NYSE:W $91.58 -1.83 (-1.96%) Volume: 2,276,024 View details » November 12, 2018

Investor Relations Department:

Kate Gulliver, Investor Relations

4 Copley Place - Floor 7
Boston, MA 02116
P: 617-502-7040
E: IR@wayfair.com

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Wayfair Announces Third Quarter 2018 Results

11/01/2018

Q3 Direct Retail Net Revenue Growth of 43% Year over Year to $1.7 billion

13.9 million Active Customers, up 35% Year over Year

BOSTON--(BUSINESS WIRE)-- Wayfair Inc. (NYSE: W), one of the world’s largest online destinations for the home, today reported financial results for its third quarter ended September 30, 2018.

Third Quarter 2018 Financial Highlights

  • Direct Retail net revenue, consisting of sales generated primarily through Wayfair’s sites, increased $511.2 million to $1.7 billion, up 43.3% year over year
  • Gross profit was $392.8 million or 23.0% of total net revenue
  • GAAP net loss was $151.7 million
  • Adjusted EBITDA was $(76.4) million or (4.5)% of total net revenue
  • GAAP basic and diluted net loss per share was $1.69
  • Non-GAAP diluted net loss per share was $1.28
  • Non-GAAP free cash flow was $(58.8) million
  • At the end of the third quarter, cash, cash equivalents, and short-term and long-term investments totaled $525.2 million

"We are pleased to report another quarter of incredibly strong growth with our Direct Retail business growing 43 percent this past quarter," said Niraj Shah, CEO, co-founder and co-chairman, Wayfair. "We are delighted with the market share we are winning as we continue to invest in leading the way in bringing customers the best possible shopping experience in our category online. Our customers are responding extremely well to our offering in the U.S. and internationally, with our customer KPIs continuing to strengthen. We are taking a long-term approach to building our business and putting shoppers first by investing further in our logistics capabilities, in our international regions and in scaling headcount to enhance our customer offering in under-penetrated product categories and services. Overall, we are thrilled with how the business performed in Q3 and are excited to build on this strength moving forward."

Other Third Quarter Highlights

  • The number of active customers in our Direct Retail business reached 13.9 million as of September 30, 2018, an increase of 35.2% year over year
  • LTM net revenue per active customer was $443 as of September 30, 2018, an increase of 8.6% year over year
  • Orders per customer, measured as LTM orders divided by active customers, was 1.84 for the third quarter of 2018, compared to 1.75 for the third quarter of 2017
  • Repeat customers placed 66.3% of total orders in the third quarter of 2018, compared to 61.0% in the third quarter of 2017
  • Repeat customers placed 4.6 million orders in the third quarter of 2018, an increase of 59.7% year over year
  • Orders delivered in the third quarter of 2018 were 6.9 million, an increase of 47.0% year over year
  • Average order value was $244 for the third quarter of 2018, compared to $250 in the third quarter of 2017
  • In the third quarter of 2018, 49.4% of total orders delivered for our Direct Retail business were placed via a mobile device, compared to 45.4% in the third quarter of 2017

Webcast and Conference Call

Wayfair will host a conference call and webcast to discuss its third 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 2699028. 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 $6.2 billion in net revenue for the twelve months ended September 30, 2018. Headquartered in Boston, Massachusetts with operations throughout North America and Europe, the company employs more than 10,900 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 September 30,   Nine months ended September 30,
2018   2017 2018   2017
Reconciliation of Adjusted EBITDA
Net loss $ (151,726 ) $ (76,429 ) $ (360,235 ) $ (171,843 )
Depreciation and amortization (1) 32,544 22,913 87,426 62,588
Equity based compensation and related taxes 36,317 19,598 95,074 50,539
Interest expense, net 7,066 2,008 18,269 3,857
Other (income) expense, net (1,054 ) 227 (2,661 ) (400 )
Provision for income taxes 448 237 953 671
Other (1)   8,774     8,774  
Adjusted EBITDA $ (76,405 ) $ (22,672 ) $ (161,174 ) $ (45,814 )
 
Net revenue $ 1,705,645 $ 1,198,198 $ 4,765,170 $ 3,281,879
Adjusted EBITDA Margin (4.5 )% (1.9 )% (3.4 )% (1.4 )%

(1) We recorded $9.6 million of one-time charges in the three and nine months ended September 30, 2017 in "Selling, operations, technology, general and administrative" in the unaudited consolidated and condensed statements of operations related to a warehouse we vacated in July 2017. Of the $9.6 million charges, $8.8 million was included in "Other" and related primarily to the excess of our estimated future remaining lease commitments through 2023 over our expected sublease income over the same period, and $0.8 million was included in "Depreciation and amortization" related to accelerated depreciation of leasehold improvements in the warehouse.

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 September 30,   Nine months ended September 30,
2018   2017 2018   2017
Segment Adjusted EBITDA
U.S. $ (26,036 ) $ 4,531 $ (26,774 ) $ 28,684
International (50,369 ) (27,203 ) (134,400 ) (74,498 )
Adjusted EBITDA $ (76,405 ) $ (22,672 ) $ (161,174 ) $ (45,814 )
 

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 September 30,   Nine months ended September 30,
2018   2017 2018   2017
Net loss $ (151,726 ) $ (76,429 ) $ (360,235 ) $ (171,843 )
Equity based compensation and related taxes 36,317 19,598 95,074 50,539
Provision for income taxes 448   237   953   671  
Non-GAAP net loss $ (114,961 ) $ (56,594 ) $ (264,208 ) $ (120,633 )
Non-GAAP net loss per share, basic and diluted $ (1.28 ) $ (0.65 ) $ (2.96 ) $ (1.39 )
Weighted average common shares outstanding, basic and diluted 89,792   87,283   89,144   86,679  
 

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 September 30,   Nine months ended September 30,
2018   2017 2018   2017
Net cash provided by (used in) operating activities $ 7,804 $ 24,752 $ 42,331 $ (3,245 )
Purchase of property and equipment (49,411 ) (30,980 ) (110,504 ) (76,528 )
Site and software development costs (17,196 ) (12,235 ) (45,769 ) (34,885 )
Free cash flow $ (58,803 ) $ (18,463 ) $ (113,942 ) $ (114,658 )
 

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

  Three months ended September 30,   Nine months ended September 30,
2018   2017 2018   2017
Consolidated Financial Metrics
Net Revenue $ 1,705,645 $ 1,198,198 $ 4,765,170 $ 3,281,879
Adjusted EBITDA $ (76,405 ) $ (22,672 ) $ (161,174 ) $ (45,814 )
Free cash flow $ (58,803 ) $ (18,463 ) $ (113,942 ) $ (114,658 )
Direct Retail Financial and Operating Metrics
Direct Retail Net Revenue $ 1,692,456 $ 1,181,223 $ 4,722,267 $ 3,224,036
Active Customers 13,860 10,250 13,860 10,250
LTM Net Revenue per Active Customer $ 443 $ 408 $ 443 $ 408
Orders Delivered 6,938 4,719 19,278 13,209
Average Order Value $ 244 $ 250 $ 245 $ 244
 

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 September 30,   Nine months ended September 30,
2018   2017 2018   2017
U.S. Direct Retail $ 1,460,056 $ 1,033,669 $ 4,043,270 $ 2,847,898
U.S. Other 13,189   16,975   42,903   57,843
U.S. segment net revenue 1,473,245   1,050,644   4,086,173   2,905,741
International Direct Retail 232,400   147,554   678,997   376,138
International segment net revenue 232,400   147,554   678,997   376,138
Total net revenue $ 1,705,645   $ 1,198,198   $ 4,765,170   $ 3,281,879
 

WAYFAIR INC.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)

   

September 30,
2018

December 31,
2017
Assets
Current assets
Cash and cash equivalents $ 488,636 $ 558,960
Short-term investments 30,056 61,032
Accounts receivable, net of allowance of $7,462and $7,000 at September 30, 2018 and December 31, 2017, respectively 41,013 37,948
Inventories 35,723 28,042
Prepaid expenses and other current assets 167,754   130,838  
Total current assets 763,182 816,820
Property and equipment, net 509,661 361,141
Goodwill and intangible assets, net 2,724 3,105
Long-term investments 6,521 21,561
Other noncurrent assets 17,550   10,776  
Total assets $ 1,299,638   $ 1,213,403  
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 591,931 $ 440,366
Accrued expenses 167,745 120,247
Deferred revenue 133,423 94,116
Other current liabilities 109,212   85,026  
Total current liabilities 1,002,311 739,755
Lease financing obligation, net of current portion 184,055 82,580
Long-term debt 346,641 332,905
Other liabilities 78,852   106,492  
Total liabilities 1,611,859 1,261,732
 
Convertible preferred stock, $0.001 par value per share: 10,000,000 shares authorized and none issued at September 30, 2018 and December 31, 2017
Stockholders’ equity:
Class A common stock, par value $0.001 per share, 500,000,000 shares authorized, 61,400,416 and 57,398,983 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively 61 57
Class B common stock, par value $0.001 per share, 164,000,000 shares authorized, 28,726,124 and 30,809,627 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively 29 31
Additional paid-in capital 628,600 537,212
Accumulated deficit (938,844 ) (583,266 )
Accumulated other comprehensive (loss) (2,067 ) (2,363 )
Total stockholders’ equity (312,221 ) (48,329 )
Total liabilities and stockholders’ equity $ 1,299,638   $ 1,213,403  
 

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

   

Three months ended September 30,

Nine months ended September 30,
2018   2017 2018   2017
Net revenue $ 1,705,645 $ 1,198,198 $ 4,765,170 $ 3,281,879
Cost of goods sold (1) 1,312,875   917,889   3,663,569   2,495,221  
Gross profit 392,770 280,309 1,101,601 786,658
Operating expenses:
Customer service and merchant fees (1) 66,664 42,949 182,340 117,132
Advertising 202,587 141,714 541,815 384,220
Selling, operations, technology, general and administrative (1) 268,785   169,603   721,120   453,021  
Total operating expenses 538,036   354,266   1,445,275   954,373  
Loss from operations (145,266 ) (73,957 ) (343,674 ) (167,715 )
Interest expense, net (7,066 ) (2,008 ) (18,269 ) (3,857 )
Other income (expense), net 1,054   (227 ) 2,661   400  
Loss before income taxes (151,278 ) (76,192 ) (359,282 ) (171,172 )
Provision for income taxes 448   237   953   671  
Net loss $ (151,726 ) $ (76,429 ) $ (360,235 ) $ (171,843 )
Net loss per share, basic and diluted $ (1.69 ) $ (0.88 ) $ (4.04 ) $ (1.98 )
Weighted average number of common stock outstanding used in computing per share amounts, basic and diluted 89,792   87,283   89,144   86,679  
 

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

 

Cost of goods sold

$

727

$

282

$

1,929

$

632

Customer service and merchant fees

 

1,549

 

636

 

3,652

 

1,866

Selling, operations, technology, general and administrative

 

34,041

 

18,680

 

89,493

 

48,041

$

36,317

$

19,598

$

95,074

$

50,539

 

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine months ended September 30,
2018   2017
Cash flows from operating activities
Net loss $ (360,235 ) $ (171,843 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 87,426 62,588
Equity based compensation 88,148 46,740
Amortization of discount and issuance costs on convertible notes 13,699 874
Other non-cash adjustments 177 913
Changes in operating assets and liabilities:
Accounts receivable (3,157 ) (8,697 )
Inventories (7,757 ) (38 )
Prepaid expenses and other current assets (37,376 ) (27,776 )
Accounts payable and accrued expenses 187,733 44,692
Deferred revenue and other liabilities 80,509 50,450
Other assets (6,836 ) (1,148 )
Net cash provided by (used in) operating activities 42,331   (3,245 )
 
Cash flows from investing activities
Purchase of short-term and long-term investments (47,639 )
Sale and maturities of short-term investments 45,955 60,540
Purchase of property and equipment (110,504 ) (76,528 )
Site and software development costs (45,769 ) (34,885 )
Other investing activities (399 )  
Net cash used in investing activities (110,717 ) (98,512 )
 
Cash flows from financing activities
Proceeds from issuance of convertible notes, net of issuance costs 420,449
Premiums paid for capped call confirmations (44,160 )
Taxes paid related to net share settlement of equity awards (1,097 ) (1,277 )
Net proceeds from exercise of stock options 104   213  
Net cash used in financing activities (993 ) 375,225  
Effect of exchange rate changes on cash and cash equivalents (945 ) 413  
Net decrease in cash and cash equivalents (70,324 ) 273,881
 
Cash and cash equivalents
Beginning of period 558,960   279,840  
End of period $ 488,636   $ 553,721  

Wayfair Inc.
Media Relations Contact:
Jane Carpenter, 617-502-7595
PR@wayfair.com
or
Investor Relations Contact:
Joe Wilson
IR@wayfair.com

Source: Wayfair Inc.