WAYFAIR INC. Forward Looking Statements
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,
available liquidity and access to financing sources, our business strategy,
plans and objectives of management for future operations, including our
international expansion, omni-channel strategy and launch of physical retail
stores, consumer activity and behaviors, developments in our technology and
systems and anticipated results of those developments and the impact of the
COVID-19 pandemic and our response to it, are forward-looking statements. In
some cases, you can identify forward-looking statements by terms such as "may,"
"will," "should," "expects,"
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"plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions.
Forward-looking statements are based on current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from Wayfair's expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
Factors that could cause or contribute to differences in our future results include, without limitation, the following:
•our ability to acquire new customers and sustain and/or manage our growth;
•our ability to increase our net revenue per active customer;
•our ability to build and maintain strong brands;
•our ability to manage our growth and expansion initiatives;
•our ability to compete successfully;
•the rate of growth of the Internet and e-commerce;
•economic factors, such as interest rates, inflation, the housing market, currency exchange fluctuations and changes in customer spending;
•disruptions, capacity constraints or inefficiencies in our supply chain or logistics network, including any impact of the COVID-19 pandemic on our suppliers and third-party carriers and delivery agents;
•potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations;
•world events, natural disasters, public health emergencies (such as the COVID-19 pandemic), civil disturbances, and terrorist attacks; and
•developments in, and the outcome of, legal and regulatory proceedings and investigations to which we are a party or are subject, and the liabilities, obligations and expenses, if any, that we may incur in connection therewith.
A further list and description of risks, uncertainties and other factors that could cause or contribute to differences in our future results include the cautionary statements herein and in our other filings with theSecurities 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 endedDecember 31, 2021 . We qualify all of our forward-looking statements by these cautionary statements.
Overview
Wayfair is one of the world's largest online destinations for the home. Through
our e-commerce business model, we offer visually inspired browsing, compelling
merchandising, easy product discovery and attractive prices for
over thirty-three million products from over 23,000 suppliers.
We believe an increasing portion of the dollars spent on home goods will be
spent online and that there is an opportunity for acquiring more market share.
Our business model is designed to grow our net revenue by acquiring new
customers as well as stimulating repeat purchases from our existing customers.
Through increasing brand awareness as well as paid and unpaid advertising, we
attract new and repeat customers to our 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.
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COVID-19 Pandemic
We are continuing to closely monitor the impact of the COVID-19 pandemic on our business, results of operations and financial results. The situation surrounding the COVID-19 pandemic remains fluid and the full extent of the impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and severity of the pandemic, the emergence of new variants that may continue to prolong the pandemic, the amount of time it will take for normal economic activity to resume, future government actions that may be taken, the impact on consumer activity and behaviors and the effect on our customers, employees, suppliers, partners and stockholders, all of which are uncertain and cannot be predicted. See Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for additional details. Our focus remains on promoting the health, safety and financial security of our employees and serving our customers. In an effort to contain or slow the COVID-19 pandemic, authorities around the world have implemented various measures, some of which have been subsequently rescinded or modified, including travel bans, stay-at-home orders and shutdowns of certain businesses. We anticipate that these actions and the global health crisis caused by the COVID-19 pandemic, including any variants, will continue to negatively impact global economic activity. While it is difficult to predict all of the impacts the COVID-19 pandemic will have on our business, we believe the long-term opportunity that we see for shopping for the home online remains unchanged. As the COVID-19 pandemic remains dynamic and subject to rapid and possibly material change, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders and communities.
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 our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 20
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Key Financial and Operating Metrics
We measure our business using key financial and operating metrics, as well as
Adjusted EBITDA, Free Cash Flow and Adjusted Diluted (Loss) Earnings per Share
(see "Non-GAAP Financial Measures"). Our Free Cash Flow and Adjusted Diluted
(Loss) Earnings per Share are measured on a consolidated basis, while our
Adjusted EBITDA is measured on a consolidated and reportable segment basis. All
other key financial and operating metrics are derived and reported from our
consolidated net revenue.
We use the following metrics to assess the near and longer-term performance of
our overall business:
Three months ended March 31,
2022 2021
(inmillions, except LTM Net Revenue per
Active Customer, Average Order Value and
per share data)
Key Financial Statement Metrics:
Net revenue $ 2,993 $ 3,478
Gross profit $ 803 $ 1,003
(Loss) income from operations $ (310) $ 26
Net (loss) income $ (319) $ 18
(Loss) earnings per share:
Basic $ (3.04) $ 0.18
Diluted $ (3.04) $ 0.16
Net cash flows (for) from operating activities $ (226) $ 177
Key Operating Metrics:
Active customers (1) 25 33
LTM net revenue per active customer (2) $ 520 $ 461
Orders delivered (3) 10 15
Average order value (4) $ 287 $ 237
Non-GAAP Financial Measures:
Adjusted EBITDA $ (113) $ 206
Free Cash Flow $ (331) $ 112
Adjusted Diluted (Loss) Earnings per Share $ (1.96) $ 1.00
(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. The change in active customers in a reported
period captures both the inflow of new customers as well as the outflow of
existing customers who have not made a purchase in the last twelve months. We
view the number of active customers as a key indicator of our growth.
(2) 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. We view LTM net revenue per active customer as a
key indicator of our customers' purchasing patterns, including their initial and
repeat purchase behavior.
(3) Orders delivered represents the total orders delivered in that period,
inclusive of orders that may eventually be returned. As we ship a large volume
of packages through multiple carriers, actual delivery dates may not always be
available, and as such we estimate delivery dates based on historical data. We
recognize net revenue when an order is delivered, and therefore orders
delivered, together with average order value, is an indicator of the net revenue
we expect to recognize in a given period. We view orders delivered as a key
indicator of our growth.
(4) We define average order value as total net revenue in a given period divided
by the orders delivered in that period. 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
Comparison of the three months ended
Net revenue
In the three months endedMarch 31, 2022 , net revenue decreased by$485 million , or 13.9%, compared to the same period in 2021, which reflects some normalization in consumer behavior since the onset of the COVID-19 pandemic. The decrease in net revenue was driven by lower orders, partially offset by higher average order values. There was a decrease in order frequency, with LTM orders per active customer decreasing by 5.6% in the three months endedMarch 31, 2022 compared to the same period in 2021. LTM net revenue per active customer increased 12.8% in the three months endedMarch 31, 2022 , compared to the same period in 2021, driven by higher average order value due in part to inflationary pressures in the supply chain.
Our
Three months ended March 31,
2022 2021 % Change
(in millions)
U.S. net revenue $ 2,542 $ 2,821 (9.9) %
International net revenue 451 657 (31.4) %
Net revenue $ 2,993 $ 3,478 (13.9) %
For more information on our segments, see Note 10 to the unaudited consolidated
and condensed financial statements, Segment and Geographic Information, included
in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of
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 and fees earned for supplier services rendered. In the three months endedMarch 31, 2022 , cost of goods sold decreased by$285 million , or 11.5%, as compared to the same period in 2021. The decrease in cost of goods sold is primarily driven by a decrease in the number of orders delivered. The increase in cost of goods sold as a percentage of net revenue is in part due to lower operational efficiencies from fewer orders and rising logistics costs relative to the same period in 2021. Three months ended March 31, 2022 2021 % Change (in millions) Cost of goods sold $ 2,190$ 2,475 (11.5) % As a percentage of net revenue 73.2 % 71.2 % 22
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Operating expenses
Operating expenses are comprised of customer service and merchant fees,
advertising and selling, operations, technology, general and administrative
expenses and customer service center impairment and other charges. We disclose
separately the equity-based compensation and related taxes that are included in
customer service and merchant fees and selling, operations, technology and
general and administrative expenses.
Three months ended
March 31,
2022 2021 % Change
(in millions)
Customer service and merchant fees (1) $ 151 $ 147 2.7 %
Advertising 336 366 (8.2) %
Selling, operations, technology, general and administrative (1)
626 452 38.5 %
Customer service center impairment and other charges - 12 (100.0) %
Total operating expenses $ 1,113 $ 977 13.9 %
As a percentage of net revenue:
Customer service and merchant fees (1) 5.0 % 4.2 %
Advertising 11.2 % 10.5 %
Selling, operations, technology, general and administrative (1)
20.9 % 13.0 %
Customer service center impairment and other charges - % 0.4 %
37.1 % 28.1 %
(1) Includes equity-based compensation and related taxes as follows:
Three months ended
March 31,
2022 2021
(in millions)
Customer service and merchant fees $ 8 $ 6
Selling, operations, technology, general and administrative $
101
Our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative expenses increased by$25 million in the three months endedMarch 31, 2022 , compared to the same period in 2021, as a result of restricted stock units awarded in 2021 and in the three months endedMarch 31, 2022 .
The following table summarizes operating expenses as a percentage of net revenue, excluding equity-based compensation and related taxes:
Three months ended
2022 2021
Customer service and merchant fees 4.8% 4.1%
Selling, operations, technology, general and administrative 17.5% 10.8%
Customer Service and Merchant Fees
Expenses for customer service and merchant fees, both including and excluding the impact of equity-based compensation and related taxes and as a percentage of net revenues, increased during the three months endedMarch 31, 2022 , as compared to the same period in 2021, due to increased compensation costs and a decrease in net revenue. Advertising Our advertising expenses decreased by$30 million in the three months endedMarch 31, 2022 , as compared to the same period in 2021, which reflects our response to changing market conditions as we sought to maintain our efficiency targets across various channels. As a percentage of net revenue, advertising expenses increased in the first quarter of 2022 compared to the same period in 2021, due in part to changes in advertising channel mix. 23
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Selling, operations, technology, general and administrative
Excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities increased by$151 million in three months endedMarch 31, 2022 , as compared to the same period in 2021, primarily attributable to higher personnel costs, and to a lesser extent, higher information technology costs and depreciation and amortization. As a percentage of net revenue, total selling, operations, technology, general and administrative expenses increased to 20.9% in three months endedMarch 31, 2022 , as compared to 13.0% in the same period in 2021, primarily due to the decrease in net revenue.
Customer service center impairment and other charges
During the three months endedMarch 31, 2021 , we enacted a plan to consolidate certain customer service centers in identifiedU.S. locations. As a result, we recorded a charge of$12 million , which included$6 million for the non-cash impairment of right-of-use assets,$5 million for the non-cash accelerated depreciation of fixed assets and the remainder for other items.
Interest expense, net
Our interest expense, net increased by$1 million in the three months endedMarch 31, 2022 , as compared to the same period in 2021, primarily attributable to a reversal of interest expense we recorded in 2020 for a portion of paid-in-kind interest accretion for the 2025 Accreting Notes that was not realized in 2021. Three months ended March 31, 2022 2021 % Change (in millions) Interest expense, net $ (8)$ (7) 14.3 % Other expense, net We did not incur other expense, net in the three months endedMarch 31, 2022 . We incurred other expense, net of$3 million in the three months endedMarch 31, 2021 , primarily attributable to unrealized and realized gains (losses) from foreign currency transactions. Three months ended March 31, 2022 2021 % Change (in millions) Other expense, net $ -$ (3) (100.0) %
Provision (benefit) for income taxes, net
Our provision (benefit) for income taxes, net increased by$3 million in the three months endedMarch 31, 2022 , as compared to the same period in 2021, primarily related to the level and mix of income earned in theU.S. and certain foreign jurisdictions andU.S. state income taxes, partially offset by the recognition of a lower discrete tax benefit due to excess tax benefits on equity awards forU.S. employees. Three months ended March 31, 2022 2021 % Change (in millions) Provision (benefit) for income taxes, net $ 1$ (2) (150.0) % 24
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Liquidity and Capital Resources
Sources of Liquidity
AtMarch 31, 2022 , our principal source of liquidity was cash and cash equivalents and short-term investments totaling$2.0 billion . In addition, we have a$600 million senior secured revolving credit facility that matures onMarch 24, 2026 (the "Revolver"). Wayfair had outstanding letters of credit, primarily as security for certain lease agreements, for approximately$62 million as ofMarch 31, 2022 , which reduced the availability of credit under the Revolver. Excluding liquidity available through our Revolver, the following table shows sources of liquidity as ofMarch 31, 2022 andDecember 31, 2021 : March 31, 2022 December 31, 2021 (in millions) Cash and cash equivalents$ 1,200 $ 1,706 Short-term investments $ 787 $ 693 Working capital $ 481 $ 795 We believe that our existing cash and cash equivalents and investments, cash generated from operations and the borrowing availability under our Revolver will be sufficient to meet our anticipated cash needs for at least the foreseeable future. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. In addition, we may elect to raise additional funds at any time through equity, equity-linked or debt financing arrangements. Further, we may from time to time seek to retire, restructure, repurchase or redeem, or otherwise mitigate the equity dilution associated with, our outstanding convertible debt, through cash purchases, stock buybacks of some or all of the shares underlying convertible notes and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, exchanges or liability management exercises, if any, will be upon such terms and at such prices and sizes as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described herein and in our other filings with theSecurities and Exchange Commission , orSEC , including those set forth Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . In addition, the COVID-19 pandemic and related measures to contain its impact have caused disruption in the capital markets, which could make obtaining financing more difficult and/or expensive. As a consequence, we may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt financing arrangements, those securities and instruments may have rights, preferences or privileges senior to the rights of our common stock, and the holders of our equity securities may experience dilution. We will continue to monitor our liquidity during this time of historic disruption and volatility in the global capital markets due to the COVID-19 pandemic.
Credit Agreement and Convertible 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.
As ofMarch 31, 2022 , we had$3.1 billion of indebtedness outstanding. The conditional conversion features of the 2022 Notes, 2024 Notes, 2025 Notes, and 2026 Notes were not triggered during the first quarter of 2022, and therefore the Non-Accreting Notes are not convertible in the second quarter of 2022 pursuant to the applicable last reported sales price condition.
The 2025 Accreting Notes are convertible at any time prior to the second
business day immediately preceding the maturity date. There were no conversions
of the Notes in the three months ended
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. If one or more holders elect to convert their Non-Accreting Notes at a time when any such Non-Accreting Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
The credit agreement and indentures governing our convertible notes contain restrictions and covenants that may limit our operating flexibility. For information regarding our credit agreement and convertible notes, see Note 4, Debt and Other
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Financing, included in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly Report on Form 10-Q. We do not expect any of these restrictions to affect our ability to conduct our business in the ordinary course. During the first quarter of 2022, we were in compliance with all the terms and conditions of our debt agreements.
Stock Repurchase Program
OnAugust 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"). OnAugust 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"). Wayfair will begin repurchasing shares under the 2021 Repurchase Program upon the completion of the 2020 Repurchase Program. The Repurchase Programs do not obligate Wayfair 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. The actual timing, number and value of shares repurchased under the Repurchase Programs in the future will be determined by Wayfair in its 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 ofMarch 31, 2022 , Wayfair has repurchased 2,354,491 shares of Class A common stock for approximately$612 million under the Repurchase Programs.
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