W
$69.05
Wayfair
$.80
1.17%
Earnings Details
3rd Quarter September 2017
Thursday, November 2, 2017 7:00:02 AM
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Summary

Wayfair Misses

Wayfair (W) reported a 3rd Quarter September 2017 loss of $0.66 per share on revenue of $1.2 billion. The consensus estimate was a loss of $0.46 per share on revenue of $1.2 billion. The Earnings Whisper number was for a loss of $0.39 per share. Revenue grew 39.1% on a year-over-year basis.

The company said during its conference call it expects fourth quarter revenue of $1.33 billion to $1.36 billion. The current consensus revenue estimate is $1.35 billion for the quarter ending December 31, 2017.

Wayfair Inc is engaged in e-commerce business. It offers visually inspiring browsing, compelling merchandising and easy product discovery. It offers brands including Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane.

Results
Reported Earnings
($0.66)
Earnings Whisper
($0.39)
Consensus Estimate
($0.46)
Reported Revenue
$1.20 Bil
Revenue Estimate
$1.21 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Wayfair Announces Third Quarter 2017 Results

Q3 Total Net Revenue Growth of 39% Year over Year to $1.2 billion

--10.3 million Active Customers, up 39% Year over Year

Wayfair Inc. (W), one of the world’s largest online destinations for the home, today reported financial results for its third quarter ended September 30, 2017.

Third Quarter 2017 Financial Highlights

Direct Retail net revenue, consisting of sales generated primarily through Wayfair’s sites, increased $348.8 million to $1.2 billion, up 41.9% year over year

Total net revenue increased $336.7 million to $1.2 billion, up 39.1% year over year

-- Gross profit was $280.3 million or 23.4% of total net revenue

-- GAAP net loss was $76.4 million

-- Adjusted EBITDA was $(22.7) million or (1.9)% of total net revenue

-- GAAP basic and diluted net loss per share was $0.88

-- Non-GAAP diluted net loss per share was $0.65

-- Non-GAAP free cash flow was $(18.5) million

At the end of the third quarter, cash, cash equivalents, and short-term and long-term investments totaled $640.2 million

"We are very pleased with the company’s strong growth and momentum as we continue to reinforce our position as a clear online leader in the massive home category," noted Niraj Shah, CEO, co-founder and co-chairman, Wayfair. "With $1.2 billion in year over year Direct Retail revenue growth during the twelve months ending September 30, we are already quickly outpacing the shift of dollars online in our category and taking a high proportion of market share as customers embrace our exceptional shopping experience. Through significant advancements across our supply chain network, we are now able to promise our customers a more seamless shopping experience and even faster delivery times for millions of products. The majority of large parcel orders such as sofas, dining tables, bathroom vanities, chandeliers and more are now flowing through the Wayfair-controlled Wayfair Delivery Network, which means we can ensure a flawless experience from start to finish for even the largest and heaviest products. We are also able to leverage our enhanced logistics network and greater efficiencies to offer our customers creative and compelling promotions in time for the holidays in the U.S., Canada and Europe. We believe these exciting initiatives and many others across all areas of the business will continue to propel significant growth for Wayfair as we move into 2018."

Other Third Quarter Highlights

The number of active customers in our Direct Retail business reached 10.3 million as of September 30, 2017, an increase of 39.2% year over year

LTM net revenue per active customer was $408 as of September 30, 2017, an increase of 0.5% year over year

Orders per customer, measured as LTM orders divided by active customers, was 1.75 for the third quarter of 2017, compared to 1.69 for the third quarter of 2016

Repeat customers placed 61.0% of total orders in the third quarter of 2017, compared to 56.9% in the third quarter of 2016

Repeat customers placed 2.9 million orders in the third quarter of 2017, an increase of 48.2% year over year

Orders delivered in the third quarter of 2017 were 4.7 million, an increase of 38.1% year over year

Average order value was $250 for the third quarter of 2017, compared to $244 in the third quarter of 2016

In the third quarter of 2017, 45.4% of total orders delivered for our Direct Retail business were placed via a mobile device, compared to 40.3% in the third quarter of 2016

Webcast and Conference Call

Wayfair will host a conference call and webcast to discuss its third quarter 2017 financial results today at 8 a.m. (ET). Investors and participants can access the call by dialing (833) 286-5803 in the U.S. and (647) 689-4448 internationally. The passcode for the conference line is 89809970. The call will also be available via live webcast at investor.wayfair.com along with supporting slides. An archive of the webcast conference call will be available shortly after the call ends. The archived webcast will be available at investor.wayfair.com.

About Wayfair

Wayfair Inc. offers an extensive selection of home furnishings and decor across all styles and price points. The Wayfair family of sites includes:

-- Wayfair, an online destination for all things home

Joss & Main, where beautiful furniture and finds meet irresistible savings

-- AllModern, unbelievable prices on everything modern

-- Birch Lane, a collection of classic furnishings and timeless home decor

-- Perigold, unparalleled access to the finest home decor and furnishings

Wayfair generated $4.3 billion in net revenue for the twelve months ended September 30, 2017. Headquartered in Boston, Massachusetts with operations throughout North America and Europe, the company employs more than 6,800 people.

Forward-Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions.

Forward-looking statements are based on current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this press release and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

Factors that could cause or contribute to differences in our future results include, but are not limited to: economic factors, such as interest rates and currency exchange fluctuations; our ability to acquire new customers; our ability to sustain and/or manage our growth, including the expansion of our Wayfair Delivery Network; our ability to increase our net revenue per active customer; and our ability to build and maintain strong brands. A further list and description of these risks, uncertainties and other factors can be found under Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Company’s subsequent filings with the Securities and Exchange Commission. We qualify all of our forward-looking statements by these cautionary statements.

Non-GAAP Financial Measures

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

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

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

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

Wayfair does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that the non-GAAP financial measures used by Wayfair may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies, including other companies in its industry.

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

Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Reconciliation of Adjusted EBITDA
Net loss
$
(76,429 )
$ (60,940 )
$
(171,843 )
$
(150,419 )
Depreciation and amortization (1)
22,913
15,463
62,588
38,528
Equity based compensation and related taxes
19,598
15,308
50,539
37,265
Interest expense (income), net
2,008
292
3,857
(791 )
Other expense (income), net
227
(889 )
(400 )
(1,804 )
Provision for (benefit from) income taxes
237
(83 )
671
555
Other (1)
8,774
--
8,774
--
Adjusted EBITDA
$
(22,672 )
$ (30,849 )
$
(45,814 )
$
(76,666 )
Net revenue
$ 1,198,198
$ 861,525
$ 3,281,879
$ 2,395,801
Adjusted EBITDA Margin
(1.9 )%
(3.6 )%
(1.4 )%
(3.2 )%

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

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

Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Segment Adjusted EBITDA
U.S.
$
4,531
$
(7,857 )
$
28,684
$ (11,816 )
International
(27,203 )
(22,992 )
(74,498 )
(64,850 )
Adjusted EBITDA
$ (22,672 )
$ (30,849 )
$ (45,814 )
$ (76,666 )

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

Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Net loss
$ (76,429 )
$ (60,940 )
$ (171,843 )
$ (150,419 )
Equity based compensation and related taxes
19,598
15,308
50,539
37,265
Provision for (benefit from) income taxes
237
(83 )
671
555
Non-GAAP net loss
$ (56,594 )
$ (45,715 )
$ (120,633 )
$ (112,599 )
Non-GAAP net loss per share, basic and diluted
$
(0.65 )
$
(0.54 )
$
(1.39 )
$
(1.33 )
Weighted average common shares outstanding, basic and diluted
87,283
85,105
86,679
84,779

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

Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Net cash provided by (used in) operating activities
$
24,752
$
15,621
$
(3,245 )
$
(10,680 )
Purchase of property and equipment
(30,980 )
(20,408 )
(76,528 )
(81,844 )
Site and software development costs
(12,235 )
(9,181 )
(34,885 )
(21,444 )
Free cash flow
$ (18,463 )
$ (13,968 )
$ (114,658 )
$ (113,968 )

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

Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Consolidated Financial Metrics
Net Revenue
$ 1,198,198
$ 861,525
$ 3,281,879
$ 2,395,801
Adjusted EBITDA
$
(22,672 )
$ (30,849 )
$
(45,814 )
$
(76,666 )
Free cash flow
$
(18,463 )
$ (13,968 )
$
(114,658 )
$
(113,968 )
Direct Retail Financial and Operating Metrics
Direct Retail Net Revenue
$ 1,181,223
$ 832,398
$ 3,224,036
$ 2,299,901
Active Customers
10,250
7,362
10,250
7,362
LTM Net Revenue per Active Customer
$
408
$
406
$
408
$
406
Orders Delivered
4,719
3,417
13,209
9,343
Average Order Value
$
250
$
244
$
244
$
246

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

Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
U.S. Direct Retail
$ 1,033,669
$ 759,674
$ 2,847,898
$
2,134,782
U.S. Other
16,975
28,127
57,843
91,613
U.S. segment net revenue
1,050,644
787,801
2,905,741
2,226,395
International Direct Retail
147,554
72,724
376,138
165,119
International Other
--
1,000
--
4,287
International segment net revenue
147,554
73,724
376,138
169,406
Total net revenue
$ 1,198,198
$ 861,525
$ 3,281,879
$
2,395,801
WAYFAIR INC.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
September 30,
December 31,
2017
2016
Assets
Current assets
Cash and cash equivalents
$
553,721
$ 279,840
Short-term investments
56,699
68,743
Accounts receivable, net of allowance of $4,507 and $3,115 at
27,521
19,113
September 30, 2017 and December 31, 2016, respectively
Inventories
18,613
18,550
Prepaid expenses and other current assets
120,041
90,845
Total current assets
776,595
477,091
Property and equipment, net
318,873
239,354
Goodwill and intangible assets, net
3,386
4,230
Long-term investments
29,809
30,967
Other noncurrent assets
9,477
10,041
Total assets
$ 1,138,140
$ 761,683
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$
381,661
$ 379,493
Accrued expenses
121,218
67,807
Deferred revenue
86,219
65,892
Other current liabilities
61,151
44,028
Total current liabilities
650,249
557,220
Lease financing obligation
82,725
28,900
Long-term debt
327,950
--
Other liabilities
74,187
96,179
Total liabilities
1,135,111
682,299
Convertible preferred stock, $0.001 par value per share: 10,000,000
--
--
shares authorized and none issued at September 30, 2017 and December
31, 2016
Stockholders’ equity:
Class A common stock, par value $0.001 per share, 500,000,000 shares
56
50
authorized, 56,355,606 and 49,945,202 shares issued and outstanding
at September 30, 2017 and December 31, 2016, respectively
Class B common stock, par value $0.001 per share, 164,000,000 shares
31
36
authorized, 31,290,483 and 35,885,692 shares issued and outstanding
at September 30, 2017 and December 31, 2016, respectively
Additional paid-in capital
515,380
409,225
Accumulated deficit
(510,495 )
(329,940 )
Accumulated other comprehensive (loss) gain
(1,943 )
13
Total stockholders’ equity
3,029
79,384
Total liabilities and stockholders’ equity
$ 1,138,140
$ 761,683
WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended
Nine months ended
September 30,
September 30,
2017
2016
2017
2016
Net revenue
$ 1,198,198
$ 861,525
$ 3,281,879
$ 2,395,801
Cost of goods sold (1)
917,889
659,864
2,495,221
1,826,570
Gross profit
280,309
201,661
786,658
569,231
Operating expenses:
Customer service and merchant fees (1)
42,949
33,872
117,132
91,286
Advertising
141,714
101,333
384,220
293,436
Merchandising, marketing and sales (1)
56,934
48,550
160,033
129,679
Operations, technology, general and administrative (1)
112,669
79,526
292,988
207,289
Total operating expenses
354,266
263,281
954,373
721,690
Loss from operations
(73,957 )
(61,620 )
(167,715 )
(152,459 )
Interest (expense) income, net
(2,008 )
(292 )
(3,857 )
791
Other (expense) income, net
(227 )
889
400
1,804
Loss before income taxes
(76,192 )
(61,023 )
(171,172 )
(149,864 )
Provision for (benefit from) income taxes
237
(83 )
671
555
Net loss
$
(76,429 )
$ (60,940 )
$
(171,843 )
$
(150,419 )
Net loss per share, basic and diluted
$
(0.88 )
$
(0.72 )
$
(1.98 )
$
(1.77 )
Weighted average number of common stock outstanding used in
87,283
85,105
86,679
84,779
computing per share amounts, basic and diluted

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

Cost of goods sold
$
282
$
212
$
632
$
357
Customer service and merchant fees
636
627
1,866
1,488
Merchandising, marketing and sales
8,849
6,588
24,014
16,910
Operations, technology, general and administrative
9,831
7,881
24,027
18,510
$ 19,598
$ 15,308
$ 50,539
$
37,265
WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended September 30,
2017
2016
Cash flows from operating activities
Net loss
$ (171,843 )
$ (150,419 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization
62,588
38,528
Equity based compensation
46,740
35,188
Amortization of discount and issuance costs on convertible notes
874
--
Other non-cash adjustments
913
(134 )
Changes in operating assets and liabilities:
Accounts receivable
(8,697 )
(6,773 )
Inventories
(38 )
716
Prepaid expenses and other current assets
(27,776 )
(12,493 )
Accounts payable and accrued expenses
44,692
53,443
Deferred revenue and other liabilities
50,450
33,556
Other assets
(1,148 )
(2,292 )
Net cash used in operating activities
(3,245 )
(10,680 )
Cash flows from investing activities
Purchase of short-term and long-term investments
(47,639 )
(76,458 )
Sale and maturities of short-term investments
60,540
82,060
Purchase of property and equipment
(76,528 )
(81,844 )
Site and software development costs
(34,885 )
(21,444 )
Cash received from the sale of a business, net of cash sold
--
1,508
Other investing activities, net
--
(1,000 )
Net cash used in investing activities
(98,512 )
(97,178 )
Cash flows from financing activities
Proceeds from issuance of convertible notes, net of issuance costs
420,449
--
Premiums paid for capped call confirmations
(44,160 )
--
Taxes paid related to net share settlement of equity awards
(1,277 )
(18,426 )
Net proceeds from exercise of stock options
213
166
Net cash provided by (used in) financing activities
375,225
(18,260 )
Effect of exchange rate changes on cash and cash equivalents
413
286
Net increase (decrease) in cash and cash equivalents
273,881
(125,832 )
Cash and cash equivalents
Beginning of period
279,840
334,176
End of period
$
553,721
$
208,344

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SOURCE: Wayfair Inc.

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