What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-01 · 94 added, 206 removed, 256 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, 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, our new financial accounting system for financial reporting, including our transition to such system, and the impact of

such new financial accounting system on our financial reporting, including internal control over our financial reporting, and the impact of macroeconomic events, including 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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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.

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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, 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;

• adverse macroeconomic conditions, including higher interest rates, 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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• 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 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.

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, 2023.

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

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

All dollar and percentage comparisons made herein refer to the three months ended March 31, 2024, compared with the three months ended March 31, 2023, 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 third quarter of 2023, our business generated higher sales compared to the third quarter of 2022.

As of September 30, 2023, we had 22 million active customers and 79.7% of third quarter 2023 orders came from repeat buyers.

The higher sales were a function of increased order volume, partially offset by normalization in average order value as we lapped a period of intense inflation in 2022.

During the three months ended March 31, 2024, net revenue decreased by 1.6% compared to the same period in 2023.

As of March 31, 2024, we had 22 million active customers and during the three months ended March 31, 2024, 80.5% of orders came from repeat buyers.

The lower sales were a function of normalization in average order value following a period of inflation, in combination with a decrease in order volume due to challenges in the category.

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.

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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.

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

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

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Diluted $ (2.06) $ (3.22)

Net cash provided by (used in) operating activities $ 121 $ (431) $ 191 $ (772)

Net cash used in operating activities $ (139) $ (147)

Key Operating Metrics:

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LTM net revenue per active customer (2)

$ 538 $ 547 $ 538 $ 547

Orders delivered (3)

Average order value (4)

$ 297 $ 325 $ 297 $ 313

Non-GAAP Financial Measures:

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Adjusted Diluted Loss per Share $ (0.32) $ (1.13)

$ (0.13) $ (2.11) $ (1.02) $ (5.99)

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

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We view the number of active customers as a key indicator of our growth.

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(2) Last twelve months (“LTM”) net revenue per active customer represents our total net revenue in the last twelve months divided by our total number of active customers for the same preceding twelve-month period.

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Results of Consolidated Operations

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

During the three months ended September 30, 2023, net revenue increased by $104 million, or 3.7%, compared to the same period in 2022.

The increase in net revenue was due to increased orders partially offset by decreased average order value attributable to normalization of inflationary pressures in the supply chain compared to the same period in 2022.

Additionally, LTM orders per active customer increased during the three months ended September 30, 2023 compared to the same period in 2022.

During the three months ended September 30, 2023, our United States (“U.S.”) net revenue increased by 5.4% and International net revenue decreased by 7.0% compared to the same period in 2022.

During the three months ended September 30, 2023, International Net Revenue Constant Currency Growth was (7.8)% (see “Non-GAAP Financial Measures” below).

Three Months Ended September 30,

2023 2022 % Change

(in millions)

net revenue $ 2,572 $ 2,440 5.4 %

International net revenue 372 400 (7.0) %

Net revenue $ 2,944 $ 2,840 3.7 %

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

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, including associated applicable customs duties and fees earned for supplier services rendered.

During the three months ended September 30, 2023, cost of goods sold increased by $11 million, or 0.5%, as compared to the same period in 2022.

The increase in cost of goods sold is primarily driven by the increase in orders delivered.

As a percentage of net revenue, cost of goods sold decreased to 68.9% for the three months ended September 30, 2023 compared to 71.0% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.

Three Months Ended September 30,

2023 2022 % Change

(in millions)

Cost of goods sold $ 2,027 $ 2,016 0.5 %

As a percentage of net revenue 68.9 % 71.0 %

Operating expenses

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

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

Three Months Ended September 30,

2023 2022 % Change

(in millions)

Customer service and merchant fees (2)

$ 136 $ 156 (12.8) %

Advertising 337 353 (4.5) %

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

596 656 (9.1) %

Restructuring charges — 31 n.m.

Total operating expenses $ 1,069 $ 1,196 (10.6) %

As a percentage of net revenue:

Customer service and merchant fees (2)

Advertising 11.4 % 12.4 %

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

20.2 % 23.1 %

Restructuring charges — % 1.1 %

36.2 % 42.1 %

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

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

Three Months Ended September 30,

(in millions)

Customer service and merchant fees $ 7 $ 8

Selling, operations, technology, general and administrative $ 137 $ 113

During the three months ended September 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 $23 million, or 19.0% 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 September 30,

Customer service and merchant fees 4.4 % 5.2 %

Selling, operations, technology, general and administrative 15.6 % 19.1 %

Customer Service and Merchant Fees

During the three months ended September 30, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $19 million, or 12.8%, compared to the same period in 2022.

The decrease in customer service and merchant fees is primarily due to the decrease in compensation costs in 2023 compared to the same period in 2022.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.6% for the three months ended September 30, 2023 compared to 5.5% in the same period in 2022 primarily due to decreased compensation costs.

During the three months ended September 30, 2023, our advertising expenses decreased by $16 million, or 4.5%, 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 11.4% for the three months ended September 30, 2023 compared to 12.4% 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 September 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $84 million, or 15.5% as compared to the same period in 2022.

The decrease is primarily due to decreased personnel and information technology costs, partially offset by increased depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses decreased to 20.2% for the three months ended September 30, 2023 compared to 23.1% in the same period in 2022, primarily due to decreased compensation costs and increased net revenue.

Restructuring charges

During the three months ended September 30, 2023, we incurred no restructuring charges, compared to restructuring charges of $31 million for the same period in 2022.

The charges incurred during the three months ended September 30, 2022 consisted primarily of one-time employee severance and benefit costs associated with the August 2022 workforce reductions.

Interest expense, net

During the three months ended September 30, 2023, our interest expense, net remained constant compared to the same period in 2022.

Three Months Ended September 30,

2023 2022 % Change

(in millions)

Interest expense, net $ (5) $ (5) — %

Other expense, net

During the three months ended September 30, 2023, other expense, net increased by $3 million or 300.0% compared to the same period in 2022.

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

Three Months Ended September 30,

2023 2022 % Change

(in millions)

Other expense, net $ (4) $ (1) 300.0 %

Gain on debt extinguishment

During the three months ended September 30, 2023, we recorded no gain on debt extinguishment, compared to a $96 million gain on debt extinguishment recorded for the same period in 2022.

In connection with the issuance of our 2027 Notes, we recorded a $96 million gain on debt extinguishment for the three months ended September 30, 2022, 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.

Three Months Ended September 30,

2023 2022 % Change

(in millions)

Gain on debt extinguishment $ — $ 96 n.m.

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

Provision for income taxes, net

During the three months ended September 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 September 30,

2023 2022 % Change

(in millions)

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

Comparison of the nine months ended September 30, 2023 and 2022

During the nine months ended September 30, 2023, net revenue decreased by $228 million, or 2.5%, 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 nine months ended September 30, 2023, our U.S net revenue decreased by 0.1% and International net revenue decreased by 16.6% compared to the same period in 2022.

During the nine months ended September 30, 2023, International Net Revenue Constant Currency Growth was (13.8)% (see “Non-GAAP Financial Measures” below).

Nine Months Ended September 30,

Comparison of the three months ended March 31, 2024 and 2023

During the three months ended March 31, 2024, net revenue decreased by $45 million, or 1.6%, compared to the same period in 2023, which reflects recent macroeconomic pressures felt by consumers.

The decrease in net revenue was due to lower average order value, which was driven by normalization of inflationary pressures in the supply chain and partially due to lower order volume, which was driven by challenges in the category, compared to the same period in 2023.

During the three months ended March 31, 2024, our United States (“U.S.”) net revenue decreased by 1.0% and International net revenue decreased by 5.8% compared to the same period in 2023.

During the three months ended March 31, 2024, International Net Revenue Constant Currency Growth was (7.5)% (see “Non-GAAP Financial Measures” below for more information regarding our use of Net Revenue Constant Currency Growth).

Three Months Ended March 31,

2024 2023 % Change

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Net revenue $ 2,729 $ 2,774 (1.6) %

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.

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

Cost of goods sold

During the nine months ended September 30, 2023, cost of goods sold decreased by $428 million, or 6.5%, 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 69.4% for the nine months ended September 30, 2023 compared to 72.3% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.

Nine Months Ended September 30,

During the three months ended March 31, 2024, cost of goods sold decreased by $43 million, or 2.2%, compared to the same period in 2023.

The decrease in cost of goods sold is primarily driven by operational cost savings initiatives and partially due to lower order volume which was driven by challenges in the category compared to the same period in 2023.

As a percentage of net revenue, cost of goods sold decreased to 70.0% for the three months ended March 31, 2024 compared to 70.4% in the same period in 2023 due to mix shifts, operational efficiencies and decreased logistics costs.

Three Months Ended March 31,

2024 2023 % Change

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As a percentage of net revenue 70.0 % 70.4 %

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Operating expenses

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Nine Months Ended September 30,

Three Months Ended March 31,

2024 2023 % Change

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

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Selling, operations, technology, general and administrative $ 118 $ 140

During the nine months ended September 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 $97 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.

During the three months ended March 31, 2024, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative decreased by $24 million, or 16.2% compared to the same period in 2023, driven by a decrease in vested restricted stock units in 2024 compared to the same period in 2023.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Customer service and merchant fees 4.1 % 4.7 %

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Customer Service and Merchant Fees

During the nine months ended September 30, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $48 million, or 10.8% compared to the same period in 2022.

The decrease in customer service and merchant fees is primarily due to decreased compensation costs in 2023 compared to the same period in 2022.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.7% for the nine months ended September 30, 2023 compared to 5.1% in the same period in 2022 due to decreased compensation costs.

During the nine months ended September 30, 2023, our advertising expenses decreased by $51 million or 4.8% as compared to the same period in 2022.

During the three months ended March 31, 2024, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $20 million, or 15.3% compared to the same period in 2023.

The decrease in customer service and merchant fees is primarily due to decreased compensation costs during the three months ended March 31, 2024 compared to the same period in 2023.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.3% for the three months ended March 31, 2024 compared to 5.0% in the same period in 2023 due to decreased compensation costs.

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During the three months ended March 31, 2024, our advertising expenses decreased by $3 million or 0.9% as compared to the same period in 2023.

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 11.4% for the nine months ended September 30, 2023 compared to 11.7% in 2022 due in part to maintaining efficiencies in our advertising channel mix and our efforts to drive efficiency across our channel portfolio.

As a percentage of net revenue, advertising expenses increased to 11.9% for the three months ended March 31, 2024 compared to 11.8% in the same period in 2023 due in part to maintaining efficiencies in our advertising channel mix.

Selling, operations, technology, general and administrative

During the nine months ended September 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $219 million, or 13.4% compared to the same period in 2022.

The decrease is primarily due to decreased personnel and information technology costs, partially offset by increased depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses decreased to 20.8% for the nine months ended September 30, 2023 compared to 21.6% in the same period in 2022, primarily due to decreased compensation costs.

During the three months ended March 31, 2024, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $68 million, or 14.0% compared to the same period in 2023.

The decrease is primarily due to decreased personnel costs.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses decreased to 19.6% for the three months ended March 31, 2024 compared to 22.5% in the same period in 2023, primarily due to decreased compensation costs.

Impairment and other related net charges

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

During the three months ended March 31, 2024, impairment and other related charges decreased by $13 million or 100.0% as compared to the same period in 2023.

As a percentage of net revenue, impairment and other related net charges decreased to 0.0% from 0.5% in the same period in 2023.

During the nine months ended September 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.

During the nine months ended September 30, 2022, we recorded a charge of $40 million inclusive of $32 million of noncash impairment of the right-of-use asset, $7 million for the non-cash impairment of fixed assets at identified U.S.

locations and the remainder for other items.

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.

Restructuring charges

During the nine months ended September 30, 2023, restructuring charges increased by $34 million or 109.7% as compared to the same period in 2022.

On January 19, 2024, we announced a workforce realignment plan, including a workforce reduction involving approximately 1,650 employees.

As a result, during the three months ended March 31, 2024, restructuring charges increased by $14 million or 21.5% as compared to the same period in 2023.

As a percentage of net revenue, restructuring charges increased to 2.9% from 2.3% in the same period in 2023.

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

During the nine months ended September 30, 2022, we incurred $31 million of charges consisting primarily of one-time employee severance and benefit costs associated with the August 2022 workforce reductions.

During the three months ended March 31, 2024, we incurred $79 million of charges consisting primarily of one-time employee severance and benefit costs associated with the January 2024 workforce reductions.

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 the January 2023 workforce reductions.

Interest expense, net

During the nine months ended September 30, 2023, our interest expense, net decreased by $4 million, or 21.1%, compared to the same period in 2022, primarily driven by higher interest income.

Nine Months Ended September 30,

During the three months ended March 31, 2024, our interest expense, net increased by $1 million, or 20.0%, compared to the same period in 2023, primarily driven by the issuance of the 2028 Notes in May 2023.

Three Months Ended March 31,

2024 2023 % Change

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Interest expense, net $ (6) $ (5) 20.0 %

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Other expense, net

During the nine months ended September 30, 2023, we recorded other expense, net of $2 million compared to no other expense, net recorded for the same period in 2022.

During the three months ended March 31, 2024, our other expense, net increased by $3 million compared to the same period in 2023, primarily driven by increases in foreign currency transaction losses.

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

Nine Months Ended September 30,

2023 2022 % Change

(in millions)

Other expense, net $ (2) $ — n.m.

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

Gain on debt extinguishment

During the nine months ended September 30, 2023, our gain on debt extinguishment increased by $4 million or 4.2% compared to the same period in 2022.

In connection with the issuance of our 2028 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.

In connection with the issuance of our 2027 Notes, we recorded a $96 million gain on debt extinguishment, representing the difference between the cash paid for principal of $504 million and the combined net carrying value of the 2024 Notes and 2025 Notes of $600 million.

Refer to Note 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.

Nine Months Ended September 30,

Three Months Ended March 31,

2024 2023 % Change

(in millions)

Gain on debt extinguishment $ 100 $ 96 4.2 %

Other expense, net $ (4) $ (1) 300.0 %

Provision for income taxes, net

During the nine months ended September 30, 2023, our provision for income taxes, net increased by $3 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 three months ended March 31, 2024, our provision for income taxes, net increased by $1 million or 50.0% compared to the same period in 2023, 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.

Nine Months Ended September 30,

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

Three Months Ended March 31,

2024 2023 % Change

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Sources of Liquidity

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

As of March 31, 2024, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.2 billion.

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

As of September 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 $76 million as of September 30, 2023, which reduced the availability of credit under the Revolver.

As of March 31, 2024, there were no revolving loans outstanding under the Revolver.

We had outstanding letters of credit, primarily as security for certain lease agreements, for $72 million as of March 31, 2024, 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:

September 30, December 31,

March 31, 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 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.

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Our future capital requirements and the adequacy of available funds will depend on many factors, including those described herein and in our other filings with the SEC, including those set forth in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2023.

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

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Credit Agreement and Convertible Debt

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

As of March 31, 2024, 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.

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 2028 Notes were triggered during the calendar quarter ended September 30, 2023, and the 2028 Notes therefore became convertible in the calendar quarter ended December 31, 2023 pursuant to the applicable last reported sales price condition.

Because the conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes (collectively with the 2028 Notes, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”) were not triggered during the calendar quarter ended September 30, 2023, the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible during the calendar quarter ended December 31, 2023 pursuant to the applicable last reported sales price conditions.

The conditional conversion features of the 2028 Notes were triggered during the calendar quarter ended March 31, 2024, and the 2028 Notes therefore became convertible in the calendar quarter ended June 30, 2024 pursuant to the applicable last reported sales price condition.

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, 2024, therefore, the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible during the calendar quarter ended June 30, 2024 pursuant to the applicable last reported sales price conditions.

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

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

During the period ended March 31, 2024, 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 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 September 30, 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 , in the notes to the condensed consolidated financial statements, 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, 2023.

As of March 31, 2024, we were in compliance with all the terms and conditions of our debt agreements.

Stock Repurchase Program

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

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

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

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

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

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

The actual timing, number and value of shares repurchased under the Repurchase Programs in the future will be determined by us in 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 September 30, 2023, we have repurchased 2,354,491 shares of Class A common stock for approximately $612 million under the Repurchase Programs.

As of March 31, 2024, 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

Nine Months Ended

Three Months Ended March 31,

(in millions)

Net loss $ (248) $ (355)

Net cash provided by (used in) operating activities $ 191 $ (772)

Net cash used in investing activities $ (30) $ (211)

Net cash used in operating activities $ (139) $ (147)

Net cash (used in) provided by investing activities $ (75) $ 64

Net cash provided by financing 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 provided by operating activities increased by $963 million during the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to an increase in net cash adjusted for non-cash items of $499 million and an increase of $464 million for cash provided by changes in operating assets and liabilities.

Cash flows used in operating activities decreased by $8 million during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to an increase in net loss adjusted for non-cash items of $70 million, partially offset by a decrease of $62 million for cash provided by changes in operating assets and liabilities.

Investing Activities

Cash flows used in investing activities decreased by $181 million during the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to decreases in sales and maturities of short- and long-term investments of $321 million, partially offset by decreases in purchases of short- and long-term investments of $416 million and decreases in purchases of property and equipment and site and software development costs of $86 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 2.9% of net revenue for the nine months ended September 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 provided by financing activities increased by $61 million during the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to $75 million of repurchases of our Class A common stock and $3 million of principal payments upon maturity of convertible debt, both of which occurred during the nine months ended September 30, 2022.

These are partially offset by increased payments to extinguish convertible debt of $10 million and increased premiums paid for capped call confirmations of $7 million.

Cash flows used in investing activities increased by $139 million during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to increases in purchases of short- and long-term investments of $36 million and decreases in sales and maturities of short- and long-term investments of $136 million, partially offset by decreases in purchases of property and equipment and site and software development costs of $33 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 2.0% of net revenue for the three months ended March 31, 2024 and related primarily to equipment purchases and improvements for leased warehouses within our expanding logistics network and ongoing investments, including in our proprietary technology and operational platform.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet activities.

We do not have any off-balance sheet interest in variable interest entities, which include special purpose entities and other structured finance entities.

Contractual Obligations

During the nine months ended September 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.

During the three months ended March 31, 2024, 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, 2023 .

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Non-GAAP Financial Measures

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

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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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(in millions)

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Restructuring charges (2)

Gain on debt extinguishment (3)

— (96) (100) (96)

Adjusted EBITDA $ 75 $ (14)

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

During the three and nine months ended September 30, 2022, we incurred $31 million of charges consisting primarily of one-time employee severance and benefit costs associated with the August 2022 workforce reductions.

During the nine months ended September 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.

During the three and nine months ended September 30, 2022, we recorded a $96 million gain on debt extinguishment upon repurchase of $375 aggregate principal amount of the 2024 Notes and $229 million in aggregate principal amount of the 2025 Notes.

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

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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(in millions)

Net cash provided by (used in) operating activities $ 121 $ (431) $ 191 $ (772)

Net cash used in operating activities $ (139) $ (147)

Purchase of property and equipment (13) (34)

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Free Cash Flow $ (193) $ (234)

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Adjusted Diluted Earnings or Loss per Share

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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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(in millions, except per share data)

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Restructuring charges 79 65

Gain on debt extinguishment — (96) (100) (96)

Numerator for Adjusted Diluted Loss per Share - Adjusted net loss

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

116 106 113 106

Diluted Loss per Share $ (2.06) $ (3.22)

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

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Critical Accounting Policies and Estimates

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

Our financial statements are prepared in accordance with U.S.

The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, net revenue, costs and expenses and related disclosures.

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Recent Accounting Pronouncements

The information called for by this section is incorporated herein by reference to Note 1, Summary of Significant Accounting Policies , included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q.

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

The information called for by this section is incorporated herein by reference to Note 1, Summary of Significant Accounting Policies , in the notes to the condensed consolidated financial statements, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures About Market Risk

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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