Market Overview

Wayfair Announces First Quarter 2018 Results

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Q1 Direct Retail Net Revenue Growth of 48% Year over Year to $1.4
billion

11.8 million Active Customers, up 33% Year over Year

Wayfair Inc. (NYSE:W), one of the world's largest online destinations
for the home, today reported financial results for its first quarter
ended March 31, 2018.

First Quarter 2018 Financial Highlights

  • Direct Retail net revenue, consisting of sales generated primarily
    through Wayfair's sites, increased $448.5 million to $1.4 billion, up
    47.7% year over year
  • Gross profit was $323.8 million or 23.1% of total net revenue
  • GAAP net loss was $107.8 million
  • Adjusted EBITDA was $(50.0) million or (3.6)% of total net revenue
  • GAAP basic and diluted net loss per share was $1.22
  • Non-GAAP diluted net loss per share was $0.91
  • Non-GAAP free cash flow was $(47.6) million
  • At the end of the first quarter, cash, cash equivalents, and
    short-term and long-term investments totaled $593.0 million

"Our Direct Retail business continues to grow at a strong rate, both in
the U.S. and internationally, as our customers benefit from the
investments we have been making across our business and reward us with
their loyalty and spending. We are delighted with this momentum as we
continue to lead the way in bringing customers the best possible
shopping experience in our category online," said Niraj Shah, CEO,
co-founder and co-chairman, Wayfair. "We are really pleased with the
growth we are seeing across our business and the market share gains this
growth represents. Most recently, we were excited to see the success of
Way Day as we offered our customers a compelling shopping event that was
well-timed for shoppers looking to refresh their homes for the spring
season. Overall, we are delighted with how the business performed in Q1
and are excited to build on this strength moving forward."

Other First Quarter Highlights

  • The number of active customers in our Direct Retail business reached
    11.8 million as of March 31, 2018, an increase of 33.2% year over year
  • LTM net revenue per active customer was $432 as of March 31, 2018, an
    increase of 9.6% year over year
  • Orders per customer, measured as LTM orders divided by active
    customers, was 1.79 for the first quarter of 2018, compared to 1.73
    for the first quarter of 2017
  • Repeat customers placed 64.3% of total orders in the first quarter of
    2018, compared to 60.4% in the first quarter of 2017
  • Repeat customers placed 3.8 million orders in the first quarter of
    2018, an increase of 48.9% year over year
  • Orders delivered in the first quarter of 2018 were 5.9 million, an
    increase of 39.8% year over year
  • Average order value was $236 for the first quarter of 2018, compared
    to $223 in the first quarter of 2017
  • In the first quarter of 2018, 49.2% of total orders delivered for our
    Direct Retail business were placed via a mobile device, compared to
    44.6% in the first quarter of 2017

Webcast and Conference Call

Wayfair will host a conference call and webcast to discuss its first
quarter 2018 financial results today at 8 a.m. (ET). Investors and
participants can access the call by dialing (833) 286-5803 in the U.S.
and (647) 689-4448 internationally. The passcode for the conference line
is 3899113. The call will also be available via live webcast at
investor.wayfair.com along with supporting slides. An archive of the
webcast conference call will be available shortly after the call ends.
The archived webcast will be available at investor.wayfair.com.

About Wayfair

Wayfair believes everyone should live in a home they love. Through
technology and innovation, Wayfair makes it possible for shoppers to
quickly and easily find exactly what they want from a selection of more
than 10 million items across home furnishings, décor, home improvement,
housewares and more. Committed to delighting its customers every step of
the way, Wayfair is reinventing the way people shop for their homes -
from product discovery to final delivery.

The Wayfair family of sites includes:

  • Wayfair, an online destination for all things home
  • Joss & Main, where beautiful furniture and finds meet irresistible
    savings
  • AllModern, unbelievable prices on everything modern
  • Birch Lane, a collection of classic furnishings and timeless home décor
  • Perigold, unparalleled access to the finest home décor and furnishings

Wayfair generated $5.2 billion in net revenue for the twelve months
ended March 31, 2018. Headquartered in Boston, Massachusetts with
operations throughout North America and Europe, the company employs more
than 8,700 people.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of federal and state securities laws. All statements other than
statements of historical fact contained in this press release, including
statements regarding our future results of operations and financial
position, business strategy and plans and objectives of management for
future operations, are forward-looking statements. In some cases, you
can identify forward-looking statements by terms such as "may," "will,"
"should," "expects," "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
our 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 press
release 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.

A list and description of risks, uncertainties and other factors that
could cause or contribute to differences in our results can be found
under Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 and the Company's subsequent
filings with the Securities and Exchange Commission. We qualify all of
our forward-looking statements by these cautionary statements.

Non-GAAP Financial Measures

To supplement our unaudited consolidated and condensed financial
statements presented in accordance with generally accepted accounting
principles ("GAAP"), this earnings release and the accompanying tables
and the related earnings conference call contain certain non-GAAP
financial measures, including Adjusted EBITDA, Adjusted EBITDA as a
percentage of total net revenue ("Adjusted EBITDA Margin"), free cash
flow and non-GAAP net loss and diluted net loss per share. We use these
non-GAAP financial measures internally in analyzing our financial
results and believe they are useful to investors, as a supplement to
GAAP measures, in evaluating our ongoing operational performance. We
have provided a reconciliation of these non-GAAP financial measures to
the most directly comparable GAAP financial measure in this earnings
release.

Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial
measures that are calculated as income (loss) before depreciation and
amortization, equity-based compensation and related taxes, interest and
other income and expense, (benefit from) provision for income taxes, and
non-recurring items. We have included Adjusted EBITDA and Adjusted
EBITDA Margin in this earnings release because they are key measures
used by our management and our board of directors to evaluate our
operating performance, generate future operating plans and make
strategic decisions regarding the allocation of capital. In particular,
the exclusion of certain expenses in calculating Adjusted EBITDA and
Adjusted EBITDA Margin facilitates operating performance comparisons on
a period-to-period basis and, in the case of exclusion of the impact of
equity-based compensation and related taxes, excludes an item that we do
not consider to be indicative of our core operating performance.
Investors should, however, understand that equity-based compensation
will be a significant recurring expense in our business and an important
part of the compensation provided to our employees. Accordingly, we
believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful
information to investors and others in understanding and evaluating our
operating results in the same manner as our management and board of
directors.

Free cash flow is a non-GAAP financial measure that is calculated as net
cash (used in) provided by operating activities less net cash used to
purchase property and equipment and site and software development costs.
We believe free cash flow is an important indicator of our business
performance, as it measures the amount of cash we generate. Accordingly,
we believe that free cash flow provides useful information to investors
and others in understanding and evaluating our operating results in the
same manner as our management.

Non-GAAP diluted net loss per share is a non-GAAP financial measure that
is calculated as GAAP net loss plus equity-based compensation and
related taxes, (benefit from) provision for income taxes, and
non-recurring items divided by weighted average shares. We believe that
adding back equity-based compensation expense and related taxes and
(benefit from) provision for income taxes, and non-recurring items as
adjustments to our GAAP diluted net loss before calculating per share
amounts for all periods presented provides a more meaningful comparison
between our operating results from period to period.

We do not, nor do we suggest that investors should, consider such
non-GAAP financial measures in isolation from, or as a substitute for,
financial information prepared in accordance with GAAP. Investors should
also note that the non-GAAP financial measures we use may not be the
same non-GAAP financial measures, and may not be calculated in the same
manner, as that of other companies, including other companies in our
industry.

The following table reflects the reconciliation of net loss to Adjusted
EBITDA and Adjusted EBITDA Margin for each of the periods indicated (in
thousands):

     

 

 
Three months ended March 31,
2018       2017
Reconciliation of Adjusted EBITDA
Net loss $ (107,775 ) $ (56,539 )
Depreciation and amortization 25,962 20,352
Equity based compensation and related taxes 27,147 14,958
Interest expense, net 5,407 299
Other (income), net (941 ) (176 )
Provision for income taxes 240   210  
Adjusted EBITDA $ (49,960 ) $ (20,896 )
 
Net revenue $ 1,404,269 $ 960,825
Adjusted EBITDA Margin (3.6 )% (2.2 )%
 

The following table presents Adjusted EBITDA attributable to our
segments, and the reconciliation of net loss to consolidated Adjusted
EBITDA is presented in the preceding table (in thousands):

 

     
Three months ended March 31,
2018       2017
Segment Adjusted EBITDA
U.S. $ (7,938 ) $ 3,728
International (42,022 ) (24,624 )
Adjusted EBITDA $ (49,960 ) $ (20,896 )
 

A reconciliation of GAAP net loss to non-GAAP diluted net loss, the most
directly comparable GAAP financial measure, in order to calculate
non-GAAP diluted net loss per share, is as follows (in thousands, except
per share data):

 

 

     
Three months ended March 31,
2018     2017
Net loss $ (107,775 ) $ (56,539 )
Equity based compensation and related taxes 27,147 14,958
Provision for income taxes 240   210  
Non-GAAP net loss $ (80,388 ) $ (41,371 )
Non-GAAP net loss per share, basic and diluted $ (0.91 ) $ (0.48 )
Weighted average common shares outstanding, basic and diluted 88,467   86,036  
 

The following table presents a reconciliation of free cash flow to net
cash used in operating activities for each of the periods indicated (in
thousands):

 

     
Three months ended March 31,
2018         2017  
Net cash used in operating activities $ (13,077 ) $ (46,098 )
Purchase of property and equipment (21,363 ) (11,952 )
Site and software development costs (13,154 ) (10,920 )
Free cash flow $ (47,594 ) $ (68,970 )
 

Key Financial and Operating Metrics (in thousands, except LTM Net
Revenue per Active Customer and Average Order Value)

     
Three months ended March 31,
2018         2017  
Consolidated Financial Metrics
Net Revenue $ 1,404,269 $ 960,825
Adjusted EBITDA $ (49,960 ) $ (20,896 )
Free cash flow $ (47,594 ) $ (68,970 )
Direct Retail Financial and Operating Metrics
Direct Retail Net Revenue $ 1,388,890 $ 940,352
Active Customers 11,795 8,855
LTM Net Revenue per Active Customer $ 432 $ 394
Orders Delivered 5,888 4,213
Average Order Value $ 236 $ 223
 

The following table presents Direct Retail and Other net revenues
attributable to the Company's reportable segments for the periods
presented (in thousands):

     
Three months ended March 31,
2018       2017
U.S. Direct Retail $ 1,186,205 $ 837,556
U.S. Other 15,379   20,473
U.S. segment net revenue 1,201,584   858,029
International Direct Retail 202,685   102,796
International segment net revenue 202,685   102,796
Total net revenue $ 1,404,269   $ 960,825
 
           

 

 

WAYFAIR INC.

CONSOLIDATED AND CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

March 31,
2018

December 31,
2017
Assets
Current assets
Cash and cash equivalents $ 522,026 $ 558,960
Short-term investments 60,032 61,032
Accounts receivable, net of allowance of $6,539 and $7,000 at
March 31, 2018 and December 31, 2017, respectively
31,977 37,948
Inventories 34,550 28,042
Prepaid expenses and other current assets 148,295   130,838  
Total current assets 796,880 816,820
Property and equipment, net 404,309 361,141
Goodwill and intangible assets, net 3,218 3,105
Long-term investments 10,962 21,561
Other noncurrent assets 11,077   10,776  
Total assets $ 1,226,446   $ 1,213,403  
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 485,631 $ 440,366
Accrued expenses 114,517 120,247
Deferred revenue 110,074 94,116
Other current liabilities 89,430   85,026  
Total current liabilities 799,652 739,755
Lease financing obligation, net of current portion 82,580 82,580
Long-term debt 337,186 332,905
Other liabilities 134,232   106,492  
Total liabilities 1,353,650 1,261,732
 
Convertible preferred stock, $0.001 par value per share: 10,000,000
shares authorized and none issued at March 31, 2018 and December 31,
2017
Stockholders' equity:
Class A common stock, par value $0.001 per share, 500,000,000 shares
authorized, 58,274,357 and 57,398,983 shares issued and outstanding
at March 31, 2018 and December 31, 2017, respectively
58 57
Class B common stock, par value $0.001 per share, 164,000,000 shares
authorized, 30,579,183 and 30,809,627 shares issued and outstanding
at March 31, 2018 and December 31, 2017, respectively
31 31
Additional paid-in capital 562,349 537,212
Accumulated deficit (686,384 ) (583,266 )
Accumulated other comprehensive (loss) (3,258 ) (2,363 )
Total stockholders' equity (127,204 ) (48,329 )
Total liabilities and stockholders' equity $ 1,226,446   $ 1,213,403  
           

 

WAYFAIR INC.

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

Three months ended
March 31,

  2018   2017
Net revenue $ 1,404,269 $ 960,825
Cost of goods sold (1)   1,080,445     723,942  
Gross profit 323,824 236,883
Operating expenses:
Customer service and merchant fees (1) 53,884 35,058
Advertising 161,646 118,265
Selling, operations, technology, general and administrative (1)   211,363     139,766  
Total operating expenses   426,893     293,089  
Loss from operations (103,069 ) (56,206 )
Interest expense, net (5,407 ) (299 )
Other income, net   941     176  
Loss before income taxes (107,535 ) (56,329 )
Provision for income taxes   240     210  
Net loss $ (107,775 ) $ (56,539 )
Net loss per share, basic and diluted $ (1.22 ) $ (0.66 )
Weighted average number of common stock outstanding used in
computing per share amounts, basic and diluted
  88,467     86,036  
 
(1) Includes equity based compensation and related taxes as follows:
 
Cost of goods sold $ 565 $ 145
Customer service and merchant fees 970 644
Selling, operations, technology, general and administrative   25,612       14,169  
$ 27,147     $ 14,958  
     

WAYFAIR INC.

 CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
Three months ended March 31,
2018     2017
Cash flows from operating activities
Net loss $ (107,775 ) $ (56,539 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 25,962 20,352
Equity based compensation 24,400 13,629
Amortization of discount and issuance costs on convertible notes 4,281
Other non-cash adjustments 111 (246 )
Changes in operating assets and liabilities:
Accounts receivable 6,010 (2,651 )
Inventories (6,491 ) 4,094
Prepaid expenses and other current assets (17,218 ) (28,200 )
Accounts payable and accrued expenses 34,058 (22,412 )
Deferred revenue and other liabilities 23,821 25,930
Other assets (236 ) (55 )
Net cash used in operating activities (13,077 ) (46,098 )
 
Cash flows from investing activities
Purchase of short-term and long-term investments (16,225 )
Sale and maturities of short-term investments 11,390 18,275
Purchase of property and equipment (21,363 ) (11,952 )
Site and software development costs (13,154 ) (10,920 )
Other investing activities (267 )  
Net cash used in investing activities (23,394 ) (20,822 )
 
Cash flows from financing activities
Taxes paid related to net share settlement of equity awards (391 ) (592 )
Net proceeds from exercise of stock options 29   54  
Net cash used in financing activities (362 ) (538 )
Effect of exchange rate changes on cash and cash equivalents (101 ) 26  
Net decrease in cash and cash equivalents (36,934 ) (67,432 )
 
Cash and cash equivalents
Beginning of period 558,960   279,840  
End of period $ 522,026   $ 212,408  

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