Market Overview

Wayfair Announces Second Quarter 2018 Results

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Q2 Direct Retail Net Revenue Growth of 49% Year over Year to $1.6
billion

12.8 million Active Customers, up 34% Year over Year

Wayfair Inc. (NYSE:W), one of the world's largest online destinations
for the home, today reported financial results for its second quarter
ended June 30, 2018.

Second Quarter 2018 Financial Highlights

  • Direct Retail net revenue, consisting of sales generated primarily
    through Wayfair's sites, increased $538.5 million to $1.6 billion, up
    48.8% year over year
  • Gross profit was $385.0 million or 23.3% of total net revenue
  • GAAP net loss was $100.7 million
  • Adjusted EBITDA was $(34.8) million or (2.1)% of total net revenue
  • GAAP basic and diluted net loss per share was $1.13
  • Non-GAAP diluted net loss per share was $0.77
  • Non-GAAP free cash flow was $(7.5) million
  • At the end of the second quarter, cash, cash equivalents, and
    short-term and long-term investments totaled $585.2 million

"We are pleased to report a record second quarter and our largest yet
year-over-year dollar growth in Direct Retail net revenue. This recent
quarter included our biggest revenue day in the history of the company
as we introduced Way Day, the first-ever retail holiday for home," said
Niraj Shah, CEO, co-founder and co-chairman, Wayfair. "Our long-term
investments in further developing our logistics networks, international
business, and in scaling headcount to improve our product and service
offerings are resonating strongly with new and returning customers. By
focusing on bringing customers the best possible experience in shopping
for the home, from the home, we are leading the way in our category. We
are delighted with the progress that we are making and the way in which
we are positioned to keep taking market share as dollars shift online."

Other Second Quarter Highlights

  • The number of active customers in our Direct Retail business reached
    12.8 million as of June 30, 2018, an increase of 34.0% year over year
  • LTM net revenue per active customer was $440 as of June 30, 2018, an
    increase of 9.5% year over year
  • Orders per customer, measured as LTM orders divided by active
    customers, was 1.82 for the second quarter of 2018, compared to 1.74
    for the second quarter of 2017
  • Repeat customers placed 66.0% of total orders in the second quarter of
    2018, compared to 61.3% in the second quarter of 2017
  • Repeat customers placed 4.3 million orders in the second quarter of
    2018, an increase of 62.3% year over year
  • Orders delivered in the second quarter of 2018 were 6.5 million, an
    increase of 50.8% year over year
  • Average order value was $254 for the second quarter of 2018, compared
    to $258 in the second quarter of 2017
  • In the second quarter of 2018, 49.2% of total orders delivered for our
    Direct Retail business were placed via a mobile device, compared to
    44.1% in the second quarter of 2017

Webcast and Conference Call

Wayfair will host a conference call and webcast to discuss its second
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 6854609. 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 - Everything home for every budget
  • Joss & Main - Affordable discoveries for gorgeous living
  • AllModern - Unbelievable prices on everything modern
  • Birch Lane - Home of classic designs and fresh finds
  • Perigold - The widest-ever selection of premium home

Wayfair generated $5.7 billion in net revenue for the twelve months
ended June 30, 2018. Headquartered in Boston, Massachusetts with
operations throughout North America and Europe, the company employs more
than 9,700 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 June 30,   Six months ended June 30,
2018   2017 2018   2017
Reconciliation of Adjusted EBITDA
Net loss $ (100,734 ) $ (38,875 ) $ (208,509 ) $ (95,414 )
Depreciation and amortization 28,920 19,323 54,882 39,675
Equity based compensation and related taxes 31,610 15,983 58,757 30,941
Interest expense, net 5,796 1,550 11,203 1,849
Other (income), net (666 ) (451 ) (1,607 ) (627 )
Provision for income taxes 265   224   505   434  
Adjusted EBITDA $ (34,809 ) $ (2,246 ) $ (84,769 ) $ (23,142 )
 
Net revenue $ 1,655,256 $ 1,122,856 $ 3,059,525 $ 2,083,681
Adjusted EBITDA Margin (2.1 )% (0.2 )% (2.8 )% (1.1 )%

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 June 30,   Six months ended June 30,
2018   2017 2018   2017
Segment Adjusted EBITDA
U.S. $ 7,200 $ 20,425 $ (738 ) $ 24,153
International (42,009 ) (22,671 ) (84,031 ) (47,295 )
Adjusted EBITDA $ (34,809 ) $ (2,246 ) $ (84,769 ) $ (23,142 )

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 June 30,   Six months ended June 30,
2018   2017 2018   2017
Net loss $ (100,734 ) $ (38,875 ) $ (208,509 ) $ (95,414 )
Equity based compensation and related taxes 31,610 15,983 58,757 30,941
Provision for income taxes 265   224   505   434  
Non-GAAP net loss $ (68,859 ) $ (22,668 ) $ (149,247 ) $ (64,039 )
Non-GAAP net loss per share, basic and diluted $ (0.77 ) $ (0.26 ) $ (1.68 ) $ (0.74 )
Weighted average common shares outstanding, basic and diluted 89,158   86,714   88,814   86,374  

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 June 30,   Six months ended June 30,
2018   2017 2018   2017
Net cash provided by (used in) operating activities $ 47,604 $ 18,101 $ 34,527 $ (27,997 )
Purchase of property and equipment (39,730 ) (33,596 ) (61,093 ) (45,548 )
Site and software development costs (15,419 ) (11,730 ) (28,573 ) (22,650 )
Free cash flow $ (7,545 ) $ (27,225 ) $ (55,139 ) $ (96,195 )
 

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

       
Three months ended June 30, Six months ended June 30,
2018   2017 2018   2017
Consolidated Financial Metrics
Net Revenue $ 1,655,256 $ 1,122,856 $ 3,059,525 $ 2,083,681
Adjusted EBITDA $ (34,809 ) $ (2,246 ) $ (84,769 ) $ (23,142 )
Free cash flow $ (7,545 ) $ (27,225 ) $ (55,139 ) $ (96,195 )
Direct Retail Financial and Operating Metrics
Direct Retail Net Revenue $ 1,640,921 $ 1,102,461 $ 3,029,811 $ 2,042,813
Active Customers 12,792 9,547 12,792 9,547
LTM Net Revenue per Active Customer $ 440 $ 402 $ 440 $ 402
Orders Delivered 6,452 4,278 12,340 8,490
Average Order Value $ 254 $ 258 $ 246 $ 241

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 June 30,   Six months ended June 30,
2018   2017 2018   2017
U.S. Direct Retail $ 1,397,009 $ 976,673 $ 2,583,214 $ 1,814,229
U.S. Other 14,335   20,395   29,714   40,868
U.S. segment net revenue 1,411,344   997,068   2,612,928   1,855,097
International Direct Retail 243,912   125,788   446,597   228,584
International segment net revenue 243,912   125,788   446,597   228,584
Total net revenue $ 1,655,256   $ 1,122,856   $ 3,059,525   $ 2,083,681
 

WAYFAIR INC.
CONSOLIDATED AND CONDENSED BALANCE
SHEETS

(In thousands, except share and per share data)
(Unaudited)

       
June 30,
2018
December 31,
2017
Assets
Current assets
Cash and cash equivalents $ 529,452 $ 558,960
Short-term investments 45,934 61,032
Accounts receivable, net of allowance of $6,711 and $7,000 at
June 30, 2018 and December 31, 2017, respectively
34,823 37,948
Inventories 30,710 28,042
Prepaid expenses and other current assets 153,042   130,838  
Total current assets 793,961 816,820
Property and equipment, net 468,422 361,141
Goodwill and intangible assets, net 2,918 3,105
Long-term investments 9,767 21,561
Other noncurrent assets 12,200   10,776  
Total assets $ 1,287,268   $ 1,213,403  
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 543,596 $ 440,366
Accrued expenses 129,458 120,247
Deferred revenue 121,618 94,116
Other current liabilities 95,626   85,026  
Total current liabilities 890,298 739,755
Lease financing obligation, net of current portion 141,025 82,580
Long-term debt 342,281 332,905
Other liabilities 109,142   106,492  
Total liabilities 1,482,746 1,261,732
 
Convertible preferred stock, $0.001 par value per share: 10,000,000
shares authorized and none issued at June 30, 2018 and December 31,
2017
Stockholders' equity:
Class A common stock, par value $0.001 per share, 500,000,000 shares
authorized, 59,315,145 and 57,398,983 shares issued and outstanding
at June 30, 2018 and December 31, 2017, respectively
59 57
Class B common stock, par value $0.001 per share, 164,000,000 shares
authorized, 30,161,725 and 30,809,627 shares issued and outstanding
at June 30, 2018 and December 31, 2017, respectively
30 31
Additional paid-in capital 593,460 537,212
Accumulated deficit (787,118 ) (583,266 )
Accumulated other comprehensive (loss) (1,909 ) (2,363 )
Total stockholders' equity (195,478 ) (48,329 )
Total liabilities and stockholders' equity $ 1,287,268   $ 1,213,403  
 
 

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS
OF OPERATIONS

(In thousands, except per share data)
(Unaudited)

       

 

Three months ended June 30, Six months ended June 30,
2018   2017 2018   2017
Net revenue $ 1,655,256 $ 1,122,856 $ 3,059,525 $ 2,083,681
Cost of goods sold (1) 1,270,249   853,390   2,350,694   1,577,332  
Gross profit 385,007 269,466 708,831 506,349
Operating expenses:
Customer service and merchant fees (1) 61,792 39,125 115,676 74,183
Advertising 177,582 124,241 339,228 242,506
Selling, operations, technology, general and administrative (1) 240,972   143,652   452,335   283,418  
Total operating expenses 480,346   307,018   907,239   600,107  
Loss from operations (95,339 ) (37,552 ) (198,408 ) (93,758 )
Interest expense, net (5,796 ) (1,550 ) (11,203 ) (1,849 )
Other income, net 666   451   1,607   627  
Loss before income taxes (100,469 ) (38,651 ) (208,004 ) (94,980 )
Provision for income taxes 265   224   505   434  
Net loss $ (100,734 ) $ (38,875 ) $ (208,509 ) $ (95,414 )
Net loss per share, basic and diluted $ (1.13 ) $ (0.45 ) $ (2.35 ) $ (1.10 )
Weighted average number of common stock outstanding used in
computing per share amounts, basic and diluted
89,158   86,714   88,814   86,374  
 

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

 
Cost of goods sold

$

637

$

205

$

1,202

$

350
Customer service and merchant fees

 

1,133 586 2,103 1,230
Selling, operations, technology, general and administrative   29,840     15,192     55,452     29,361

$

31,610  

$

15,983  

$

58,757  

$

30,941
 
 

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS
OF CASH FLOWS

(In thousands)
(Unaudited)

         
Six months ended June 30,
2018   2017
Cash flows from operating activities
Net loss $ (208,509 ) $ (95,414 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 54,882 39,675
Equity based compensation 54,213 28,462
Amortization of discount and issuance costs on convertible notes 9,353
Other non-cash adjustments 133 868
Changes in operating assets and liabilities:
Accounts receivable 3,058 (4,723 )
Inventories (2,741 ) 3,949
Prepaid expenses and other current assets (22,354 ) (31,220 )
Accounts payable and accrued expenses 95,743 (137 )
Deferred revenue and other liabilities 52,211 30,660
Other assets (1,462 ) (117 )
Net cash provided by (used in) operating activities 34,527   (27,997 )
 
Cash flows from investing activities
Purchase of short-term and long-term investments (25,334 )
Sale and maturities of short-term investments 26,646 46,035
Purchase of property and equipment (61,093 ) (45,548 )
Site and software development costs (28,573 ) (22,650 )
Other investing activities (267 )  
Net cash used in investing activities (63,287 ) (47,497 )
 
Cash flows from financing activities
Taxes paid related to net share settlement of equity awards (635 ) (1,252 )
Net proceeds from exercise of stock options 74   162  
Net cash used in financing activities (561 ) (1,090 )
Effect of exchange rate changes on cash and cash equivalents (187 ) 554  
Net decrease in cash and cash equivalents (29,508 ) (76,030 )
 
Cash and cash equivalents
Beginning of period 558,960   279,840  
End of period $ 529,452   $ 203,810  

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