What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-22 · 79 added, 82 removed, 316 unchanged (34% of the section changed)

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Part I, Item 1A, Risk Factors in this Annual Report on Form 10-K.

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

Wayfair is the destination for all things home.

Through our e-commerce business model, we offer visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over 30 million products from over 20 thousand suppliers.

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Through increasing brand awareness as well as paid and unpaid advertising, we attract new and repeat customers to our family of sites.

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.

We aim to 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.

During the year ended December 31, 2024, net revenue decreased by 1.3% compared to the same period in 2023.

As of December 31, 2024, we had 21 million active customers and during the year ended December 31, 2024, 80.1% of orders came from repeat buyers.

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

The lower sales were due to lower order volume, which was driven by challenges in the category such as macroeconomic pressures, including consumer spending patterns and housing market conditions, compared to the same period in 2023.

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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Global Considerations

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

We closely monitor macroeconomic conditions, including, but not limited to, economic instability, changes in tax laws, regulations and new or increased tariffs, including based on the recent United States (“U.S.”) presidential election, sustained higher interest rates and inflationary pressures, on our business, results of operations and financial results.

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

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

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.

While it is difficult to quantify and predict all of the impacts these global economic events, including fluctuating interest rates and inflationary pressures, 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.

We will continue to monitor economic conditions as we work to manage our business to meet the evolving needs of our customers, employees, suppliers, partners, stockholders and communities.

Germany Restructuring

On January 10, 2025, we announced our decision to exit the German market (the “Germany Restructuring”), including a workforce reduction impacting approximately 730 employees, although we expect approximately half of these positions to relocate to other corporate offices.

As a result of the Germany Restructuring, we expect to incur aggregate charges of approximately $102 million to $111 million, consisting of (i) approximately $40 million to $44 million in employee-related costs, including severance, benefits, relocation and transition costs and (ii) approximately $62 million to $67 million of other primarily non-cash charges, including gross impairment charges related to facility closures and other wind-down activities and excluding any recoveries that may be recognized related to our leases.

During the year ended December 31, 2024, Wayfair recorded impairment charges of $34 million associated with weakened macroeconomic conditions in connection with our German operations.

This is inclusive of $21 million related to ROU assets and $13 million related to property, plant and equipment.

Wayfair expects to incur the remainder of the aggregate charges during the first quarter of 2025.

Factors Affecting our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed in Part I, Item 1A, Risk Factors, in this Annual Report on Form 10-K for the year ended December 31, 2024.

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Key Financial Statement and Operating Metrics

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

generally accepted accounting principles (“GAAP’) financial measures to the most directly comparable GAAP financial measure.

See “Non-GAAP Financial Measures” below for more information regarding our use of Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings or Loss per Share and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure that is prepared in accordance with accounting principles generally accepted in the United States of America or “GAAP.”

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

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Free Cash Flow $ 83 $ (2) $ (1,132)

Adjusted Diluted (Loss) Earnings per share $ (1.13) $ (7.71) $ 2.32

Adjusted Diluted Earnings (Loss) per Share $ 0.13 $ (1.13) $ (7.71)

(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 average order value as a key indicator of the mix of products on our sites, the mix of offers and promotions and the purchasing behavior of our customers.

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Results of Consolidated Operations

During the year ended December 31, 2023, net revenue decreased by $215 million, or 1.8%, 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 year ended December 31, 2023, our United States (“U.S.”) net revenue increased by 0.2% and International net revenue decreased by 13.3% compared to the same period in 2022.

During the year ended December 31, 2024, net revenue decreased by $152 million , or 1.3%, compared to the same period in 2023, which reflects continued macroeconomic pressures felt by consumers.

The decrease in net revenue is due to lower order volume, which was driven by challenges in the category such as macroeconomic pressures, including consumer spending patterns and housing market conditions, compared to the same period in 2023.

During the year ended December 31, 2024, our U.S.

net revenue decreased by 1.0% and International net revenue decreased by 2.8% compared to the same period in 2023.

During the year ended December 31, 2024, International Net Revenue Constant Currency Growth was (2.7)% (see “Non-GAAP Financial Measures” below for more information regarding our use of Net Revenue Constant Currency Growth).

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

During the year ended December 31, 2023, cost of goods sold decreased by $466 million, or 5.3%, 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 year ended December 31, 2023 compared to 72.0% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.

During the year ended December 31, 2024, cost of goods so ld decreased by $59 million, or 0.7%, compared to the same period in 2023.

The decrease in cost of goods sold is driven by a combination of operational cost savings initiatives and lower order volume, which was driven by challenges in the category such as macroeconomic pressures, including consumer spending patterns and housing market conditions, compared to the same period in 2023.

As a percentage of net revenue, cost of goods sold increased to 69.8% for the year ended December 31, 2024, compared to 69.4% in the same period in 2023 due to mix shifts and lower net revenue.

Year Ended December 31,

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As a percentage of net revenue 69.8 % 69.4 %

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Operating expenses

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Selling, operations, technology, general and administrative $ 382 $ 584

During the year ended December 31, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $97 million, or 18.8% compared to the same period in 2022, driven by an increase in vested restricted stock units in 2023 compared to the same period in 2022.

During the year ended December 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 $212 million, or 34.6%, compared to the same period in 2023, driven by a decrease in vested restricted stock units during the year ended December 31, 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:

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During the year ended December 31, 2024, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $77 million, or 14.6%, compared to the same period in 2023.

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

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

As a percentage of net revenue, total customer service and merchant fees decreased to 4.0% for the year ended December 31, 2024, compared to 4.6% in the same period in 2023 due to decreased compensation costs.

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During the year ended December 31, 2023, our advertising expenses decreased by $76 million or 5.2% 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 11.6% for the year ended December 31, 2023 compared to 12.1% in the same period in 2022 due in part to maintaining efficiencies in our advertising channel mix.

During the year ended December 31, 2024, our advertising expenses increased by $75 million, or 5.4%, c ompared to the same period in 2023.

The increase reflects our response to changing market conditions and renewed investment opportunities, as we sought to maintain our return targets across various channels.

As a percentage of net revenue, advertising expense s increased to 12.4% for the year ended December 31, 2024 compared to 11.6% in the same period in 2023 due to changes in our advertising channel mix as we seek to maximize returns on advertising spend within our efficiency parameters.

Selling, operations, technology, general and administrative

During the year ended December 31, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $280 million, or 13.1% 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 20.4% for the year ended December 31, 2023 compared to 21.5% in the same period in 2022, primarily due to decreased compensation costs.

During the year ended December 31, 2024, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activiti es decreased by $268 million, or 14.4% co mpared to the same period in 2023.

The decrease is primarily due to decreased compensation costs.

As a percentage of net revenue, total selling, operations, technology, general and administrative expens es decreased to 16.7% f or the year ended December 31, 2024, compared to 20.4% in the same period in 2023, primarily due to decreased compensation costs.

Impairment and other related net charges

During the year ended December 31, 2023, impairment and other related charges decreased by $25 million or 64.1% as compared to the same period in 2022.

As a percentage of net revenue, impairment and other related net charges decreased to 0.1% from 0.3% in the same period in 2022.

During the year ended December 31, 2024, impairment and other related charge s increased by $23 million, or 164.3% compared to the same period in 2023.

As a percentage of net revenue, impairment and other related net charge s increased to 0.3% from 0.1% in the same period in 2023.

During the year ended December 31, 2024, we recorded net charges of $37 million, inclusive of $34 million associated with weakened macroeconomic conditions in connection with our German operations , $2 million related to changes in sublease market conditions and $1 million related to construction in progress assets at identified U.S.

During the year ended December 31, 2023, we recorded net 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 year ended December 31, 2022, we recorded net charges of $31 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.

and charges of $8 million related to construction in progress assets at an International warehouse.

Restructuring charges

During the year ended December 31, 2023, restructuring charges increased by $34 million or 109.7% as compared to the same period in 2022.

During the year ended December 31, 2024, restructuring charges increased by $14 million, or 21.5%, compared to the same period in 2023.

As a percentage of net revenue, restructuring charges increased to 0.7% from 0.5% in the same period in 2023.

During the year ended December 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 year ended December 31, 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 year ended December 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 year ended December 31, 2023, our interest expense, net decreased by $10 million, or 37.0%, compared to the same period in 2022, primarily driven by higher interest income.

During the year ended December 31, 2024, interest expense, net increased to $29 million, co mpared to $17 million in the same period in 2023, primarily driven by the issuances of the 2029 Secured Notes and 2028 Notes (as defined below) in October 2024 and May 2023, respectively.

Year Ended December 31,

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Interest expense, net $ (29) $ (17) 70.6 %

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Other income (expense), net

During the year ended December 31, 2023, we recorded other income, net of $1 million, compared to other expense, net of $4 million in the same period in 2022, primarily driven by increases in foreign currency transaction gains.

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

Other (expense) income, net

During the year ended December 31, 2024, other (expense) income, net increased by $22 million, or 2,200.0%, compared to the same period in 2023 , primarily driven by foreign currency rate fluctuations between the U.S.

Dollar and the Canadian Dollar.

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

Year Ended December 31,

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(in millions)

Other income (expense), net $ 1 $ (4) (125.0) %

Other (expense) income, net $ (21) $ 1 (2,200.0) %

Gain on debt extinguishment

During the year ended December 31, 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.

During the year ended December 31, 2024, gain on debt extinguishment decreased by $71 million, or 71.0%, compared to the same period in 2023.

During the year ended December 31, 2024, we recorded a $29 million gain on debt extinguishment, representing the difference between the cash paid for principal, plus accrued and unpaid interest and transaction fees of $741 million and the combined net carrying value of the 2025 Notes, 2026 Notes and 2025 Accreting Notes (as defined below) of $770 million.

During the year ended December 31, 2023, 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 (as defined below) of $614 million.

Refer to Note 6, Debt and Other Financing , in the notes to the consolidated financial statements, included in Part II, Item 8, Financial Statements and Supplementary Data , in this Annual Report on Form 10-K for additional information.

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Provision for income taxes, net

During the year ended December 31, 2023, our provision for income taxes, net decreased by $3 million or 25.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S.

During the year ended December 31, 2024, our provision for income taxes, net increased by $1 million, or 11.1%, 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.

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Provision for income taxes, net $ 10 $ 9 11.1 %

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Liquidity and Capital Resources

Sources of Liquidity

At December 31, 2023, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.4 billion.

As of December 31, 2024, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.4 billion .

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

As of December 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 $76 million as of December 31, 2023, which reduced the availability of credit under the Revolver.

We had outstanding letters of credit, primarily as security for certain lease agreements, fo r $71 million a s of December 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:

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The amounts involved may be material.

Further, on January 19, 2024, we announced a workforce realignment plan, including a workforce reduction

involving approximately 1,650 employees.

As a result, we expect to incur between approximately $70 million and $80 million of

costs, consisting primarily of employee severance and benefit costs, most of which are expected to be incurred in the first quarter

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 this Annual Report on Form 10-K.

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We will continue to monitor our liquidity during this time of historic disruption and volatility in the global capital markets.

Credit Agreement and Convertible Debt

Credit Agreement and Debt Arrangements

As of December 31, 2024, we had $3.2 billion principal amount of indebtedness outstanding.

Our indebtedness includes unsecured 0.625% Convertible Senior Notes due 2025 that mature on October 1, 2025 (the “2025 Notes”), unsecured 1.00% Convertible Senior Notes due 2026 that mature on August 15, 2026 (the “2026 Notes”), unsecured 3.25% Convertible Senior Notes due 2027 that mature on September 15, 2027 (the “2027 Notes”), unsecured 3.50% Convertible Senior Notes due 2028 that mature on November 15, 2028 (the “2028 Notes”, and together with the 2025 Notes, 2026 Notes and 2027 Notes, the “Non-Accreting Notes”), and 7.250% Senior Secured Notes due 2029 that mature on October 31, 2029 (the “2029 Secured Notes” and together with the Non-Accreting Notes, the “Notes”)

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 year ended December 31, 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 6, Debt and Other Financing , in the notes to the consolidated financial statements, included in Part II, Item 8, Financial Statements and Supplementary Data , in this Annual Report on Form 10-K.

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The conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2028 Notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”) were not triggered during the calendar quarter ended December 31, 2023, therefore, the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2028 Notes are not convertible during the calendar quarter ended March 31, 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 year ended December 31, 2023, there were no conversions of the Notes.

On October 8, 2024, Wayfair LLC (the “Issuer”), a subsidiary of Wayfair, issued $800 million aggregate principal amount of the 2029 Secured Notes.

The 2029 Secured Notes will mature on October 31, 2029, unless earlier redeemed, in accordance with their terms or repurchased.

The indenture contains covenants that restrict the Issuer’s ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness, declare or pay dividends, redeem stock or make other distributions or restricted payments, make certain investments, create certain liens, enter into certain transactions with affiliates,

agree to certain restrictions on the ability of the Issuer’s restricted subsidiaries to make certain payments, sell or transfer certain assets and consolidate, merge, sell or otherwise dispose of all or substantially all of the Issuer’s or its restricted subsidiaries’ assets.

On November 1, 2024, our 1.125% Convertible Senior Notes due 2024 (the “2024 Notes”) matured and we paid in cash the remaining outstanding principal amount of $117 million to the holders of the 2024 Notes.

On November 11, 2024, we repurchased $518 million in aggregate principal amount of the 2025 Notes, $215 million in aggregate principal amount of the 2026 Notes and the remaining $39 million in aggregate principal amount of the 2025 Accreting Notes, in privately negotiated transactions.

The conditional conversion features of the 2025 Notes, 2026 Notes, 2027 Notes and 2028 Notes were not triggered during the calendar quarter ended December 31, 2024, therefore, the 2025 Notes, 2026 Notes, 2027 Notes and 2028 Notes are not convertible during the calendar quarter ended March 31, 2025 pursuant to the applicable last reported sales price conditions.

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 6, Debt and Other Financing , in the notes to the consolidated financial statements, included in Part II, Item 8, Financial Statements and Supplementary Data , in this Annual Report on Form 10-K.

For information regarding our credit agreement and other notes, see Note 6, Debt and Other Financing , in the notes to the consolidated financial statements, included in Part II, Item 8, Financial Statements and Supplementary Data , in this Annual Report on Form 10-K.

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

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As of December 31, 2024, we have repurchased 2,354,491 shares of Class A common stock for approximately $612 million under the Repurchase Programs.

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Trends and Historical Cash Flows

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Net cash (used in) provided by investing activities $ (262) $ (152) $ 1

Net cash provided by (used in) financing activities $ 77 $ 16 $ (303)

Net cash (used in) provided by financing activities $ (69) $ 77 $ 16

Operating Activities

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

Cash flows provided by operating activities increased by $1.0 billion during the year ended December 31, 2023 compared to the same period in 2022, primarily due to an increase in net cash adjusted for non-cash items of $658 million and an increase of $365 million for cash provided by changes in operating assets and liabilities.

Cash flows provided by operating activities decreased by $32 million during the year ended December 31, 2024, compared to the same period in 2023, primarily due to a decrease of $135 million for cash changes in operating assets and liabilities partially offset by an increase in net loss adjusted for non-cash items of $103 million.

Investing Activities

Cash flows used in investing activities increased by $153 million during the year ended December 31, 2023 compared to the same period in 2022, primarily due to decreases in sales and maturities of short- and long-term investments of $656 million, partially offset by decreases in purchases of short- and long-term investments of $394 million, decreases in purchases of property and equipment and site and software development costs of $107 million, and decreases in other investing activities of $2 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 2.9% of net revenue for the year ended December 31, 2023 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.

Cash flows used in investing activities increased by $110 million during the year ended December 31, 2024, compared to the same period in 2023, primarily due to decreases in sales and maturities of short- and long-term investments of $194 million, increases in purchases of short- and long-term investments of $31 million and decreases of other investing activities of $2 million, partially offset by decreases in purchases of property and equipment and site and software development costs of $117 million.

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

Financing Activities

Cash flows provided by financing activities increased by $61 million during the year ended December 31, 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 year ended December 31, 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 financing activities increased by $146 million during the year ended December 31, 2024, compared to the same period in 2023.

The increase in cash used is primarily due to increases in payments for extinguishments of debt of $227 million and debt maturities of $117 million.

These are partially offset by increases in proceeds from the issuance of debt of $108 million, decreases in premiums paid for capital call confirmations of $87 million and other financing inflows of $3 million.

Off-Balance Sheet Arrangements

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

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Contractual Obligations

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(1) Represents future interest and principal payments on the Notes.

For information regarding our convertible notes, see Note 6, Debt and Other Financing , in the notes to the consolidated financial statements, included in Part II, Item 8, Financial Statements and Supplementary Data, in this Annual Report on Form 10-K.

For information regarding the Notes, see Note 6, Debt and Other Financing , in the notes to the consolidated financial statements, included in Part II, Item 8, Financial Statements and Supplementary Data , in this Annual Report on Form 10-K.

(2) Represents the future minimum lease payments under non-cancellable leases.

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Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board.

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Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

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Interest expense, net 29 17 27

Other (income) expense, net (1) 4 4

Other expense (income), net 21 (1) 4

Provision for income taxes, net 10 9 12

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Gain on debt extinguishment (3)

(29) (100) (96)

Adjusted EBITDA $ 453 $ 306 $ (416)

During the year ended December 31, 2022, we recorded net charges of $39 million, inclusive of $31 million of lease impairment and other net charges related to changes in market conditions around future sublease income for one office location in the U.S.

and charges of $8 million related to construction in progress assets at an International warehouse.

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

During the year ended December 31, 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 year ended December 31, 2024, we recorded a $29 million gain on debt extinguishment upon repurchase of $518 million in aggregate principal amount of the 2025 Notes, $215 million in aggregate principal amount of the 2026 Notes and the remaining $39 million in aggregate principal amount of the 2025 Accreting Notes.

During the year ended December 31, 2023, we recorded a $100 million gain on debt extinguishment upon repurchase of $83 million in aggregate principal amount of the 2024 Notes and $535 million in aggregate principal amount of the 2025 Notes.

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

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Free Cash Flow

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Accordingly, you should not consider Free Cash Flow in isolation or as a substitute for analysis of our results as reported under GAAP.

Because of these limitations, you should consider Free Cash Flow alongside other financial performance measures, including net cash provided by or used in operating activities, Capital Expenditures, and our other GAAP results.

Because of these limitations, you should consider Free Cash Flow

alongside other financial performance measures, including net cash provided by or used in operating activities, Capital Expenditures, and our other GAAP results.

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:

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Because of these limitations, you should consider Adjusted Diluted Earnings or Loss per Share alongside other financial performance measures.

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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:

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Numerator for basic and diluted loss per share - net loss

$ (492) $ (738) $ (1,331)

Adjustments to net loss

Interest expense associated with convertible debt instruments — — 20

Equity-based compensation and related taxes 411 623 527

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Gain on debt extinguishment (29) (100) (96)

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

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

$ 16 $ (127) $ (818)

Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding after the effect of dilutive securities 114 106 104

Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding 123 114 106

Adjustments to effect of dilutive securities:

Restricted stock units 1 — —

Convertible debt instruments — — 12

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

Denominator for Adjusted Diluted Earnings (Loss) per Share - Adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities 124 114 106

Diluted Loss per Share $ (4.01) $ (6.47) $ (12.54)

Adjusted Diluted (Loss) Earnings per Share $ (1.13) $ (7.71) $ 2.32

Adjusted Diluted Earnings (Loss) per Share $ 0.13 $ (1.13) $ (7.71)

Critical Accounting Policies and Estimates

9 unchanged sentences

We recognize net revenue when the product has been delivered to the customer.

T a ble of Contents

Allowances for sales returns are estimated and recorded based on prior returns history, recent trends and projections for returns on sales in the current period.

1 unchanged sentence

The actual amount of customer returns and allowances are inherently uncertain and may differ from our estimates.

If we determine that actual or expected returns or allowances are significantly higher or lower than the reserves established, we record a reduction or increase, as appropriate to net revenue in the period in which we make such a determination.

If we determine that actual or expected returns or

allowances are significantly higher or lower than the reserves established, we record a reduction or increase, as appropriate to net revenue in the period in which we make such a determination.

Lease liabilities and their corresponding right-of-use (“ROU”) assets are recorded based on the present value of lease payments over the expected lease term at the lease commencement date.

6 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis