constant Currency Growth

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis