w-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36666

Wayfair Inc.

(Exact name of registrant as specified in its charter)


Delaware			36-4791999
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)
4 Copley Place	Boston,	MA	02116
(Address of principal executive offices)			(Zip Code)

(617) 532-6100

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value	W	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Class						Outstanding at July 27, 2023
Class A Common Stock, $0.001 par value per share						90,261,280
Class B Common Stock, $0.001 par value per share						25,691,323

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WAYFAIR INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended June 30, 2023


		Page

Part I. FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	1

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	2

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022	3

	Condensed Consolidated Statements of Stockholders' Deficit for the Three and Six Months Ended June 30, 2023 and 2022	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

Part II. OTHER INFORMATION		36

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 5.	Other Information	37

Item 6.	Exhibits	37

Signatures		39

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

WAYFAIR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in millions, except share and per share data)
Assets:
Current assets
Cash and cash equivalents	$	1,249	$	1,050
Short-term investments	4		228
Accounts receivable, net	128		272
Inventories	77		90
Prepaid expenses and other current assets	316		293
Total current assets	1,774		1,933
Operating lease right-of-use assets	806		839
Property and equipment, net	759		774

Other non-current assets	43		34
Total assets	$	3,382	$	3,580
Liabilities and Stockholders' Deficit:
Current liabilities
Accounts payable	$	1,104	$	1,204
Other current liabilities	870		868
Total current liabilities	1,974		2,072
Long-term debt	3,205		3,137
Operating lease liabilities, net of current	861		893
Other non-current liabilities	40		28
Total liabilities	6,080		6,130
Commitments and contingencies (Note 5)
Stockholders’ deficit:
Convertible preferred stock, $0.001 par value per share: 10,000,000 shares authorized and none issued at June 30, 2023 and December 31, 2022	—		—
Class A common stock, par value $0.001 per share, 500,000,000 shares authorized, 86,919,329 and 82,903,862 shares issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Class B common stock, par value $0.001 per share, 164,000,000 shares authorized, 25,691,323 and 25,691,397 shares issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	988		737
Accumulated deficit	(3,681)		(3,280)
Accumulated other comprehensive loss	(5)		(7)
Total stockholders' deficit	(2,698)		(2,550)
Total liabilities and stockholders' deficit	$	3,382	$	3,580

See notes to unaudited condensed consolidated financial statements.

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WAYFAIR INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions, except per share data)
Net revenue	$	3,171	$	3,284	$	5,945	$	6,277
Cost of goods sold	2,186		2,388		4,139		4,578
Gross profit	985		896		1,806		1,699
Operating expenses:
Customer service and merchant fees	144		162		283		313
Advertising	352		378		679		714
Selling, operations, technology, general and administrative	630		688		1,254		1,314
Impairment and other related net charges	1		40		14		40
Restructuring charges	—		—		65		—
Total operating expenses	1,127		1,268		2,295		2,381
Loss from operations	(142)		(372)		(489)		(682)
Interest expense, net	(5)		(6)		(10)		(14)
Other income, net	3		1		2		1
Gain on debt extinguishment	100		—		100		—
Loss before income taxes	(44)		(377)		(397)		(695)
Provision for income taxes, net	2		1		4		2
Net loss	$	(46)	$	(378)	$	(401)	$	(697)
Loss per share:
Basic	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)
Diluted	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)
Weighted-average number of shares of common stock outstanding used in computing per share amounts:
Basic	112		105		111		105
Diluted	112		105		111		105

See notes to unaudited condensed consolidated financial statements.

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WAYFAIR INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions)
Net loss	$	(46)	$	(378)	$	(401)	$	(697)
Other comprehensive loss:
Foreign currency translation adjustments	(1)		(2)		1		(3)
Net unrealized gain (loss) on available-for-sale investments	—		—		1		(2)
Comprehensive loss	$	(47)	$	(380)	$	(399)	$	(702)

See notes to unaudited condensed consolidated financial statements.

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WAYFAIR INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)


	Three Months Ended
	Class A and Class B Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit

	(in millions)
Balance at March 31, 2022	105	$	—	$	374	$	(2,268)	$	(10)	$	(1,904)
Net loss	—	—		—		(378)		—		(378)
Other comprehensive loss	—	—		—		—		(2)		(2)
Issuance of common stock upon vesting of RSUs	1	—		—		—		—		—
Equity-based compensation	—	—		139		—		—		139


Balance at June 30, 2022	106	$	—	$	513	$	(2,646)	$	(12)	$	(2,145)

Balance at March 31, 2023	111	$	—	$	894	$	(3,635)	$	(4)	$	(2,745)
Net loss	—	—		—		(46)		—		(46)
Other comprehensive loss	—	—		—		—		(1)		(1)
Issuance of common stock upon vesting of RSUs	2	—		—		—		—		—
Equity-based compensation	—	—		181		—		—		181
Premiums paid for capped calls	—	—		(87)		—		—		(87)
Balance at June 30, 2023	113	$	—	$	988	$	(3,681)	$	(5)	$	(2,698)

See notes to unaudited condensed consolidated financial statements.

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WAYFAIR INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)


	Six Months Ended
	Class A and Class B Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Deficit

	(in millions)
Balance at December 31, 2021	105	$	—	$	337	$	(1,949)	$	(7)	$	(1,619)
Net loss	—	—		—		(697)		—		(697)
Other comprehensive loss	—	—		—		—		(5)		(5)
Issuance of common stock upon vesting of RSUs	2	—		—		—		—		—
Equity-based compensation	—	—		251		—		—		251
Repurchase of common stock	(1)	—		(75)		—		—		(75)
Balance at June 30, 2022	106	$	—	$	513	$	(2,646)	$	(12)	$	(2,145)

Balance at December 31, 2022	109	$	—	$	737	$	(3,280)	$	(7)	$	(2,550)
Net loss	—	—		—		(401)		—		(401)
Other comprehensive income	—	—		—		—		2		2
Issuance of common stock upon vesting of RSUs	4	—		—		—		—		—
Equity-based compensation	—	—		338		—		—		338

Premiums paid for capped calls	—	—		(87)		—		—		(87)
Balance at June 30, 2023	113	$	—	$	988	$	(3,681)	$	(5)	$	(2,698)

See notes to unaudited condensed consolidated financial statements.

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WAYFAIR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2023		2022

	(in millions)
Cash flows from (for) operating activities:
Net loss	$	(401)	$	(697)
Adjustments to reconcile net loss to net cash provided by (used) in operating activities:
Depreciation and amortization	206		176
Equity-based compensation expense	308		233
Amortization of discount and issuance costs on convertible notes	3		4
Impairment and other related net charges	14		40
Gain on debt extinguishment	(100)		—
Other non-cash adjustments	(3)		32
Changes in operating assets and liabilities:
Accounts receivable, net	144		(86)
Inventories	13		(29)
Prepaid expenses and other current assets	(11)		4
Other assets	3		—
Accounts payable and other current liabilities	(118)		(18)
Other liabilities	12		—
Net cash provided by (used in) operating activities	70		(341)

Cash flows from (for) investing activities:
Purchase of short- and long-term investments	—		(402)
Sale and maturities of short- and long-term investments	225		447
Purchase of property and equipment	(71)		(93)
Site and software development costs	(105)		(141)

Net cash provided by (used in) investing activities	49		(189)

Cash flows from (for) financing activities:
Repurchase of common stock	—		(75)
Proceeds from issuance of convertible notes, net of issuance costs	678		—
Premiums paid for capped call confirmations	(87)		—



Payments to extinguish convertible debt	(514)		—

Net cash provided by (used in) financing activities	77		(75)
Effect of exchange rate changes on cash and cash equivalents	3		(7)
Net increase (decrease) in cash and cash equivalents	199		(612)

Cash and cash equivalents:
Beginning of period	$	1,050	$	1,706
End of period	$	1,249	$	1,094

See notes to unaudited condensed consolidated financial statements

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WAYFAIR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2023		2022

	(in millions)
Supplemental Cash Flow Information:
Cash paid for interest on long-term debt	$	22	$	13

Purchase of property and equipment included in accounts payable and other liabilities	$	1	$	36

See notes to unaudited condensed consolidated financial statements.

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Wayfair Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are those of Wayfair Inc. and its wholly-owned subsidiaries. Unless the context indicates otherwise, “Wayfair,” “the Company," or similar terms refer to Wayfair Inc. and its subsidiaries. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Furthermore, interim results are not necessarily indicative of the results for the full year ended December 31, 2023 or future periods.

The Company has identified significant accounting policies that are critical to understanding its business and results of operations. Wayfair believes that there have been no significant changes during the three and six months ended June 30, 2023 to the items disclosed in Note 1, Summary of Significant Accounting Policies, included in Part II, Item 8, Financial Statements and Supplementary Data, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

The Company has considered recently issued accounting pronouncements and does not believe that any are applicable or expected to have a material impact on the consolidated financial statements.

2. Supplemental Financial Statement Disclosures

Accounts Receivable, Net

As of June 30, 2023, accounts receivable was $128 million, net of allowance for credit losses of $30 million. As of December 31, 2022, accounts receivable was $272 million, net of allowance for credit losses of $24 million. The changes in the allowance for credit losses were not material for the three and six months ended June 30, 2023. Management believes credit risk is mitigated for the three and six months ended June 30, 2023, as approximately 99.8% and 99.6%, respectively, of the net revenue recognized was collected in advance of recognition.

Contract Liabilities

Contract liabilities included in other current liabilities were $250 million at June 30, 2023 and $224 million at December 31, 2022. During the six months ended June 30, 2023, Wayfair recognized $146 million of net revenue that was included within other current liabilities as of December 31, 2022.

Net revenue from contracts with customers is disaggregated by geographic region because this manner of disaggregation best depicts how the nature, amount, timing, and uncertainty of net revenue and cash flows are affected by economic factors. Refer to Note 10, Segment and Geographic Information, for additional information.

Impairment and Other Related Net Charges

During the six months ended June 30, 2023, Wayfair recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S. locations. During the three and six months ended June 30, 2023, Wayfair recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S. locations. These charges are recorded within impairment and other related net charges on the condensed consolidated statements of operations.

Restructuring Charges

On January 20, 2023, Wayfair announced an update to the Company’s cost efficiency plan, including a workforce reduction involving approximately 1,750 employees. As a result of this workforce reduction, during the six months ended June 30, 2023,

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Wayfair incurred $65 million of charges recorded within restructuring charges on the condensed consolidated statements of operations. Wayfair does not expect to incur any further material charges related to this workforce reduction. The charges consist primarily of one-time employee severance and benefit costs.

3. Cash and Cash Equivalents, Investments and Fair Value Measurements

Investments

As of June 30, 2023 and December 31, 2022, all of Wayfair’s marketable securities, which primarily consisted of corporate bonds and other government obligations that are priced at fair value, were classified as available-for-sale investments. During the three and six months ended June 30, 2023 and 2022, Wayfair did not have any realized gains or losses.

During the three and six months ended June 30, 2023 and 2022, Wayfair did not recognize any credit losses related to its available-for-sale debt securities. Further, as of June 30, 2023 and December 31, 2022, Wayfair did not have an allowance for credit losses recorded related to its available-for-sale debt securities.

The following tables present details of Wayfair’s investment securities:


	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in millions)
Short-term:
Investment securities	$	4	$	—	$	—	$	4


Total	$	4	$	—	$	—	$	4


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in millions)
Short-term:
Investment securities	$	229	$	—	$	(1)	$	228


Total	$	229	$	—	$	(1)	$	228

Fair Value Measurements

Wayfair's financial assets and liabilities are measured at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The three levels of inputs used to measure fair value are as follows:

▪Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities

▪Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full-term of the asset or liability

▪Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability

This hierarchy requires Wayfair to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Wayfair classifies cash equivalents and certificate of deposits within Level 1 because these are valued using quoted market prices. The fair value of Level 1 financial assets is based on quoted market prices of the identical underlying security. Wayfair classifies short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active. Wayfair does not have assets that are classified as Level 3.

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The following tables set forth the fair value of Wayfair's financial assets measured at fair value on a recurring basis:


	June 30, 2023
	Level 1		Level 2		Level 3		Total

	(in millions)
Cash and cash equivalents:
Cash	$	823	$	—	$	—	$	823
Cash equivalents	426		—		—		426
Total cash and cash equivalents	1,249		—		—		1,249
Short-term investments:
Investment securities	—		4		—		4




Total	$	1,249	$	4	$	—	$	1,253


	December 31, 2022
	Level 1		Level 2		Level 3		Total

	(in millions)
Cash and cash equivalents:
Cash	$	430	$	—	$	—	$	430
Cash equivalents	620		—		—		620
Total cash and cash equivalents	1,050		—		—		1,050
Short-term investments:
Investment securities	—		228		—		228




Total	$	1,050	$	228	$	—	$	1,278

4. Debt and Other Financing

The following table presents the outstanding principal amount and carrying value of debt and other financing:


	June 30, 2023						December 31, 2022
Debt Instrument	Principal Amount		Unamortized Debt Discount		Net Carrying Amount		Principal Amount		Unamortized Debt Discount		Net Carrying Amount

	(in millions)
Revolving Credit Facility					$	—					$	—
2024 Notes	$	117	$	(1)	116		$	200	$	(1)	199
2025 Notes	754		(4)		750		1,289		(8)		1,281
2026 Notes	949		(6)		943		949		(7)		942
2027 Notes	690		(10)		680		690		(12)		678
2028 Notes	690		(12)		678		—		—		—
2025 Accreting Notes	38		—		38		37		—		37
Total Debt					$	3,205					$	3,137
Short-term debt					—						—
Long-term debt					$	3,205					$	3,137

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Revolving Credit Facility

Wayfair has a five-year senior secured revolving credit facility (the “Revolver”), which matures on March 24, 2026, and provides for non-amortizing revolving loans in an aggregate amount of $600 million. Under the Revolver, Wayfair may, from time to time, request letters of credit, which reduce the availability of credit under the Revolver. Wayfair had $77 million in outstanding letters of credit as of June 30, 2023, primarily as security for lease agreements. As of June 30, 2023, there were no revolving loans outstanding under the Revolver.

Convertible Non-Accreting Notes

In May 2023, Wayfair issued $690 million in aggregate principal amount of 3.50% Convertible Senior Notes due 2028 (the “2028 Notes”), which includes the exercise in full of a $90 million option granted to the initial purchasers. In connection with the issuance of the 2028 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2028 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2028 Notes (the “2028 Capped Calls”).

The following table summarizes certain terms related to the Company’s current outstanding non-accreting convertible notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”):

Convertible Non-Accreting Notes

Maturity Date

Annual Coupon Rate

Annual Effective Interest Rate

Payment Dates for Semi-Annual Interest Payments in Arrears

2024 Notes

November 1, 2024

1.125%

1.5%

May 1 and November 1

2025 Notes

October 1, 2025

0.625%

0.9%

April 1 and October 1

2026 Notes

August 15, 2026

1.000%

1.2%

February 15 and August 15

2027 Notes

September 15, 2027

3.250%

3.6%

March 15 and September 15

2028 Notes

November 15, 2028

3.500%

3.8%

May 15 and November 15

Convertible Accreting Notes

No cash interest is payable on the 2025 Accreting Notes. Instead, the 2025 Accreting Notes accrue interest at a rate of 2.50% per annum, which accretes to the principal amount on April 1 and October 1 of each year. The 2025 Accreting Notes will mature on April 1, 2025, unless earlier purchased, redeemed or converted. The annual effective interest rate of the 2025 Accreting Notes is 2.7%.

Seniority of the Notes

The Notes are general senior unsecured obligations of Wayfair. The Notes rank senior in right of payment to any of Wayfair’s future indebtedness that is expressly subordinated in right of payment to the Notes, rank equal in right of payment to Wayfair’s existing and future unsecured indebtedness that is not so subordinated and are effectively subordinated in right of payment to any of Wayfair’s secured indebtedness to the extent of the value of the assets securing such indebtedness. The Non-Accreting Notes are structurally subordinated to all existing and future indebtedness and liabilities of Wayfair’s subsidiaries, including Wayfair LLC’s guaranty of the 2025 Accreting Notes, and the 2025 Accreting Notes are structurally subordinated to all existing and future indebtedness and liabilities of Wayfair’s subsidiaries (other than Wayfair LLC).

Indentures

The Notes are governed by separate indentures between Wayfair, as issuer, and U.S. Bank National Association, as trustee. The Non-Accreting Notes indenture also includes Wayfair LLC, as guarantor. Each indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of not less than 25% in aggregate principal amount of the respective Notes then outstanding may declare the entire principal amount or accreted principal amount, as the case may be, of the respective Notes plus accrued interest, if any, to be immediately due and payable.

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Conversion and Redemption Terms of the Notes

Wayfair's Notes will mature at their maturity date unless earlier purchased, redeemed or converted. The Notes’ initial conversion terms are summarized below:

Convertible Notes

Maturity Date

Free Convertibility Date

Initial Conversion Rate per $1,000 Principal

Initial Conversion Price

Redemption Date

2024 Notes

November 1, 2024

August 1, 2024

8.5910

$116.40

May 8, 2022

2025 Notes

October 1, 2025

July 1, 2025

2.3972

$417.15

October 4, 2022

2026 Notes

August 15, 2026

May 15, 2026

6.7349

$148.48

August 20, 2023

2027 Notes

September 15, 2027

June 15, 2027

15.7597

$63.45

September 20, 2025

2028 Notes

November 15, 2028

August 15, 2028

21.8341

$45.80

May 20, 2026

2025 Accreting Notes

April 1, 2025

13.7931

$72.50

May 9, 2023

The conversion rate is subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of Wayfair’s Class A common stock, but will not be adjusted for accrued and unpaid interest.

Wayfair will settle any conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or a combination thereof, with the form of consideration determined at Wayfair’s election. The holders of the Non-Accreting Notes may convert all or a portion of such Notes prior to certain specified dates (each, a “Free Convertibility Date”) under the following circumstances (in each case, as applicable to each series of Non-Accreting Notes):

•during any calendar quarter (and only during such calendar quarter), if the last reported sale price of Wayfair’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five-business day period after any ten consecutive trading day period (the “measurement period") in which the trading price (as defined in the applicable indenture) per $1,000 principal amount of the notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Wayfair’s Class A common stock and the conversion rate on each such trading day;

•if Wayfair calls the notes for redemption, at any time prior to 5:00 p.m. (New York City time) (“the close of business”) on the second scheduled trading day immediately preceding the redemption date; and

•upon the occurrence of specified corporate events (as set forth in the applicable indenture).

On or after the applicable Free Convertibility Date until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, holders of the Non-Accreting Notes may convert their Non-Accreting Notes at any time.

Because the conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes were not triggered during the calendar quarter ended June 30, 2023, the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible during the calendar quarter ended September 30, 2023. The conditional conversion features of the 2028 Notes are not applicable until the calendar quarter ending December 31, 2023.

The holders of the 2025 Accreting Notes may convert all or a portion of their 2025 Accreting Notes at any time prior to the close of business on the second business day immediately preceding the maturity date. Wayfair will settle any conversion of 2025 Accreting Notes with a number of shares of Wayfair’s Class A common stock per $1,000 original principal amount of 2025 Accreting Notes equal to the accreted principal amount of such original principal amount of 2025 Accreting Notes divided by the conversion price.

Upon the occurrence of a fundamental change (as defined in the applicable indenture), holders of the applicable series of Notes may require Wayfair to repurchase all or a portion of such Notes for cash at a price equal to 100% of the principal amount (or accreted principal amount) of such Notes to be repurchased plus any accrued but unpaid interest to, but excluding, the fundamental change repurchase date (such interest to be included in the accreted principal amount for the 2025 Accreting Notes). Holders of the Non-Accreting Notes who convert their respective Notes in connection with a make-whole fundamental change or a notice of redemption (each as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the

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conversion rate of the respective Notes. Holders of the 2025 Accreting Notes who convert in connection with a make-whole fundamental change (as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate.

Wayfair may not redeem the Notes prior to certain dates (the “Redemption Date”). On or after the applicable Redemption Date, Wayfair may redeem for cash all or part of the applicable series of Notes if the last reported sale price of Wayfair’s Class A common stock equals or exceeds 130% (Non-Accreting Notes) or 276% (2025 Accreting Notes) of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the five trading days immediately preceding the date on which Wayfair provides notice of redemption, during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which Wayfair provides notice of the redemption. The redemption price will be either 100% of the principal amount (or accreted principal amount) of the notes to be redeemed, plus accrued and unpaid interest, if any, or the if-converted value if the holder elects to convert their Notes upon receiving notice of redemption.

Accounting for the Notes

The Notes are recorded as a single unit within liabilities in the condensed consolidated balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and the Notes do not involve a substantial premium. Transaction costs to issue the Notes were recorded as direct deductions from the related debt liabilities and amortized to interest expense, net using the effective interest method over the terms of the corresponding Notes.

Proceeds from 2028 Notes Transactions and Partial Extinguishment of 2024 Notes and 2025 Notes

The net transaction amount from the issuance of the 2028 Notes was $591 million after deducting the initial purchasers’ discounts, the offering expenses payable by Wayfair and the net proceeds used to purchase the 2028 Capped Calls.

In addition, Wayfair used $514 million of the net transaction amount 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. In accounting for the repurchases of the 2024 Notes and 2025 Notes, Wayfair 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. Wayfair intends to use the remaining net proceeds from the issuance of the 2028 Notes for working capital and general corporate purposes, including, but not limited to, operating and capital expenditures. Wayfair may also use a portion of the net proceeds to finance acquisitions, strategic transactions, investments, repurchases of Class A common stock or the repayment, redemption, purchase or exchange of indebtedness (including the Notes).

Conversions of Notes

During the three and six months ended June 30, 2023, there were no conversions of the Notes.

Interest Expense

During the three months ended June 30, 2023, Wayfair recognized contractual interest expense and debt discount amortization of $14 million and $2 million, respectively, and during the six months ended June 30, 2023, contractual interest expense and debt discount amortization of $25 million and $3 million, respectively.

During the three months ended June 30, 2022, Wayfair recognized contractual interest expense and debt discount amortization of $7 million and $2 million, respectively, and during the six months ended June 30, 2022, contractual interest expense and debt discount amortization of $13 million and $4 million, respectively.

Fair Value of Notes

As of June 30, 2023, the estimated fair value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes, 2028 Notes and 2025 Accreting Notes was $116 million, $648 million, $784 million, $856 million, $1.1 billion and $34 million, respectively. The estimated fair value of the Non-Accreting Notes was determined through consideration of quoted market prices. The estimated fair value of the 2025 Accreting Notes was determined through an option pricing model using Level 3 inputs including volatility and credit spread. The fair values of the Non-Accreting Notes and the 2025 Accreting Notes are classified as Level 2 and Level 3, respectively, as defined in Note 3, Cash and Cash Equivalents, Investments and Fair Value Measurements. As of June 30, 2023, the if-converted value of the 2027 Notes and 2028 Notes exceeded the principal value by $17 million and $289 million, respectively. As of June 30, 2023, the if-converted value of the 2024 Notes, 2025 Notes, 2026 Notes and 2025 Accreting Notes did not exceed the principal value.

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Capped Calls

The 2024 Capped Calls, 2025 Capped Calls, 2026 Capped Calls, 2027 Capped Calls and 2028 Capped Calls (collectively, the “Capped Calls”) are expected generally to reduce the potential dilution and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Non-Accreting Notes upon conversion of the Non-Accreting Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the applicable Capped Call (which corresponds to the initial conversion price of the applicable Non-Accreting Notes and is subject to certain adjustments under the terms of the applicable Capped Call), with such reduction and/or offset subject to a cap based on the cap price of the applicable Capped Calls (the “Initial Cap Price”). The Capped Calls can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date.

Each of the Capped Calls has an initial cap price per share of Wayfair’s Class A common stock, which represented a premium over the last reported sale price (or, with respect to the 2025 Capped Calls, the volume-weighted average price) of Wayfair’s Class A common stock on the date the corresponding Non-Accreting Notes were priced (the “Cap Price Premium”), and is subject to certain adjustments under the terms of the corresponding agreements. Collectively, the Capped Calls cover, initially, the number of shares of Wayfair’s Class A common stock underlying the Non-Accreting Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Non-Accreting Notes.

The initial terms for the Capped Calls are presented below:


Capped Calls	Maturity Date	Initial Cap Price	Cap Price Premium
2024 Capped Calls	November 1, 2024	$219.63	150%
2025 Capped Calls	October 1, 2025	$787.08	150%
2026 Capped Calls	August 15, 2026	$280.15	150%
2027 Capped Calls	September 15, 2027	$97.62	100%
2028 Capped Calls	November 15, 2028	$73.28	100%

The Capped Calls are separate transactions from the Non-Accreting Notes, are not subject to the terms of the Non-Accreting Notes and will not affect any holder’s rights under the Non-Accreting Notes. Similarly, holders of the Non-Accreting Notes do not have any rights with respect to the Capped Calls. The Capped Calls do not meet the criteria for separate accounting as a derivative as they are indexed to Wayfair's stock and meet the requirements to be classified in equity. The premiums paid for the Capped Calls were included as a net reduction to additional paid-in capital within stockholders’ deficit when they were entered.

5. Commitments and Contingencies

Legal Matters

From time to time, Wayfair is involved in claims that arise during the ordinary course of business. The Company records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Although litigation is inherently unpredictable and claims cannot be predicted with certainty, Wayfair does not currently believe that the outcome of any legal matters will have a material adverse effect on Wayfair's results of operation or financial condition. Regardless of the outcome, litigation can be costly and time consuming, as it can divert management's attention from important business matters and initiatives, negatively impacting Wayfair's overall operations. In addition, Wayfair may also find itself at greater risk to outside party claims as it increases its operations in jurisdictions where the laws with respect to the potential liability of online retailers are uncertain, unfavorable, or unclear.

6. Stockholders’ Deficit

Common Stock

Since Wayfair's initial public offering through June 30, 2023, 56,347,091 shares of Class B common stock were converted to the same number of shares of Class A common stock.

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Stock Repurchase Programs

During the three and six months ended June 30, 2023, Wayfair did not repurchase any shares of Class A common stock under its stock repurchase programs. During the three months ended June 30, 2022, Wayfair did not repurchase any shares of Class A common stock. During the six months ended June 30, 2022, Wayfair repurchased 548,173 shares of Class A common stock for $75 million under its stock repurchase programs.

7. Equity-Based Compensation

On April 25, 2023 (the “2023 Plan Effective Date”), Wayfair’s stockholders approved the 2023 Incentive Award Plan (the “2023 Plan”) to replace Wayfair’s 2014 Incentive Award Plan, as amended (the “2014 Plan” and, together with the 2023 Plan, the “Incentive Plans”). The Incentive Plans were adopted by the board of directors (the “Board’) to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent. The Incentive Plans are administered by the Board for awards to non-employee directors and by the compensation committee of the Board for other participants and provide for the issuance of equity-based awards including stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and stock payments.

Under the 2023 Plan, the number of Class A common stock reserved for future award grants is the sum of (i) 15,000,000 shares of Class A common stock, (ii) any shares of Class A common stock which remained available for grant under the 2014 Plan as of the 2023 Plan Effective Date and (iii) any shares of Class A common stock subject to 2014 Plan awards that become available for issuance under the 2023 Plan pursuant to its terms after the 2023 Plan Effective Date.

Under the 2023 Plan, 20,525,663 shares of Class A common stock initially were available for future award grants. As of June 30, 2023, 17,636,121 shares of Class A common stock remained available for future grant under the 2023 Plan.

The following table presents activity relating to RSUs for the six months ended June 30, 2023:


	Shares	Weighted-Average Grant Date Fair Value
Unvested at December 31, 2022	10,170,203	$	100.05
RSUs granted	3,379,303	$	37.47
RSUs vested	(4,015,393)	$	72.07
RSUs forfeited/canceled	(1,636,284)	$	107.73
Unvested at June 30, 2023	7,897,829	$	85.88

The intrinsic value of RSUs that vested during each of the six months ended June 30, 2023 and 2022 was $166 million. As of June 30, 2023, the aggregate intrinsic value of unvested RSUs was $513 million.

As of June 30, 2023, unrecognized equity-based compensation expense related to RSUs expected to vest over time is $497 million with a weighted-average remaining vesting term of 0.7 years.

Equity-based compensation was classified as follows in the condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended
	2023		2022		2023		2022

	(in millions)
Cost of goods sold	$	2	$	2	$	5	$	5
Customer service and merchant fees	8		8		16		16
Selling, operations, technology, general and administrative	154		118		287		212
Total equity-based compensation expense	$	164	$	128	$	308	$	233

Equity-based compensation costs capitalized as software costs were $17 million and $30 million for the three and six months ended June 30, 2023, respectively, and $10 million and $18 million for the three and six months ended June 30, 2022, respectively.

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8. Income Taxes

The provision for income taxes, net recorded during the three and six months ended June 30, 2023 is primarily related to income tax benefits for tax losses earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes, as well as related changes in increases in the Company’s valuation allowance on deferred tax assets, as well as some U.S. state minimum and foreign taxes. Wayfair had no material unrecognized tax benefits as of June 30, 2023 and December 31, 2022.

9. Loss per Share

The following table presents the calculation of basic and diluted loss per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions, except per share data)
Numerator:
Numerator for basic and diluted loss per share - net loss	$	(46)	$	(378)	$	(401)	$	(697)



Denominator:
Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding	112		105		111		105





Loss per share
Basic	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)
Diluted	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)

The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted loss per share were as follows:


		Three Months Ended June 30,		Six Months Ended June 30,
		2023	2022	2023	2022
	(in millions)


Unvested restricted stock units		8	9	8	9
Shares related to convertible debt instruments		36	16	36	16
Total		44	25	44	25

Wayfair may settle conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or any combination thereof at its election. Wayfair will settle conversions of the 2025 Accreting Notes in shares. The Capped Calls are generally expected to reduce the potential dilution of Wayfair's Class A common stock upon any conversion of the Notes and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes to the extent the market price per share of Wayfair’s Class A common stock is greater than the strike price of the Capped Calls (which corresponds to the initial conversion prices of the Non-Accreting Notes, subject to certain adjustments under the terms of the Capped Calls), with such reduction and/or offset capped at the Initial Cap Price.

For more information on the structure of the Notes and the Capped Calls, see Note 4, Debt and Other Financing.

10. Segment and Geographic Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. Wayfair’s CODM is its Chief Executive Officer.

Wayfair's operating and reportable segments are the U.S. and International. These segments reflect the way the CODM allocates resources and evaluates financial performance, which is based upon each segment's Adjusted EBITDA. Adjusted EBITDA is defined as net income or loss before depreciation and amortization, equity-based compensation and related taxes, interest income or expense, net, other income or expense, net, provision or benefit for income taxes, net, non-recurring items, and other items not indicative of ongoing operating performance. These charges are excluded from the evaluation of segment performance because it facilitates reportable segment performance comparisons on a period-to-period basis as these costs may vary independent of business performance.

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Wayfair allocates certain operating expenses to the operating and reportable segments, including customer service and merchant fees and selling, operations, technology, general and administrative expenses based on the usage and relative contribution provided to the segments. It excludes from the allocations certain operating expense lines, including depreciation and amortization, equity-based compensation and related taxes, impairment and other related net charges and restructuring charges, as well as interest income or expense, net, other income or expense, net, gain or loss on debt extinguishment and provision or benefit for income taxes, net. There are no net revenue transactions between Wayfair's reportable segments.

U.S.

The U.S. segment primarily consists of amounts earned through product sales through Wayfair's family of sites in the U.S.

International

The International segment primarily consists of amounts earned through product sales through Wayfair's international sites.

Net revenue from external customers for each group of similar products and services are not reported to the CODM. Separate identification of this information for purposes of segment disclosure is impractical, as it is not readily available and the cost to develop it would be excessive. No individual country outside the U.S. provided greater than 10% of consolidated net revenue.

The following tables present net revenue and Adjusted EBITDA attributable to Wayfair’s reportable segments for the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions)
U.S. net revenue	$	2,785	$	2,796	$	5,200	$	5,338
International net revenue	386		488		745		939
Total net revenue	$	3,171	$	3,284	$	5,945	$	6,277


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions)
Adjusted EBITDA:
U.S.	$	161	$	(28)	$	190	$	(58)
International	(33)		(80)		(76)		(163)
Total reportable segments Adjusted EBITDA	128		(108)		114		(221)
Less: reconciling items (1)	(174)		(270)		(515)		(476)
Net loss	$	(46)	$	(378)	$	(401)	$	(697)

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(1)The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net loss:


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022

		(in millions)
Depreciation and amortization		$	102	$	91	$	206	$	176
Equity-based compensation and related taxes		167		133		318		245
Interest expense, net		5		6		10		14
Other income, net		(3)		(1)		(2)		(1)
Provision for income taxes, net		2		1		4		2
Other:
Impairment and other related net charges (a)		1		40		14		40
Restructuring charges (b)		—		—		65		—
Gain on debt extinguishment (c)		(100)		—		(100)		—
Total reconciling items		$	174	$	270	$	515	$	476

(a)	During the six months ended June 30, 2023, Wayfair recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S. locations. During the three and six months ended June 30, 2023, Wayfair recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S. locations. During the three and six months ended June 30, 2022, Wayfair recorded $40 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.
(b)	During the six months ended June 30, 2023, Wayfair incurred $65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions.
(c)	During the three and six months ended June 30, 2023, Wayfair 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.

See “Non-GAAP Financial Measures” in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q for more information regarding the use of Adjusted EBITDA.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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, including our financial outlook and profitability goals, the financial impact and expected savings of our recent reduction in workforce, available liquidity and access to financing sources, our business strategy, plans and objectives of management for future operations, including our international expansion and omni-channel strategy, consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the impact of macroeconomic events, interest rates and rising inflation, and our response to such events, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “continues,” “could,” “intends,” “goals,” “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, whether as a result of any new information, future events or otherwise.

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Factors that could cause or contribute to differences in our future results include, without limitation, the following:

•adverse macroeconomic conditions, including inflation, slower growth or the potential for recession, disruptions in the global supply chain and other conditions affecting the retail environment for products we sell, and other matters that influence consumer spending and preferences;

•our ability to manage our growth and the impacts of our internal restructuring and workforce reduction;

•our ability to acquire and retain customers in a cost-effective manner;

•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 expand our business and compete successfully;

•disruptions, capacity constraints or inefficiencies in our information systems network, or any potential cybersecurity incident;

•world events, natural disasters, public health emergencies, 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 in this Quarterly Report on Form 10-Q and in our other filings with the Securities 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 ended December 31, 2022. We qualify all of our forward-looking statements by these cautionary statements.

All dollar and percentage comparisons made refer to the three and six ended June 30, 2023, compared with the three and six ended June 30, 2022, unless otherwise noted.

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 40 million products from over 20 thousand 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 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.

In the second quarter of 2023, our business generated lower sales compared to the second quarter of 2022. As of June 30, 2023, we had 22 million active customers, and 80.1% of second quarter 2023 orders came from repeat buyers. The lower sales were a function of normalization in average order value as we lapped a period of intense inflation in 2022, which was offset by a recovery in order volume, which showed positive growth year-over-year. 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.

Global Considerations

We are continuing to closely monitor macroeconomic impacts, including, but not limited to, rising and fluctuating interest rates and inflation 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.

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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.

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.

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 ended December 31, 2022.

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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. 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.

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. All other key financial statement 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions, except LTM net revenue per active customer, average order value and per share data)
Key Financial Statement Metrics:
Net revenue	$	3,171	$	3,284	$	5,945	$	6,277
Gross profit	$	985	$	896	$	1,806	$	1,699
Loss from operations	$	(142)	$	(372)	$	(489)	$	(682)
Net loss	$	(46)	$	(378)	$	(401)	$	(697)
Loss per share:
Basic	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)
Diluted	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)
Net cash provided by (used in) operating activities	$	217	$	(115)	$	70	$	(341)
Key Operating Metrics:
Active customers (1)	22		24		22		24
LTM net revenue per active customer (2)	$	545	$	537	$	545	$	537
Orders delivered (3)	10		10		20		20
Average order value (4)	$	307	$	330	$	297	$	308
Non-GAAP Financial Measures:
Adjusted EBITDA	$	128	$	(108)	$	114	$	(221)
Free Cash Flow	$	128	$	(244)	$	(106)	$	(575)
Adjusted Diluted Earnings (Loss) per share	$	0.21	$	(1.94)	$	(0.90)	$	(3.90)

(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) Last twelve months (“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 represent the total orders delivered in any 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 June 30, 2023 and 2022

Net revenue

During the three months ended June 30, 2023, net revenue decreased by $113 million, or 3.4%, 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 three months ended June 30, 2023, our United States (“U.S.”) net revenue decreased by 0.4% and International net revenue decreased by 20.9% compared to the same period in 2022. During the three months ended June 30, 2023, International Net Revenue Constant Currency Growth was (18.2)% (see “Non-GAAP Financial Measures” below).


	Three Months Ended June 30,
	2023		2022		% Change

	(in millions)
U.S. net revenue	$	2,785	$	2,796	(0.4)	%
International net revenue	386		488		(20.9)	%
Net revenue	$	3,171	$	3,284	(3.4)	%

For more information on our segments, see Note 10 Segment and Geographic Information, included in Part I, Item 1, Financial Statements, in 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. During the three months ended June 30, 2023, cost of goods sold decreased by $202 million, or 8.5%, as 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 68.9% for the three months ended June 30, 2023 compared to 72.7% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.


	Three Months Ended June 30,
	2023			2022			% Change

	(in millions)
Cost of goods sold	$	2,186		$	2,388		(8.5)	%
As a percentage of net revenue	68.9		%	72.7		%

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Operating expenses

Operating expenses consist of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses and impairment and other related net 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 June 30,
	2023			2022			% Change

	(in millions)
Customer service and merchant fees (1)	$	144		$	162		(11.1)	%
Advertising	352			378			(6.9)	%
Selling, operations, technology, general and administrative (1)	630			688			(8.4)	%
Impairment and other related net charges	1			40			(97.5)	%

Total operating expenses	$	1,127		$	1,268		(11.1)	%
As a percentage of net revenue:
Customer service and merchant fees (1)	4.5		%	4.9		%
Advertising	11.1		%	11.5		%
Selling, operations, technology, general and administrative (1)	19.9		%	21.0		%
Impairment and other related net charges	—		%	1.2		%

	35.5		%	38.6		%

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


	Three Months Ended June 30,
	2023		2022

	(in millions)
Customer service and merchant fees	$	8	$	9
Selling, operations, technology, general and administrative	$	157	$	121

During the three months ended June 30, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $35 million, or 26.9% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.

The following table summarizes operating expenses as a percentage of net revenue, excluding equity-based compensation and related taxes:


	Three Months Ended June 30,
	2023		2022

Customer service and merchant fees	4.3	%	4.7	%
Selling, operations, technology, general and administrative	14.9	%	17.3	%

Customer Service and Merchant Fees

During the three months ended June 30, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $17 million, or 11.1%, compared to the same period in 2022. The decrease in customer service and merchant fees is due to the decrease in net revenue in 2023 compared to the same period in 2022.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.5% for the three months ended June 30, 2023 compared to 4.9% in the same period in 2022 due to decreased compensation costs.

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Advertising

During the three months ended June 30, 2023, our advertising expenses decreased by $26 million, or 6.9%, 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 11.1% for the three months ended June 30, 2023 compared to 11.5% in the same period in 2022 due, in part, to changes in advertising channel mix and our efforts to drive efficiency across our channel portfolio.

Selling, operations, technology, general and administrative

During the three months ended June 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $94 million, or 16.6% as compared to the same period in 2022. The decrease is primarily due to lower personnel and information technology costs, partially offset by increases in depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses decreased to 19.9% for the three months ended June 30, 2023 compared to 21.0% in the same period in 2022, primarily due to decreased compensation costs.

Impairment and other related net charges

During the three months ended June 30, 2023, impairment and other related charges decreased by $39 million or 97.5% as compared to the same period in 2022. As a percentage of net revenue, impairment and other related net charges decreased to an immaterial percentage from 1.2% in the same period in 2022.

During the three months ended June 30, 2023, we recorded a charge of $1 million related to construction in progress assets at identified U.S. locations.

Interest expense, net

During the three months ended June 30, 2023, our interest expense, net decreased by $1 million, or 16.7% compared to the same period in 2022, primarily due to higher interest income.


	Three Months Ended June 30,
	2023		2022		% Change

	(in millions)
Interest expense, net	$	(5)	$	(6)	(16.7)	%

Other income, net

During the three months ended June 30, 2023, other income, net increased by $2 million or 200.0% compared to the same period in 2022. Included in our other income, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.


	Three Months Ended June 30,
	2023		2022		% Change

	(in millions)
Other income, net	$	3	$	1	200.0	%

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Gain on debt extinguishment

During the three months ended June 30, 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. In accounting for the repurchases of the 2024 Notes and 2025 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. Refer to Note 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for additional information.


	Three Months Ended June 30,
	2023		2022		% Change

	(in millions)
Gain on debt extinguishment	$	100	$	—	n.m. (1)

(1) Not meaningful (n.m.) year-over-year comparison

Provision for income taxes, net

During the three months ended June 30, 2023, our provision for income taxes, net increased by $1 million or 100.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes. Refer to Note 8, Income Taxes, included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q for additional information.


	Three Months Ended June 30,
	2023		2022		% Change

	(in millions)
Provision for income taxes, net	$	2	$	1	100.0	%

Comparison of the six months ended June 30, 2023 and 2022

Net revenue

During the six months ended June 30, 2023, net revenue decreased by $332 million, or 5.3%, 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 six months ended June 30, 2023, our U.S net revenue decreased by 2.6% and International net revenue decreased by 20.7% compared to the same period in 2022. During the six months ended June 30, 2023, International Net Revenue Constant Currency Growth was (16.4)% (see “Non-GAAP Financial Measures” below).


	Six Months Ended June 30,
	2023		2022		% Change

	(in millions)
U.S. net revenue	$	5,200	$	5,338	(2.6)	%
International net revenue	745		939		(20.7)	%
Net revenue	$	5,945	$	6,277	(5.3)	%

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For more information on our segments, see Note 10 Segment and Geographic Information, included in Part I, Item 1, Financial Statements, in 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. During the six months ended June 30, 2023, cost of goods sold decreased by $439 million, or 9.6%, 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 69.6% for the six months ended June 30, 2023 compared to 72.9% in the same period in 2022 due to mix shifts, operational efficiencies and decreased logistics costs.


	Six Months Ended June 30,
	2023			2022			% Change

	(in millions)
Cost of goods sold	$	4,139		$	4,578		(9.6)	%
As a percentage of net revenue	69.6		%	72.9		%

Operating expenses

Operating expenses are comprised of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses, impairment and other related net charges and restructuring 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.


	Six Months Ended June 30,
	2023			2022			% Change

	(in millions)
Customer service and merchant fees (2)	$	283		$	313		(9.6)	%
Advertising	679			714			(4.9)	%
Selling, operations, technology, general and administrative (2)	1,254			1,314			(4.6)	%
Impairment and other related net charges	14			40			(65.0)	%
Restructuring charges	65			—			n.m. (1)
Total operating expenses	$	2,295		$	2,381		(3.6)	%
As a percentage of net revenue:
Customer service and merchant fees (2)	4.8		%	5.0		%
Advertising	11.4		%	11.4		%
Selling, operations, technology, general and administrative (2)	21.1		%	20.9		%
Impairment and other related net charges	0.2		%	0.6		%
Restructuring charges	1.1		%	—		%
	38.6		%	37.9		%

(1) Not meaningful (n.m.) year-over-year comparison

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


	Six Months Ended June 30,
	2023		2022

	(in millions)
Customer service and merchant fees	$	16	$	17
Selling, operations, technology, general and administrative	$	297	$	222

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During the six months ended June 30, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $74 million, or 31.0% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.

The following table summarizes operating expenses as a percentage of net revenue, excluding equity-based compensation and related taxes:


	Six Months Ended June 30,
	2023		2022
Customer service and merchant fees	4.5	%	4.7	%
Selling, operations, technology, general and administrative	16.1	%	17.4	%

Customer Service and Merchant Fees

During the six months ended June 30, 2023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $29 million, or 9.8% compared to the same period in 2022. The decrease in customer service and merchant fees is due to decreased compensation costs.

As a percentage of net revenue, total customer service and merchant fees decreased to 4.8% for the six months ended June 30, 2023 compared to 5.0% in the same period in 2022 due to a decrease in net revenue.

Advertising

During the six months ended June 30, 2023, our advertising expenses decreased by $35 million or 4.9% 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 remained constant at 11.4% for the six months ended June 30, 2023 and 2022 due in part to maintaining efficiencies in our advertising channel mix.

Selling, operations, technology, general and administrative

During the six months ended June 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $135 million, or 12.4% compared to the same period in 2022. The decrease is primarily due to lower personnel and information technology costs, partially offset by increases in depreciation and amortization.

As a percentage of net revenue, total selling, operations, technology, general and administrative expenses increased to 21.1% for the six months ended June 30, 2023 compared to 20.9% in the same period in 2022, primarily due to the decrease in net revenue.

Impairment and other related net charges

During the six months ended June 30, 2023, impairment and other related charges decreased by $26 million or 65.0% as compared to the same period in 2022. As a percentage of net revenue, impairment and other related net charges decreased to 0.2% from 0.6% in the same period in 2022.

During the six months ended June 30, 2023, we recorded 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. locations.

Restructuring charges

On January 20, 2023, we announced an update to our cost efficiency plan, including a workforce reduction involving approximately 1,750 employees. As a result of this workforce reduction, during the six months ended June 30, 2023, we incurred $65 million of charges, consisting primarily of one-time employee severance and benefit costs.

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Interest expense, net

During the six months ended June 30, 2023, our interest expense, net decreased by $4 million, or 28.6%, compared to the same period in 2022, primarily driven by higher interest income.


	Six Months Ended June 30,
	2023		2022		% Change

	(in millions)
Interest expense, net	$	(10)	$	(14)	(28.6)	%

Other income, net

During the six months ended June 30, 2023, other income, net increased by $1 million, or 100.0% compared to the same period in 2022. Included in our other income, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.


	Six Months Ended June 30,
	2023		2022		% Change

	(in millions)
Other income, net	$	2	$	1	100.0	%

Gain on debt extinguishment

During the six months ended June 30, 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. In accounting for the repurchases of the 2024 Notes and 2025 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. Refer to Note 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements and Supplementary Data, of this Quarterly Report on Form 10-Q for additional information.


	Six Months Ended June 30,
	2023		2022		% Change

	(in millions)
Gain on debt extinguishment	$	100	$	—	n.m. (1)

(1) Not meaningful (n.m.) year-over-year comparison

Provision for income taxes, net

During the six months ended June 30, 2023, our provision for income taxes, net increased by $2 million or 100.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes. Refer to Note 8, Income Taxes, included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q for additional information.


	Six Months Ended June 30,
	2023		2022		% Change

	(in millions)
Provision for income taxes, net	$	4	$	2	100.0	%

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Liquidity and Capital Resources

Sources of Liquidity

At June 30, 2023, our principal source of liquidity was cash and cash equivalents and short-term investments totaling $1.3 billion. Additionally, we have a $600 million senior secured revolving credit facility that matures on March 24, 2026 (the “Revolver”). As of June 30, 2023, there were no revolving loans outstanding under the Revolver. We had outstanding letters of credit, primarily as security for certain lease agreements, for $77 million as of June 30, 2023, 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:


	June 30,		December 31,
	2023		2022

	(in millions)
Cash and cash equivalents	$	1,249	$	1,050
Short-term investments	4		228
Total liquidity	$	1,253	$	1,278

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 including planned capital expenditures, contractual obligations and other such requirements. 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 in this Quarterly Report on Form 10-Q and in our other filings with the SEC, including those set forth in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, macroeconomic events have caused disruption in the capital markets, including increased inflation and interest rates, 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.

Credit Agreement and Convertible Debt

As of June 30, 2023, we had $3.2 billion principal amount of indebtedness outstanding.

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 second quarter of 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 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q.

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The conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”) were not triggered during the second quarter of 2023, and therefore the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible in the third quarter of 2023 pursuant to the applicable last reported sales price conditions. The conditional conversion features of the 2028 Notes are not applicable until the calendar quarter ending December 31, 2023. 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 period ended June 30, 2023, there were no conversions of the Notes.

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. Specifically, the Revolver contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict our ability, subject to negotiated exceptions, to incur additional indebtedness and additional liens on our assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, or change the nature of our businesses. The Revolver also requires us to maintain certain levels of performance in order to maintain our access to the Revolver. 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 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q and Note 6, Debt and Other Financing, included in Part II, Item 8, Financial Statements and Supplementary Data, in our Annual Report on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, we were in compliance with all the terms and conditions of our debt agreements.

Stock Repurchase Program

On August 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”). On August 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”). There is no stated expiration date for the Share Repurchase Programs. We will begin repurchasing shares under the 2021 Repurchase Program upon the completion of the 2020 Repurchase Program.

The Repurchase Programs do not obligate us 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 us in our 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 of June 30, 2023, 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


	Six Months Ended
	2023		2022

	(in millions)
Net loss	$	(401)	$	(697)
Net cash provided by (used in) operating activities	$	70	$	(341)
Net cash provided by (used in) investing activities	$	49	$	(189)
Net cash provided by (used in) financing activities	$	77	$	(75)

Operating Activities

Cash flows in connection with operating activities consisted of net loss adjusted for certain non-cash items including depreciation and amortization, equity-based compensation and certain other non-cash expenses, as well as the effect of changes in working capital and other activities. 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 $411 million during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to an increase in net cash adjusted for non-cash items of $239 million and an increase of $172 million for cash provided by operating assets and liabilities.

Investing Activities

Cash flows provided by investing activities increased by $238 million during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to increases in sales and maturities of short- and long-term investments of $222 million, decreases in purchases of short- and long-term investments of $402 million and decreases in purchases property and equipment and site and software development costs of $58 million.

Purchases of property and equipment and site and software development costs (collectively, “Capital Expenditures”) were 3.0% of net revenue for the six months ended June 30, 2023 and related primarily to equipment purchases and improvements for leased warehouses within our expanding logistics network and ongoing investments in our proprietary technology and operational platform.

Financing Activities

Cash flows provided by financing activities increased by $152 million during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to $678 million of proceeds from the issuance of convertible notes, net of issuance costs, partially offset by an aggregate payment of $514 million to extinguish convertible debt and $87 million of premiums paid for capped call confirmations. The remaining increase is due to $75 million of repurchases of our Class A common stock during the six months ended June 30, 2022.

Contractual Obligations

During the six months ended June 30, 2023, we entered into contractual obligations of $124 million for certain enforceable and legally binding software license and freight commitments. Other than the foregoing additional obligations, there have been no material changes to our contractual obligations and estimates as compared to the contractual obligations described in Contractual Obligations included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2022.

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Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we have disclosed in this Quarterly Report on Form 10-Q the following non-GAAP financial measures: Adjusted EBITDA, Free Cash Flow, Adjusted Diluted Earnings or Loss per Share and Net Revenue Constant Currency Growth.

Adjusted EBITDA

We calculate Adjusted EBITDA as net income or loss before depreciation and amortization, equity-based compensation and related taxes, interest income or expense, net, other income or expense, net, provision or benefit for income taxes, net, non-recurring items and other items not indicative of our ongoing operating performance. We have provided a reconciliation below of Adjusted EBITDA to net income or loss, the most directly comparable GAAP financial measure.

We disclose Adjusted EBITDA because it is a key measure used by our management and the Board to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis as these costs may vary independent of business performance. For instance, we exclude the impact of equity-based compensation and related taxes as we do not consider this item to be indicative of our core operating performance. Investors should, however, understand that equity-based compensation and related taxes 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 provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board.

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. Some of these limitations are:

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•Adjusted EBITDA does not reflect equity-based compensation and related taxes;

•Adjusted EBITDA does not reflect changes in our working capital;

•Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us;

•Adjusted EBITDA does not reflect interest expenses associated with our borrowings;

•Adjusted EBITDA does not include other items not indicative of our ongoing operating performance; and

•Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income or loss and our other GAAP results.

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The following table reflects the reconciliation of net income or loss to Adjusted EBITDA for each of the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022

		(in millions)
Reconciliation of Adjusted EBITDA:
Net loss		$	(46)	$	(378)	$	(401)	$	(697)
Depreciation and amortization		102		91		206		176
Equity-based compensation and related taxes		167		133		318		245
Interest expense, net		5		6		10		14
Other income, net		(3)		(1)		(2)		(1)
Provision for income taxes, net		2		1		4		2
Other:
Impairment and other related net charges (1)		1		40		14		40
Restructuring charges (2)		—		—		65		—
Gain on debt extinguishment (3)		(100)		—		(100)		—
Adjusted EBITDA		$	128	$	(108)	$	114	$	(221)

(1)	During the six months ended June 30, 2023, we recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S. locations. During the three and six months ended June 30, 2023, we recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S. locations. During the three and six months ended June 30, 2022, we recorded $40 million of lease impairment and other charges related to changes in market conditions around future sublease income for one of our office locations in the U.S.
(2)	During the six months ended June 30, 2023, we incurred $65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions.
(3)	During the three and six months ended June 30, 2023, we recorded a $100 million gain on debt extinguishment upon repurchase of $83 million in aggregate principal amount of our 2024 Notes and $535 million in aggregate principal amount of our 2025 Notes.

Free Cash Flow

We calculate Free Cash Flow as net cash provided by or used in operating activities less Capital Expenditures. We have provided a reconciliation below of Free Cash Flow to net cash provided by or used in operating activities, the most directly comparable GAAP financial measure.

We disclose Free Cash Flow because it 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.

Free Cash Flow has limitations as an analytical tool because it omits certain components of the cash flow statement and does not represent the residual cash flow available for discretionary expenditures. Further, other companies, including companies in our industry, may calculate Free Cash Flow differently. 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.

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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:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions)
Net cash provided by (used in) operating activities	$	217	$	(115)	$	70	$	(341)
Purchase of property and equipment	(37)		(53)		(71)		(93)
Site and software development costs	(52)		(76)		(105)		(141)
Free Cash Flow	$	128	$	(244)	$	(106)	$	(575)

Adjusted Diluted Earnings or Loss per Share

We calculate Adjusted Diluted Earnings or Loss per Share as net income or loss plus equity-based compensation and related taxes, provision or benefit for income taxes, net, non-recurring items, other items not indicative of our ongoing operating performance, and, if dilutive, interest expense associated with convertible debt instruments under the if-converted method divided by the weighted-average number of shares of common stock used in the computation of diluted earnings or loss per share. Accordingly, we believe that these adjustments to our adjusted diluted net income or loss before calculating per share amounts for all periods presented provide a more meaningful comparison between our operating results from period to period.

Adjusted Diluted Earnings or Loss per Share 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. For example, Adjusted Diluted Earnings or Loss per Share, by their nature, excludes equity-based compensation and related taxes, provision or benefit for income taxes, net, non-recurring items, other items not indicative of our ongoing operating performance, and, if dilutive, interest expense associated with convertible debt instruments under the if-converted method.

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:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(in millions, except per share data)
Numerator:
Numerator for basic and diluted loss per share - net loss	$	(46)	$	(378)	$	(401)	$	(697)



Adjustments to net loss

Equity-based compensation and related taxes	167		133		318		245
Provision for income taxes, net	2		1		4		2
Other:
Impairment and other related net charges	1		40		14		40
Restructuring charges	—		—		65		—
Gain on debt extinguishment	(100)		—		(100)		—
Numerator for Adjusted Diluted Earnings (Loss) per Share - Adjusted net income (loss)	$	24	$	(204)	$	(100)	$	(410)

Denominator:
Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding	112		105		111		105





Adjustments to effect of dilutive securities:
Restricted stock units	1		—		—		—

Denominator for Adjusted Diluted Earnings (Loss) per Share - Adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities	113		105		$	111	105
Diluted Loss per Share	$	(0.41)	$	(3.59)	$	(3.60)	$	(6.62)
Adjusted Diluted Earnings (Loss) per Share	$	0.21	$	(1.94)	$	(0.90)	$	(3.90)

Net Revenue Constant Currency Growth

We calculate Net Revenue Constant Currency Growth by translating the current period local currency net revenue by the currency exchange rates used to translate our financial statements in the comparable prior-year period.

We disclose Net Revenue Constant Currency Growth because it is an important indicator of our operating results. Accordingly, we believe that Net Revenue Constant Currency Growth provides useful information to investors and others in understanding and evaluating trends in our operating results in the same manner as our management.

Net Revenue Constant Currency Growth 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. For example, Net Revenue Constant Currency Growth rates, by their nature, exclude the impact of foreign exchange, which may have a material impact on net revenue.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, net revenue, costs and expenses and related disclosures. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

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There have been no material changes to our critical accounting policies and estimates since December 31, 2022. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2022 for a description of our critical accounting policies and estimates.

Recent Accounting Pronouncements

The information called for by this section is incorporated herein by reference to Note 1, Summary of Significant Accounting Policies, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q. We have considered recently issued accounting pronouncements and do not believe that any are applicable or expected to have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposures to market risk since December 31, 2022. See Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion on our exposures to market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding our legal proceedings, see Note 5, Commitments and Contingencies, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A. Risk Factors

As of the date of this report, there are no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Purchases of Equity Securities

See Part II, Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Certain Information Regarding the Trading of Our Common Stock included in our Annual Report on Form 10-K for the year ended December 31, 2022 for information regarding our authorized share repurchase programs. As of June 30, 2023, the

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approximate dollar value of shares that may yet be purchased under the authorized share repurchase programs is $1.1 billion. There were no repurchases made during the three months ended June 30, 2023.

Item 5. Other Information

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits


			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	File No.	Filing Date	Exhibit Number
4.1	Indenture, dated as of May 12, 2023, by and between Wayfair Inc. and U.S. Bank Trust Company, National Association, as trustee.		8-K	001-36666	5/12/2023	4.1
4.2	Form of 3.50% Convertible Senior Notes due 2028 (included in Exhibit 4.1).		8-K	001-36666	5/12/2023	4.2
10.1+	Wayfair Inc. 2023 Incentive Award Plan		10-Q	001-36666	5/4/2023	10.1+
10.2+	Form of Restricted Stock Unit Agreement under the 2023 Incentive Award Plan (adopted fiscal 2023)		10-Q	001-36666	5/4/2023	10.2+
10.3	Purchase Agreement, dated May 9, 2023, by and among Wayfair Inc. and Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representatives of the several Initial Purchasers.		8-K	001-36666	5/12/2023	10.1
10.4	Letter Agreement, dated May 9, 2023, between Goldman Sachs & Co. LLC and Wayfair Inc. regarding the Base Capped Call Transaction.		8-K	001-36666	5/12/2023	10.2
10.5	Letter Agreement, dated May 9, 2023, between Citibank, N.A. and Wayfair Inc. regarding the Base Capped Call Transaction.		8-K	001-36666	5/12/2023	10.3
10.6	Letter Agreement, dated May 9, 2023, between Barclays Bank PLC and Wayfair Inc. regarding the Base Capped Call Transaction.		8-K	001-36666	5/12/2023	10.4
10.7	Letter Agreement, dated May 9, 2023, between Bank of Montreal and Wayfair Inc. regarding the Base Capped Call Transaction.		8-K	001-36666	5/12/2023	10.5
10.8	Letter Agreement, dated May 9, 2023, between BNP Paribas and Wayfair Inc. regarding the Base Capped Call Transaction.		8-K	001-36666	5/12/2023	10.6
10.9	Letter Agreement, dated May 9, 2023, between Morgan Stanley & Co. LLC and Wayfair Inc. regarding the Base Capped Call Transaction.		8-K	001-36666	5/12/2023	10.7
10.10	Letter Agreement, dated May 10, 2023, between Goldman Sachs & Co. LLC and Wayfair Inc. regarding the Additional Capped Call Transaction.		8-K	001-36666	5/12/2023	10.8
10.11	Letter Agreement, dated May 10, 2023, between Citibank, N.A. and Wayfair Inc. regarding the Additional Capped Call Transaction.		8-K	001-36666	5/12/2023	10.9
10.12	Letter Agreement, dated May 10, 2023, between Barclays Bank PLC and Wayfair Inc. regarding the Additional Capped Call Transaction.		8-K	001-36666	5/12/2023	10.10
10.13	Letter Agreement, dated May 10, 2023, between Bank of Montreal and Wayfair Inc. regarding the Additional Capped Call Transaction.		8-K	001-36666	5/12/2023	10.11
10.14	Letter Agreement, dated May 10, 2023, between BNP Paribas and Wayfair Inc. regarding the Additional Capped Call Transaction.		8-K	001-36666	5/12/2023	10.12

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Incorporated by Reference

Exhibit
Number

Exhibit Description

Filed
Herewith

Form

File No.

Filing Date

Exhibit
Number

10.15

Letter Agreement, dated May 10, 2023, between Morgan Stanley & Co. LLC and Wayfair Inc. regarding the Additional Capped Call Transaction.

8-K

001-36666

5/12/2023

10.13

10.16

Amendment No. 2 to the Credit Agreement, dated June 13, 2023, among Wayfair Inc., Wayfair LLC and Citibank, N.A. as the Administrative Agent

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1#

Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2#

Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Labels Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

+ Indicates a management contract or compensatory plan

# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WAYFAIR INC.
Date: August 3, 2023	By:	/s/ NIRAJ SHAH
		Niraj Shah
		Chief Executive Officer and President
		(Principal Executive Officer)

Date: August 3, 2023	By:	/s/ KATE GULLIVER
		Kate Gulliver
		Chief Financial Officer and Chief Administrative Officer
		(Principal Financial and Accounting Officer)