Wayfair Inc. 10-Q

Item 1. Financial Statements WAYFAIR INC. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2024 2023 (Unaudited) (in millions, except share and per share data) Assets: Current assets Cash and cash equivalents $ 1,107 $ 1,322 Short-term investments 50 29 Accounts receivable, net 113 140 Inventories 81 75 Prepaid expenses and other current assets 237 289 Total current assets 1,588 1,855 Operating lease right-of-use assets 887 820 Property and equipment, net 714 748 Other non-current assets 51 51 Total assets $ 3,240 $ 3,474 Liabilities and Stockholders' Deficit: Current liabilities Accounts payable $ 1,055 $ 1,234 Other current liabilities 970 949 Total current liabilities 2,025 2,183 Long-term debt 3,095 3,092 Operating lease liabilities, net of current 905 862 Other non-current liabilities 40 44 Total liabilities 6,065 6,181 Commitments and contingencies (Note 5) Stockholders’ deficit: Convertible preferred stock, $ 0.001 par value per share: 10,000,000 shares authorized and none issued at March 31, 2024 and December 31, 2023 — — Class A common stock, par value $ 0.001 per share, 500,000,000 shares authorized, 94,737,000 and 92,457,562 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively — — Class B common stock, par value $ 0.001 per share, 164,000,000 shares authorized, 25,691,295 shares issued and outstanding at March 31, 2024 and December 31, 2023 — — Additional paid-in capital 1,446 1,316 Accumulated deficit ( 4,266 ) ( 4,018 ) Accumulated other comprehensive loss ( 5 ) ( 5 ) Total stockholders' deficit ( 2,825 ) ( 2,707 ) Total liabilities and stockholders' deficit $ 3,240 $ 3,474 See notes to unaudited condensed consolidated financial statements. 1 Table o f Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2024 2023 (in millions, except per share data) Net revenue $ 2,729 $ 2,774 Cost of goods sold 1,910 1,953 Gross profit 819 821 Operating expenses: Customer service and merchant fees 117 139 Advertising 324 327 Selling, operations, technology, general and administrative 534 624 Impairment and other related net charges — 13 Restructuring charges 79 65 Total operating expenses 1,054 1,168 Loss from operations ( 235 ) ( 347 ) Interest expense, net ( 6 ) ( 5 ) Other expense, net ( 4 ) ( 1 ) Loss before income taxes ( 245 ) ( 353 ) Provision for income taxes, net 3 2 Net loss $ ( 248 ) $ ( 355 ) Loss per share: Basic $ ( 2.06 ) $ ( 3.22 ) Diluted $ ( 2.06 ) $ ( 3.22 ) Weighted-average number of shares of common stock outstanding used in computing per share amounts: Basic 120 110 Diluted 120 110 See notes to unaudited condensed consolidated financial statements. 2 Table o f Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) Three Months Ended March 31, 2024 2023 (in millions) Net loss $ ( 248 ) $ ( 355 ) Other comprehensive loss: Foreign currency translation adjustments — 2 Net unrealized gain on available-for-sale investments — 1 Comprehensive loss $ ( 248 ) $ ( 352 ) See notes to unaudited condensed consolidated financial statements. 3 Table o f Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Unaudited) Three Months Ended Class A and Class B Common Stock Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Deficit (in millions) Balance at December 31, 2022 109 $ — $ 737 $ ( 3,280 ) $ ( 7 ) $ ( 2,550 ) Net loss — — — ( 355 ) — ( 355 ) Other comprehensive income — — — — 3 3 Issuance of common stock upon vesting of RSUs 2 — — — — — Equity-based compensation — — 157 — — 157 Balance at March 31, 2023 111 $ — $ 894 $ ( 3,635 ) $ ( 4 ) $ ( 2,745 ) Balance at December 31, 2023 118 $ — $ 1,316 $ ( 4,018 ) $ ( 5 ) $ ( 2,707 ) Net loss — — — ( 248 ) — ( 248 ) Issuance of common stock upon vesting of RSUs 2 — — — — — Equity-based compensation — — 130 — — 130 Balance at March 31, 2024 120 $ — $ 1,446 $ ( 4,266 ) $ ( 5 ) $ ( 2,825 ) See notes to unaudited condensed consolidated financial statements. 4 Table o f Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2024 2023 (in millions) Cash flows for operating activities: Net loss $ ( 248 ) $ ( 355 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 104 104 Equity-based compensation expense 119 144 Amortization of discount and issuance costs on convertible notes 3 1 Impairment and other related net charges — 13 Other non-cash adjustments ( 1 ) — Changes in operating assets and liabilities: Accounts receivable, net 9 91 Inventories ( 7 ) 8 Prepaid expenses and other assets 34 19 Accounts payable and other liabilities ( 152 ) ( 172 ) Net cash used in operating activities ( 139 ) ( 147 ) Cash flows (for) from investing activities: Purchase of short- and long-term investments ( 36 ) — Sale and maturities of short- and long-term investments 15 151 Purchase of property and equipment ( 13 ) ( 34 ) Site and software development costs ( 41 ) ( 53 ) Net cash (used in) provided by investing activities ( 75 ) 64 Cash flows from financing activities: Net cash provided by financing activities — — Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1 ) 3 Net decrease in cash, cash equivalents and restricted cash ( 215 ) ( 80 ) Cash, cash equivalents and restricted cash Beginning of period $ 1,326 $ 1,050 End of period $ 1,111 $ 970 See notes to unaudited condensed consolidated financial statements 5 Table o f Contents WAYFAIR INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2024 2023 (in millions) Supplemental cash flow information: Cash paid for interest on long-term debt $ 18 $ 20 Purchase of property and equipment included in accounts payable and other liabilities $ 20 $ 12 Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheets Cash and cash equivalents $ 1,107 $ 970 Restricted cash included within prepaid expenses and other current assets 4 — Total cash, cash equivalents and restricted cash $ 1,111 $ 970 See notes to unaudited condensed consolidated financial statements 6 Table o f Contents Wayfair Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are those of Wayfair Inc. and its wholly-owned subsidiaries. Unless the context indicates otherwise, “Wayfair,” “the Company" or similar terms refer to Wayfair Inc. and its subsidiaries. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Furthermore, interim results are not necessarily indicative of the results for the full year ended December 31, 2024 or future periods. The Company has identified significant accounting policies that are critical to understanding its business and results of operations. Wayfair believes that there have been no significant changes during the three months ended March 31, 2024 to the items disclosed in Note 1, Summary of Significant Accounting Policies , included in Part II, Item 8, Financial Statements and Supplementary Data , of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Recently Issued Accounting Pronouncements Segment Reporting In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendment is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied retrospectively to all prior periods presented in the financial statements. Wayfair is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and related disclosures. Income Taxes In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to update reportable income tax disclosure requirements, primarily through enhanced disclosures on the rate reconciliation table and other disclosures, including total income taxes paid by jurisdiction. The amendment is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendment should be applied prospectively, with retrospective adoption permitted. Wayfair is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statement disclosures. 2. Supplemental Financial Statement Disclosures Accounts Receivable, Net As of March 31, 2024, accounts receivable was $ 113 million, net of allowance for credit losses of $ 25 million. As of December 31, 2023, accounts receivable was $ 140 million, net of allowance for credit losses of $ 22 million. The changes in the allowance for credit losses were not material for the three months ended March 31, 2024. Management believes credit risk is mitigated for the three months ended March 31, 2024, as approximately 99.4 % of the net revenue recognized was collected in advance of recognition . 7 Table o f Contents Contract Liabilities Contractual liabilities, included in other current liabilities, were $ 187 million at March 31, 2024 and $ 204 million at December 31, 2023. During the three months ended March 31, 2024, Wayfair recognized $ 123 million of net revenue that was included within other current liabilities as of December 31, 2023. Net revenue from contracts with customers is disaggregated by geographic region because this manner of disaggregation best depicts how the nature, amount, timing, and uncertainty of net revenue and cash flows are affected by economic factors. Refer to Note 10, Segment and Geographic Information, for additional information. Restructuring Charges On January 19, 2024, Wayfair 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, Wayfair incurred $ 79 million of charges recorded within restructuring charges on the condensed consolidated statements of operations. The charges consisted primarily of one-time employee severance and benefit costs. As of March 31, 2024, $ 34 million is accrued within other current liabilities for employee severance benefits which are expected to be paid in the second quarter of 2024. 3. Cash, Cash Equivalents and Restricted Cash, Investments and Fair Value Measurements Investments As of March 31, 2024 and December 31, 2023, Wayfair’s marketable securities, which primarily consisted of corporate bonds and other government obligations that are priced at fair value, were classified as available-for-sale investments. During the three months ended March 31, 2024 and 2023, Wayfair did not have any realized gains or losses. During the three months ended March 31, 2024 and 2023, Wayfair recorded interest income, including interest earned from cash and cash equivalents and marketable securities, of $ 12 million and $ 7 million, respectively. During the three months ended March 31, 2024 and 2023, Wayfair did not recognize any credit losses related to its available-for-sale debt securities. As of March 31, 2024 and December 31, 2023, Wayfair did not have an allowance for credit losses recorded related to its available-for-sale debt securities. The following table presents details of Wayfair’s investment securities as of March 31, 2024 and December 31, 2023: March 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in millions) Short-term: Investment securities $ 20 $ — $ — $ 20 Total $ 20 $ — $ — $ 20 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in millions) Short-term: Investment securities $ 29 $ — $ — $ 29 Total $ 29 $ — $ — $ 29 8 Table o f Contents Fair Value Measurements Wayfair's financial assets and liabilities are measured at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The three levels of inputs used to measure fair value are as follows: ▪ Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities ▪ Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full-term of the asset or liability ▪ Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability This hierarchy requires Wayfair to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Wayfair classifies cash equivalents and certificate of deposits within Level 1 because these are valued using quoted market prices. The fair value of Level 1 financial assets is based on quoted market prices of the identical underlying security. Wayfair classifies short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active. Wayfair does not have assets that are classified as Level 3. The following tables set forth the fair value of Wayfair's financial assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023: March 31, 2024 Level 1 Level 2 Level 3 Total (in millions) Cash and cash equivalents: Cash $ 468 $ — $ — $ 468 Cash equivalents 639 — — 639 Total cash and cash equivalents 1,107 — — 1,107 Short-term investments: Investment securities — 20 — 20 Certificate of deposit 30 — — 30 Total short-term investments 30 20 — 50 Prepaid expenses and other current assets: Certificate of deposit (1) 4 — — 4 Total $ 1,141 $ 20 $ — $ 1,161 December 31, 2023 Level 1 Level 2 Level 3 Total (in millions) Cash and cash equivalents: Cash $ 407 $ — $ — $ 407 Cash equivalents 915 — — 915 Total cash and cash equivalents 1,322 — — 1,322 Short-term investments: Investment securities — 29 — 29 Prepaid expenses and other current assets: Certificate of deposit (1) 4 — — 4 Total $ 1,326 $ 29 $ — $ 1,355 (1) The certificate of deposit is classified as restricted cash that is primarily restricted to funds held in collateral. 9 Table o f Contents 4. Debt and Other Financing The following table presents the outstanding principal amount and carrying value of debt and other financing: March 31, 2024 December 31, 2023 Debt Instrument Principal Amount Unamortized Debt Discount Net Carrying Amount Principal Amount Unamortized Debt Discount Net Carrying Amount (in millions) Revolving Credit Facility $ — $ — 2024 Notes $ 117 $ — 117 $ 117 $ — 117 2025 Notes 754 ( 3 ) 751 754 ( 3 ) 751 2026 Notes 949 ( 5 ) 944 949 ( 5 ) 944 2027 Notes 690 ( 8 ) 682 690 ( 10 ) 680 2028 Notes 690 ( 10 ) 680 690 ( 11 ) 679 2025 Accreting Notes 38 — 38 38 — 38 Total Debt $ 3,212 $ 3,209 Short-term debt (1) 117 117 Long-term debt $ 3,095 $ 3,092 (1) Short-term debt consists of the 2024 Notes and is presented within other current liabilities in the condensed consolidated balance sheets. Revolving Credit Facility Wayfair has a five-year senior secured revolving credit facility (the “Revolver”), which matures on March 24, 2026, and provides for non-amortizing revolving loans in an aggregate amount of $ 600 million. Under the Revolver, Wayfair may, from time to time, request letters of credit, which reduce the availability of credit under the Revolver. Wayfair had $ 72 million in outstanding letters of credit as of March 31, 2024, primarily as security for lease agreements. As of March 31, 2024, there were no revolving loans outstanding under the Revolver. Convertible Non-Accreting Notes The following table summarizes certain terms related to the Company’s current outstanding non-accreting convertible notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”): Convertible Non-Accreting Notes Maturity Date Annual Coupon Rate Annual Effective Interest Rate Payment Dates for Semi-Annual Interest Payments in Arrears 2024 Notes November 1, 2024 1.125 % 1.5 % May 1 and November 1 2025 Notes October 1, 2025 0.625 % 0.9 % April 1 and October 1 2026 Notes August 15, 2026 1.000 % 1.2 % February 15 and August 15 2027 Notes September 15, 2027 3.250 % 3.6 % March 15 and September 15 2028 Notes November 15, 2028 3.500 % 3.8 % May 15 and November 15 Convertible Accreting Notes No cash interest is payable on the 2025 Accreting Notes. Instead, the 2025 Accreting Notes accrue interest at a rate of 2.50 % per annum, which accretes to the principal amount on April 1 and October 1 of each year. The 2025 Accreting Notes will mature on April 1, 2025, unless earlier purchased, redeemed or converted. The annual effective interest rate of the 2025 Accreting Notes is 2.7 %. 10 Table o f Contents Conversion and Redemption Terms of the Notes Wayfair's Notes will mature at their maturity date unless earlier purchased, redeemed or converted. The Notes’ initial conversion terms are summarized below: Convertible Notes Maturity Date Free Convertibility Date Initial Conversion Rate per $1,000 Principal Initial Conversion Price Redemption Date 2024 Notes November 1, 2024 August 1, 2024 8.5910 $ 116.40 May 8, 2022 2025 Notes October 1, 2025 July 1, 2025 2.3972 $ 417.15 October 4, 2022 2026 Notes August 15, 2026 May 15, 2026 6.7349 $ 148.48 August 20, 2023 2027 Notes September 15, 2027 June 15, 2027 15.7597 $ 63.45 September 20, 2025 2028 Notes November 15, 2028 August 15, 2028 21.8341 $ 45.80 May 20, 2026 2025 Accreting Notes April 1, 2025 - 13.7931 $ 72.50 May 9, 2023 The conversion rate is subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of Wayfair’s Class A common stock, but will not be adjusted for accrued and unpaid interest. Wayfair will settle any conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or a combination thereof, with the form of consideration determined at Wayfair’s election. The holders of the Non-Accreting Notes may convert all or a portion of such Notes prior to certain specified dates (each, a “Free Convertibility Date”) under the following circumstances (in each case, as applicable to each series of Non-Accreting Notes): • during any calendar quarter (and only during such calendar quarter), if the last reported sale price of Wayfair’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; • during the five -business day period after any ten consecutive trading day period (the “measurement period") in which the trading price (as defined in the applicable indenture) per $ 1,000 principal amount of the notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of Wayfair’s Class A common stock and the conversion rate on each such trading day; • if Wayfair calls the notes for redemption, at any time prior to 5:00 p.m. (New York City time) (“the close of business”) on the second scheduled trading day immediately preceding the redemption date; and • upon the occurrence of specified corporate events (as set forth in the applicable indenture). On or after the applicable Free Convertibility Date until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, holders of the Non-Accreting Notes may convert their Non-Accreting Notes at any time. 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 holders of the 2025 Accreting Notes may convert all or a portion of their 2025 Accreting Notes at any time prior to the close of business on the second business day immediately preceding the maturity date. Wayfair will settle any conversion of 2025 Accreting Notes with a number of shares of Wayfair’s Class A common stock per $ 1,000 original principal amount of 2025 Accreting Notes equal to the accreted principal amount of such original principal amount of 2025 Accreting Notes divided by the conversion price. Upon the occurrence of a fundamental change (as defined in the applicable indenture), holders of the applicable series of Notes may require Wayfair to repurchase all or a portion of such Notes for cash at a price equal to 100 % of the principal amount (or accreted principal amount) of such Notes to be repurchased plus any accrued but unpaid interest to, but excluding, the fundamental change repurchase date (such interest to be included in the accreted principal amount for the 2025 Accreting Notes). 11 Table o f Contents Holders of the Non-Accreting Notes who convert their respective Notes in connection with a make-whole fundamental change or a notice of redemption (each as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate of the respective Notes. Holders of the 2025 Accreting Notes who convert in connection with a make-whole fundamental change (as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate. Wayfair may not redeem the Notes prior to certain dates (the “Redemption Date”). On or after the applicable Redemption Date, Wayfair may redeem for cash all or part of the applicable series of Notes if the last reported sale price of Wayfair’s Class A common stock equals or exceeds 130 % (Non-Accreting Notes) or 276 % (2025 Accreting Notes) of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the five trading days immediately preceding the date on which Wayfair provides notice of redemption, during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which Wayfair provides notice of the redemption. The redemption price will be either 100 % of the principal amount (or accreted principal amount) of the notes to be redeemed, plus accrued and unpaid interest, if any, or the if-converted value if the holder elects to convert their Notes upon receiving notice of redemption. Conversions of Notes During the three months ended March 31, 2024, there were no conversions of the Notes. Interest Expense During the three months ended March 31, 2024, Wayfair recognized contractual interest expense and debt discount amortization of $ 15 million and $ 3 million, respectively. During the three months ended March 31, 2023, Wayfair recognized contractual interest expense and debt discount amortization of $ 11 million and $ 1 million, respectively. Fair Value of Notes As of March 31, 2024, the estimated fair value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes, 2028 Notes and 2025 Accreting Notes was $ 115 million, $ 699 million, $ 882 million, $ 913 million, $ 1.1 billion and $ 36 million, respectively. The estimated fair value of the Non-Accreting Notes was determined through consideration of quoted market prices. The estimated fair value of the 2025 Accreting Notes was determined through an option pricing model using Level 3 inputs including volatility and credit spread. The fair values of the Non-Accreting Notes and the 2025 Accreting Notes are classified as Level 2 and Level 3, respectively, as defined in Note 3, Cash, Cash Equivalents and Restricted Cash, Investments and Fair Value Measurements . As of March 31, 2024, the if-converted value of the 2027 Notes and 2028 Notes exceeded the principal value by $ 48 million and $ 333 million, respectively. As of March 31, 2024, the if-converted value of the 2024 Notes, 2025 Notes, 2026 Notes and 2025 Accreting Notes did not exceed the principal value. Capped Calls The 2024 Capped Calls, 2025 Capped Calls, 2026 Capped Calls, 2027 Capped Calls and 2028 Capped Calls (collectively, the “Capped Calls”) are expected generally to reduce the potential dilution and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Non-Accreting Notes upon conversion of the Non-Accreting Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the applicable Capped Call (which corresponds to the initial conversion price of the applicable Non-Accreting Notes and is subject to certain adjustments under the terms of the applicable Capped Call), with such reduction and/or offset subject to a cap based on the cap price of the applicable Capped Calls (the “Initial Cap Price”). The Capped Calls can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date. Each of the Capped Calls has an initial cap price per share of Wayfair’s Class A common stock, which represented a premium over the last reported sale price (or, with respect to the 2025 Capped Calls, the volume-weighted average price) of Wayfair’s Class A common stock on the date the corresponding Non-Accreting Notes were priced (the “Cap Price Premium”), and is subject to certain adjustments under the terms of the corresponding agreements. Collectively, the Capped Calls cover, initially, the number of shares of Wayfair’s Class A common stock underlying the Non-Accreting Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Non-Accreting Notes. 12 Table o f Contents The initial terms for the Capped Calls are presented below: Capped Calls Maturity Date Initial Cap Price Cap Price Premium 2024 Capped Calls November 1, 2024 $ 219.63 150 % 2025 Capped Calls October 1, 2025 $ 787.08 150 % 2026 Capped Calls August 15, 2026 $ 280.15 150 % 2027 Capped Calls September 15, 2027 $ 97.62 100 % 2028 Capped Calls November 15, 2028 $ 73.28 100 % The Capped Calls are separate transactions from the Non-Accreting Notes, are not subject to the terms of the Non-Accreting Notes and will not affect any holder’s rights under the Non-Accreting Notes. Similarly, holders of the Non-Accreting Notes do not have any rights with respect to the Capped Calls. The Capped Calls do not meet the criteria for separate accounting as a derivative as they are indexed to Wayfair's stock and meet the requirements to be classified in equity. The premiums paid for the Capped Calls were included as a net reduction to additional paid-in capital within stockholders’ deficit when they were entered. 5. Commitments and Contingencies Legal Matters From time to time, Wayfair is involved in litigation matters and other legal claims that arise during the ordinary course of business. The Company records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Litigation and legal claims are inherently unpredictable and claims cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s results of operations or financial condition, and regardless of the outcome, these matters can be costly and time consuming, as it can divert management's attention from important business matters and initiatives, negatively impacting Wayfair's overall operations. In addition, Wayfair may also find itself at greater risk to outside party claims as it increases its operations in jurisdictions where the laws with respect to the potential liability of online retailers are uncertain, unfavorable, or unclear. However, Wayfair does not currently believe that the outcome of any legal matters will have a material adverse effect on Wayfair’s results of operations or financial condition. Canada Border Services Agency The Canada Border Services Agency (“CBSA”) is examining Wayfair’s payment of duties under the Special Measures Import Act (the “CBSA review”) for goods imported into Canada for the years ended December 31, 2023 and 2022 and part of the year ended December 31, 2021. The estimated potential liability for the CBSA review, net of any amounts that may be recouped through the appeals process, is approximately $ 20 million, inclusive of duties and interest. Related to the CBSA review, during the three months ended March 31, 2024, Wayfair incurred approximately $ 6 million to cost of goods sold and $ 1 million to selling, operations, technology, general and administrative within the condensed consolidated statement of operations. During the three months ended March 31, 2024, Wayfair made payments of approximately $ 4 million of duties and $ 1 million of interest charges based on assessments received related to the year ended December 31, 2022 and part of the year ended December 31, 2021. Wayfair is required to pay all assessed amounts in order to exercise its appeal rights. Wayfair believes there are substantial factual and legal grounds to appeal and partially recuperate these amounts and is exploring other options to mitigate exposure. As of March 31, 2024, approximately $ 10 million was recorded within other current liabilities in the condensed consolidated balance sheets. Because loss contingencies are inherently unpredictable, this assessment is subjective and requires judgments about future events. As a result, it is at least reasonably possible that this estimate may change in the near term and the effect of the potential change could be material. 13 Table o f Contents 6. Stockholders’ Deficit Common Stock Since Wayfair's initial public offering through March 31, 2024, 56,347,119 shares of Class B common stock were converted to the same number of shares of Class A common stock. Stock Repurchase Programs During the three months ended March 31, 2024 and 2023, Wayfair did not repurchase any shares of Class A common stock under its stock repurchase programs. 7. Equity-Based Compensation In April 2023, Wayfair’s stockholders approved the 2023 Incentive Award Plan (the “2023 Plan”) to replace Wayfair’s 2014 Incentive Award Plan, as amended (the “2014 Plan” and, together with the 2023 Plan, the “Incentive Plans”). The Incentive Plans were adopted by the board of directors (the “Board”) to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent. The Incentive Plans are administered by the Board for awards to non-employee directors and by the compensation committee of the Board for other participants and provide for the issuance of equity-based awards including stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and stock payments. Under the 2023 Plan, 20,525,663 shares of Class A common stock initially were available for future award grants. As of March 31, 2024, 14,207,455 shares of Class A common stock remained available for future grant under the 2023 Plan. The following table presents activity relating to RSUs for the three months ended March 31, 2024: Shares Weighted-Average Grant Date Fair Value Unvested at December 31, 2023 5,186,886 $ 93.68 RSUs granted 1,321,993 $ 65.40 RSUs vested ( 2,279,438 ) $ 75.40 RSUs forfeited/canceled ( 720,589 ) $ 99.23 Unvested at March 31, 2024 3,508,852 $ 93.74 As of March 31, 2024, unrecognized equity-based compensation expense related to RSUs expected to vest over time is $ 209 million with a weighted-average remaining vesting term of 0.6 years. The following table summarizes activity for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 Weighted average grant date fair value of RSUs $ 65.40 $ 41.63 Total fair value of vested RSUs (in millions) $ 172 $ 171 Intrinsic value of RSUs vested (in millions) $ 129 $ 117 As of March 31, 2024, the aggregate intrinsic value of unvested RSUs was $ 238 million. 14 Table o f Contents Equity-based compensation was classified as follows in the condensed consolidated statements of operations: Three Months Ended March 31, 2024 2023 (in millions) Cost of goods sold $ 2 $ 3 Customer service and merchant fees 5 8 Selling, operations, technology, general and administrative 112 133 Total equity-based compensation expense $ 119 $ 144 Equity-based compensation costs capitalized as site and software development costs were $ 11 million and $ 13 million for the three months ended March 31, 2024 and 2023, respectively. 8. Income Taxes The provision for income taxes, net recorded during the three months ended March 31, 2024 is primarily related to income tax benefits for tax losses earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes, as well as related changes in increases in the Company’s valuation allowance on deferred tax assets, as well as some U.S. state minimum and foreign taxes. Wayfair had no material unrecognized tax benefits as of March 31, 2024 and December 31, 2023. The Organization for Economic Co-operation and Development (“OECD”) has proposed a global minimum tax of 15% of reported profits (“Pillar 2”) that has been agreed upon in principle by over 140 countries. Many non- U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar 2 model rules beginning in 2024 or announced their plans to enact legislation in future years. The currently enacted Pillar 2 model rules did not have a material impact on our provision for income taxes for the three months ended March 31, 2024. 9. Loss per Share Wayfair follows the two-class method when computing earnings or loss per share for its two issued classes of common stock - Class A and Class B. Basic earnings or loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted earnings or loss per share is computed using the weighted-average number of shares of common stock outstanding during the period plus, if dilutive, common stock equivalents outstanding during the period and stock issuable upon conversion of the convertible debt instruments. Wayfair's common stock equivalents consist of shares issuable upon the release of restricted stock units. The dilutive effect of these common stock equivalents is reflected in diluted earnings or loss per share by application of the treasury stock method. The dilutive effect of shares issuable upon conversion of the convertible debt instruments is included in the calculation of diluted earnings or loss per share under the if-converted method. For periods in which Wayfair has reported net losses, diluted loss per share is the same as basic loss per share, as the effects of common stock equivalents outstanding and shares issuable upon conversion of convertible debt instruments are antidilutive and, therefore, excluded from the calculation of diluted loss per share. Wayfair allocates undistributed earnings between the classes on a one-to-one basis when computing earnings or loss per share. As a result, basic and diluted earnings or loss per Class A and Class B shares are equivalent. 15 Table o f Contents The following table presents the calculation of basic and diluted loss per share: Three Months Ended March 31, 2024 2023 (in millions, except per share data) Numerator: Numerator for basic and diluted loss per share - net loss $ ( 248 ) $ ( 355 ) Denominator: Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding 120 110 Loss per share Basic $ ( 2.06 ) $ ( 3.22 ) Diluted $ ( 2.06 ) $ ( 3.22 ) The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted loss per share were as follows: Three Months Ended March 31, 2024 2023 (in millions) Unvested restricted stock units 4 7 Shares related to convertible debt instruments 36 23 Total 40 30 Wayfair may settle conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or any combination thereof at its election. Wayfair will settle conversions of the 2025 Accreting Notes in shares of Wayfair’s Class A common stock. T he Capped Calls are generally expected to reduce the potential dilution of Wayfair's Class A common stock upon any conversion of the Notes and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes to the extent the market price per share of Wayfair’s Class A common stock is greater than the strike price of the Capped Calls (which corresponds to the initial conversion prices of the Non-Accreting Notes, subject to certain adjustments under the terms of the Capped Calls), with such reduction and/or offset capped at the Initial Cap Price. For more information on the structure of the Notes and the Capped Calls, see Note 4, Debt and Other Financing . 10. Segment and Geographic Information Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. Wayfair’s CODM is its Chief Executive Officer. Wayfair's operating and reportable segments are the U.S. and International. These segments reflect the way the CODM allocates resources and evaluates financial performance, which is based upon each segment's Adjusted EBITDA. Adjusted EBITDA is defined as net income or loss before depreciation and amortization, equity-based compensation and related taxes, interest income or expense, net, other income or expense, net, provision or benefit for income taxes, net, non-recurring items, and other items not indicative of ongoing operating performance. These charges are excluded from the evaluation of segment performance because it facilitates reportable segment performance comparisons on a period-to-period basis as these costs may vary independent of business performance. The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies , included in Part II, Item 8, Financial Statements and Supplementary Data , of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Wayfair allocates certain operating expenses to the operating and reportable segments, including customer service and merchant fees and selling, operations, technology, general and administrative expenses based on the usage and relative contribution provided to the segments. It excludes from the allocations certain operating expense lines, including depreciation and amortization, equity-based compensation and related taxes, impairment and other related net charges and restructuring charges, as 16 Table o f Contents well as interest income or expense, net, other income or expense, net, gain or loss on debt extinguishment and provision or benefit for income taxes, net. There are no net revenue transactions between Wayfair's reportable segments. U.S. The U.S. segment primarily consists of amounts earned through product sales through Wayfair's family of sites in the U.S. International The International segment primarily consists of amounts earned through product sales through Wayfair's international sites. Net revenue from external customers for each group of similar products and services are not reported to the CODM. Separate identification of this information for purposes of segment disclosure is impractical, as it is not readily available and the cost to develop it would be excessive. No individual country outside the U.S. provided greater than 10% of consolidated net revenue. The following tables present net revenue and Adjusted EBITDA attributable to Wayfair’s reportable segments for the periods presented: Three Months Ended March 31, 2024 2023 (in millions) U.S. net revenue $ 2,391 $ 2,415 International net revenue 338 359 Total net revenue $ 2,729 $ 2,774 Three Months Ended March 31, 2024 2023 (in millions) Adjusted EBITDA: U.S. $ 121 $ 29 International ( 46 ) ( 43 ) Total reportable segments Adjusted EBITDA 75 ( 14 ) Less: reconciling items (1) ( 323 ) ( 341 ) Net loss $ ( 248 ) $ ( 355 ) 17 Table o f Contents (1) The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net loss: Three Months Ended March 31, 2024 2023 (in millions) Depreciation and amortization $ 104 $ 104 Equity-based compensation and related taxes 127 151 Interest expense, net 6 5 Other expense, net 4 1 Provision for income taxes, net 3 2 Other: Impairment and other related net charges (a) — 13 Restructuring charges (b) 79 65 Total reconciling items $ 323 $ 341 (a) During the three months ended March 31, 2023, Wayfair recorded charges of $ 5 million related to consolidation of certain customer service centers in identified U.S. locations and $ 8 million related to construction in progress assets at identified U.S. locations. (b) During the three months ended March 31, 2024, Wayfair 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, Wayfair incurred $ 65 million of charges consisting primarily of one-time employee severance and benefit costs associated with the January 2023 workforce reductions. See “Non-GAAP Financial Measures” in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q for more information regarding the use of Adjusted EBITDA.