Company Quick10K Filing
Quick10K
Wayfair
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
8-K 2019-09-17 Officers, Exhibits
8-K 2019-08-15 Regulation FD, Exhibits
8-K 2019-08-14 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-08-13 Regulation FD, Exhibits
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-07-17 Officers, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-02-21 Enter Agreement, Earnings, Exhibits
8-K 2018-11-27 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-11-15 Regulation FD, Exhibits
8-K 2018-11-14 Regulation FD, Exhibits
8-K 2018-11-14 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-05-16 Officers, Shareholder Vote, Exhibits
8-K 2018-04-12 Enter Agreement, Exhibits
8-K 2018-03-30 Officers
8-K 2018-02-19 Earnings, Other Events, Exhibits
8-K 2018-01-03 Enter Agreement, Officers, Exhibits
AMZN Amazon 879,501
BZUN Baozun 7,772
SFIX Stitch Fix 1,997
NTRI Nutri System 1,147
VIPS Vipshop Holdings 1,094
OSTK Overstock.com 578
PCMI PCM 427
YGYI Youngevity 124
EVLV Evine Live 95
NETS Netshoes 63
W 2019-06-30
Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits.
EX-31.1 a2019-06x30ex311.htm
EX-31.2 a2019-06x30ex312.htm
EX-32.1 a2019-06x30ex321.htm
EX-32.2 a2019-06x30ex322.htm

Wayfair Earnings 2019-06-30

W 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
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, 2019
OR
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 per share 
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, 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.
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 24, 2019
Class A Common Stock, $0.001 par value per share 
 
64,830,064
Class B Common Stock, $0.001 par value per share
 
27,507,532
 


Table of Contents

WAYFAIR INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended June 30, 2019
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

Table of Contents

PART I
 
FINANCIAL INFORMATION


SPECIAL NOTE REGARDING 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, our future customer growth, our future results of operations and financial position, our business strategy and our 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 the Company’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 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, without limitation, the following:
our ability to acquire new customers and sustain and/or manage our growth;
our ability to increase our net revenue per active customer;
our ability to build and maintain strong brands;
our ability to manage our global growth and expansion;
our ability to compete successfully;
the rate of growth of the Internet and e-commerce;
economic factors, such as interest rates, the housing market, currency exchange fluctuations and changes in customer spending;
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 herein and in our other filings with the Securities and Exchange Commission, including those set forth under Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018. We qualify all of our forward-looking statements by these cautionary statements.


2

Table of Contents

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


June 30,
2019

December 31,
2018
Assets

 


 

Current assets

 

 
 

Cash and cash equivalents

$
675,111

 
$
849,461

Short-term investments

39,342

 
114,278

Accounts receivable, net of allowance of $12,644 and $9,312 at June 30, 2019 and December 31, 2018, respectively

77,295

 
50,603

Inventories

45,611

 
46,164

Prepaid expenses and other current assets

219,541

 
195,430

Total current assets

1,056,900

 
1,255,936

Property and equipment, net

480,492

 
606,977

Goodwill and intangible assets, net

560

 
2,585

Operating lease right-of-use assets
 
630,731

 

Long-term investments


 
6,526

Other noncurrent assets

13,417

 
18,826

Total assets

$
2,182,100

 
$
1,890,850

Liabilities and Stockholders' Equity

 
 
 
Current liabilities

 
 
 
Accounts payable

$
779,938

 
$
650,174

Accrued expenses

218,607

 
212,997

Unearned revenue

155,811

 
148,057

Other current liabilities

179,155

 
127,995

Total current liabilities

1,333,511

 
1,139,223

Lease financing obligation, net of current portion
 

 
183,056

Operating lease liabilities
 
685,489

 

Long-term debt

761,604


738,904

Other liabilities

6,853

 
160,388

Total liabilities

2,787,457

 
2,221,571

Commitments and contingencies (Note 7)



 


Convertible preferred stock, $0.001 par value per share: 10,000,000 shares authorized and none issued at June 30, 2019 and December 31, 2018


 

Stockholders’ deficit:

 
 
 

Class A common stock, par value $0.001 per share, 500,000,000 shares authorized, 64,591,843 and 62,329,701 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

65

 
63

Class B common stock, par value $0.001 per share, 164,000,000 shares authorized, 27,506,309 and 28,417,882 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

28

 
28

Additional paid-in capital

859,092

 
753,657

Accumulated deficit

(1,463,166
)
 
(1,082,689
)
Accumulated other comprehensive (loss)

(1,376
)
 
(1,780
)
Total stockholders’ deficit

(605,357
)
 
(330,721
)
Total liabilities and stockholders’ deficit

$
2,182,100

 
$
1,890,850

 
The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.

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Table of Contents

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net revenue
 
$
2,343,251

 
$
1,655,256

 
$
4,288,080


$
3,059,525

Cost of goods sold
 
1,783,651

 
1,270,249

 
3,258,024

 
2,350,694

Gross profit
 
559,600

 
385,007

 
1,030,056

 
708,831

Operating expenses:
 
 

 
 

 
 

 
 

Customer service and merchant fees
 
88,502

 
61,792

 
164,975

 
115,676

Advertising
 
259,166

 
177,582

 
503,135

 
339,228

Selling, operations, technology, general and administrative
 
383,109

 
240,972

 
726,757

 
452,335

Total operating expenses
 
730,777

 
480,346

 
1,394,867

 
907,239

Loss from operations
 
(171,177
)
 
(95,339
)
 
(364,811
)
 
(198,408
)
Interest expense, net
 
(10,252
)
 
(5,796
)
 
(19,490
)
 
(11,203
)
Other income, net
 
322

 
666

 
3,400

 
1,607

Loss before income taxes
 
(181,107
)
 
(100,469
)
 
(380,901
)
 
(208,004
)
Provision for income taxes
 
831

 
265

 
1,426

 
505

Net loss
 
$
(181,938
)
 
$
(100,734
)
 
$
(382,327
)
 
$
(208,509
)
Net loss per share, basic and diluted
 
$
(1.98
)

$
(1.13
)

$
(4.18
)

$
(2.35
)
Weighted average number of common stock outstanding used in computing per share amounts, basic and diluted
 
91,802

 
89,158

 
91,455

 
88,814

 
The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.


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Table of Contents

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net loss
 
$
(181,938
)
 
$
(100,734
)
 
$
(382,327
)
 
$
(208,509
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(439
)
 
1,252

 
204

 
492

Net unrealized gain (loss) on available-for-sale investments
 
47

 
97

 
200

 
(38
)
Comprehensive loss
 
$
(182,330
)
 
$
(99,385
)
 
$
(381,923
)
 
$
(208,055
)
 
The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.


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Table of Contents

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands)
(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
Balance at March 31, 2018
 
88,854

 
$
89

 
$
562,349

 
$
(686,384
)
 
$
(3,258
)
 
$
(127,204
)
Net loss
 

 

 

 
(100,734
)
 

 
(100,734
)
Other comprehensive income
 

 

 

 

 
1,349

 
1,349

Exercise of options to purchase common stock
 
15

 

 
45

 

 

 
45

Issuance of common stock upon vesting of RSUs
 
611

 

 

 

 

 

Shares withheld related to net settlement of RSUs
 
(3
)
 

 
(244
)
 

 

 
(244
)
Equity compensation expense
 

 

 
31,310

 

 

 
31,310

Adoption of ASU No. 2014-09
 

 

 

 

 

 

Balance at June 30, 2018
 
89,477

 
$
89

 
$
593,460

 
$
(787,118
)
 
$
(1,909
)
 
$
(195,478
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
 
91,401

 
$
92

 
$
802,973

 
$
(1,281,228
)
 
$
(984
)
 
$
(479,147
)
Net loss
 

 

 

 
(181,938
)
 

 
(181,938
)
Other comprehensive income
 

 

 

 

 
(392
)
 
(392
)
Exercise of options to purchase common stock
 
4

 

 
13

 

 

 
13

Issuance of common stock upon vesting of RSUs
 
695

 
1

 

 

 

 
1

Shares withheld related to net settlement of RSUs
 
(2
)
 

 
(259
)
 

 

 
(259
)
Equity compensation expense
 

 

 
56,365

 

 

 
56,365

Balance at June 30, 2019
 
92,098

 
$
93

 
$
859,092

 
$
(1,463,166
)
 
$
(1,376
)
 
$
(605,357
)


The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.










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Table of Contents


WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands)
(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
Balance at December 31, 2017
 
88,209

 
$
88

 
$
537,212

 
$
(583,266
)
 
$
(2,363
)
 
$
(48,329
)
Net loss
 

 

 

 
(208,509
)
 

 
(208,509
)
Other comprehensive income
 

 

 

 

 
454

 
454

Exercise of options to purchase common stock
 
25

 

 
74

 

 

 
74

Issuance of common stock upon vesting of RSUs
 
1,251

 
1

 

 

 

 
1

Shares withheld related to net settlement of RSUs
 
(8
)
 

 
(635
)
 

 

 
(635
)
Equity compensation expense
 

 

 
56,809

 

 

 
56,809

Adoption of ASU No. 2014-09
 

 

 

 
4,657

 

 
4,657

Balance at June 30, 2018
 
89,477

 
$
89

 
$
593,460

 
$
(787,118
)
 
$
(1,909
)
 
$
(195,478
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
90,748

 
$
91

 
$
753,657

 
$
(1,082,689
)
 
$
(1,780
)
 
$
(330,721
)
Net loss
 

 

 

 
(382,327
)
 

 
(382,327
)
Other comprehensive income
 

 

 

 

 
404

 
404

Exercise of options to purchase common stock
 
25

 

 
80

 

 

 
80

Issuance of common stock upon vesting of RSUs
 
1,328

 
2

 

 

 

 
2

Shares withheld related to net settlement of RSUs
 
(3
)
 

 
(424
)
 

 

 
(424
)
Equity compensation expense
 

 

 
105,779

 

 

 
105,779

Adoption of ASU No. 2016-02
 

 

 

 
1,850

 

 
1,850

Balance at June 30, 2019
 
92,098

 
$
93

 
$
859,092

 
$
(1,463,166
)
 
$
(1,376
)
 
$
(605,357
)


The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.



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Table of Contents

 
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
 
Six months ended June 30,
 
 
2019
 
2018
Cash flows from operating activities
 
 

 
 

Net loss
 
$
(382,327
)
 
$
(208,509
)
Adjustments to reconcile net loss to net cash used in operating activities
 
 
 
 
Depreciation and amortization
 
83,922

 
54,882

Equity based compensation
 
100,247

 
54,213

Amortization of discount and issuance costs on convertible notes
 
23,015

 
9,353

Other non-cash adjustments
 
(1,595
)
 
133

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(27,653
)
 
3,058

Inventories
 
540

 
(2,741
)
Prepaid expenses and other current assets
 
(22,432
)
 
(22,354
)
Accounts payable and accrued expenses
 
128,611

 
95,743

Unearned revenue and other liabilities
 
14,914

 
52,211

Other assets
 
(1,324
)
 
(1,462
)
Net cash (used in) provided by operating activities
 
(84,082
)
 
34,527

 
 
 
 
 
Cash flows from investing activities
 
 
 
 

Sale and maturities of short-term investments
 
82,164

 
26,646

Purchase of property and equipment
 
(115,340
)
 
(61,093
)
Site and software development costs
 
(58,866
)
 
(28,573
)
Other investing activities
 
2,773

 
(267
)
Net cash used in investing activities
 
(89,269
)
 
(63,287
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 

Taxes paid related to net share settlement of equity awards
 
(424
)
 
(635
)
Deferred financing costs
 
(791
)
 

Net proceeds from exercise of stock options
 
80

 
74

Net cash used in financing activities
 
(1,135
)
 
(561
)
Effect of exchange rate changes on cash and cash equivalents
 
136

 
(187
)
Net decrease in cash and cash equivalents
 
(174,350
)
 
(29,508
)
 
 
 
 
 
Cash and cash equivalents
 
 

 
 

Beginning of period
 
849,461

 
558,960

End of period
 
$
675,111

 
$
529,452

 
 
 
 
 
Supplemental cash flow information
 
 

 
 

Cash paid for interest on long-term debt
 
$
3,720

 
$
746

Purchase of property and equipment included in accounts payable and accrued expenses and in other liabilities
 
$
5,259

 
$
15,463

Construction costs capitalized under finance lease obligation and other leases
 
$

 
$
54,143

 
The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.

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Table of Contents

Notes to Consolidated and Condensed Financial Statements
(Unaudited)
 
1. Basis of Presentation
Wayfair Inc. (the "Company") is one of the world's largest online destinations for the home. Through its e-commerce business model, the Company offers visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over fourteen million products from over 11,000 suppliers.
The consolidated and condensed financial statements and other disclosures contained in this Quarterly Report on Form 10-Q are those of the Company. The consolidated and condensed balance sheet data as of December 31, 2018 was derived from audited financial statements. The accompanying consolidated and condensed balance sheet as of June 30, 2019, the consolidated and condensed statements of operations, consolidated and condensed statements of comprehensive loss, consolidated and condensed statements of stockholders' deficit, and consolidated and condensed statements of cash flows for the periods ended June 30, 2019 and 2018 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2019 and statements of operations, comprehensive loss, statements of stockholders' deficit, and cash flows for the periods ended June 30, 2019 and 2018. The financial data and the other information disclosed in these notes to the consolidated and condensed financial statements related to these periods are unaudited.
The consolidated and condensed statements of operations, comprehensive loss, stockholders' deficit, and cash flows for the period ended June 30, 2019 are not necessarily indicative of the results of operations and cash flows that may be expected for the year ending December 31, 2019, or for any other period. 
2. Summary of Significant Accounting Policies
The Company has identified the significant accounting policies that are critical to understanding its business and results of operations.
Leases
The Company adopted ASU No. 2016-02, "Leases" ("ASU 2016-02") on January 1, 2019 using the modified retrospective approach. The Company also elected the package of practical expedients, which among other things, allowed the Company to carryforward historical lease classification. The adoption of the standard resulted in (1) the derecognition of building assets and finance lease obligations for certain leases that did not pass the sale-leaseback criteria, (2) the derecognition of construction in progress assets and other long-term liabilities for certain lease arrangements whereby the Company is no longer considered the deemed construction owner of the construction projects, and (3) the recognition of operating lease right-of-use ("ROU") assets and lease liabilities for lease arrangements with an initial term greater than twelve months.
Adoption of ASU 2016-02 resulted in the following adjustments to the balance sheet (in thousands):
 
 
December 31, 2018
 
ASU 2016-02 Adjustments
 
January 1, 2019
Balance sheet line item
 
 
 
 
 
 
Property and equipment, net
 
$
606,977

 
$
(227,709
)
 
$
379,268

Operating lease right-of-use assets
 
$

 
$
524,082

 
$
524,082

Other noncurrent assets
 
$
18,826

 
$
(6,814
)
 
$
12,012

Other liabilities
 
$
160,388

 
$
(155,996
)
 
$
4,392

Other current liabilities
 
$
127,995

 
$
(9,624
)
 
$
118,371

Lease financing obligation, net of current portion
 
$
183,056

 
$
(183,056
)
 
$

Operating lease liabilities
 
$

 
$
636,385

 
$
636,385

Accumulated deficit
 
$
(1,082,689
)
 
$
1,850

 
$
(1,080,839
)

The adoption of the standard did not have a notable impact on the Company's liquidity or a materially adverse impact on the Company's debt covenant compliance.

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Table of Contents

The Company determines if an arrangement is a lease at inception. Operating leases are included in "Operating lease right-of-use assets," "Other current liabilities," and "Operating lease liabilities" on our consolidated and condensed balance sheets. As of June 30, 2019, the Company has not entered into material financing lease arrangements.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that management will exercise that option. The Company has lease arrangements with lease and non-lease components. For the Company's warehouse and fulfillment center lease arrangements, the Company accounts for lease and non-lease components separately. For all other lease arrangements, the Company accounts for lease and non-lease components as a single lease component.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The determination of the Company’s incremental borrowing rate requires judgment. The incremental borrowing rate for each lease is primarily based on publicly-available information for companies within the same industry and with similar credit profiles. The rate is then adjusted for the impact of collateralization, the lease term and other specific terms included in the Company’s lease arrangements. The incremental borrowing rate was determined at lease commencement, or as of January 1, 2019 for operating leases existing upon adoption of ASC 842. The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement. The operating lease ROU asset also includes any lease payments made prior to commencement date and excludes lease incentives and initial direct costs incurred. ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets.
Stock Compensation
The Company adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07") on January 1, 2019. The ASU simplifies aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. The adoption of ASU 2018-07 did not have a material impact the Company’s consolidated financial position, results of operations, comprehensive loss, stockholders' deficit or cash flows.
Hosting Arrangements
In August 2018, the FASB issued guidance related to a customer’s accounting for implementation costs incurred in hosting arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in cloud computing arrangements with the requirements for capitalizing costs to develop or obtain internal-use software. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. This guidance may be applied either retrospectively or prospectively. The Company early adopted the guidance on a prospective basis as of January 1, 2019. The adoption of the guidance did not have a material impact on the Company's consolidated financial position, results of operations, comprehensive loss, stockholders' deficit or cash flows.
The Company believes that other than the implementation of ASU 2016-02 and ASU 2018-07, there have been no significant changes during the six months ended June 30, 2019 to the items disclosed in Note 2, 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, 2018.
3. Marketable Securities and Fair Value Measurements
Marketable Securities
As of June 30, 2019 and December 31, 2018, all of the Company’s marketable securities were classified as available-for-sale and their estimated fair values were $39.3 million and $120.8 million, respectively. The Company periodically reviews its available-for-sale securities for other-than-temporary impairment. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period, and its intent to sell. As of June 30, 2019, the Company’s available-for-sale securities primarily consisted of corporate bonds and other government obligations that are priced at fair value. During the three and six months ended June 30, 2019 and 2018, the Company did not recognize any other-than-temporary impairment losses. The maturities of the Company’s long-term marketable securities generally range from one to two years. The cost basis of a marketable security sold is determined by the Company using the specific identification method. During the three and six months ended June 30, 2019 and 2018, the Company did not have any realized gains or losses.

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Table of Contents

 The following tables present details of the Company’s marketable securities as of June 30, 2019 and December 31, 2018 (in thousands):
 
 
June 30, 2019
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term:
 
 

 
 

 
 

 
 

Investment securities
 
$
39,343

 
$
20

 
$
(21
)
 
$
39,342

Total
 
$
39,343

 
$
20

 
$
(21
)
 
$
39,342

 
 
December 31, 2018
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term:
 
 

 
 

 
 

 
 

Investment securities
 
$
114,402

 
$

 
$
(124
)
 
$
114,278

Long-term:
 
 
 
 
 
 
 
 
Investment securities
 
6,603

 

 
(77
)
 
6,526

Total
 
$
121,005

 
$

 
$
(201
)
 
$
120,804


Fair Value Measurements
The Company'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 the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company measures its cash equivalents and short-term and long-term investments at fair value. The Company classifies its cash equivalents and restricted cash within Level 1 because the Company values these investments using quoted market prices. The fair value of the Company's Level 1 financial assets is based on quoted market prices of the identical underlying security. The Company classifies short-term and long-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active. The Company does not have any assets or liabilities classified as Level 3 financial assets.  
The following tables set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 based on the three-tier value hierarchy (in thousands):
 
 
June 30, 2019
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 

 
 

 
 

 
 

Money market funds and other funds
 
$
618,520

 
$

 
$

 
$
618,520

Short-term investments:
 
 
 
 
 
 
 


Investment securities
 

 
39,342

 

 
39,342

Other non-current assets:
 
 
 
 
 
 
 
 
Certificate of deposit
 
5,076

 

 

 
5,076

Total
 
$
623,596

 
$
39,342

 
$

 
$
662,938


11

Table of Contents

 
 
December 31, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 

 
 

 
 

 
 

Money market funds
 
$
715,086

 
$

 
$

 
$
715,086

Short-term investments:
 
 

 
 

 
 

 


Investment securities
 

 
114,278

 

 
114,278

Other non-current assets:
 
 
 
 
 
 
 
 
Certificate of deposit
 
5,000

 

 

 
5,000

Long-term:
 
 

 
 

 
 

 


Investment securities
 

 
6,526

 

 
6,526

Total
 
$
720,086

 
$
120,804

 
$

 
$
840,890


4. Intangible Assets and Goodwill
As of June 30, 2019 and December 31, 2018, the Company had $0.2 million and $0.5 million of intangible assets respectively. Amortization expense related to intangible assets was $0.1 million and $0.3 million for the three months ended June 30, 2019 and 2018, respectively, and $0.3 million and $0.6 million for the six months ended June 30, 2019 and June 30, 2018, respectively.
In January 2019, the Company sold certain intellectual property. The proceeds from the sale exceeded the $1.7 million goodwill carrying value. Goodwill was $0.4 million and $2.1 million as of June 30, 2019 and December 31, 2018, respectively.
5. Property and Equipment, net
The following table summarizes property and equipment, net as of June 30, 2019 and December 31, 2018 (in thousands):
 
 
June 30,
2019
 
December 31,
2018
Furniture and computer equipment
 
$
425,499

 
$
339,761

Site and software development costs
 
228,624

 
172,653

Leasehold improvements
 
156,405

 
109,929

Construction in progress
 
27,010

 
90,104

Buildings (leased - Note 6)
 

 
184,694

 
 
837,538

 
897,141

Less accumulated depreciation and amortization
 
(357,046
)
 
(290,164
)
Property and equipment, net
 
$
480,492

 
$
606,977


Property and equipment depreciation and amortization expense was $44.2 million and $28.6 million for the three months ended June 30, 2019 and 2018, respectively, and $83.6 million and $54.3 million for the six months ended June 30, 2019 and 2018, respectively.
6. Leases
After Adoption of ASU 2016-02
The Company has lease arrangements for warehouse, fulfillment center, office, and data center spaces. These leases expire at various dates through 2035. Operating lease expense was $29.4 million and $16.1 million in the three months ended June 30, 2019 and 2018, respectively, and $55.0 million and $30.6 million in the six months ended June 30, 2019 and 2018, respectively.

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The following table presents other information related to leases (in thousands):
 
 
Six months ended June 30, 2019
Supplemental cash flows information
 
 
Cash payments included in operating cash flows from lease arrangements
 
$
50,387

Right-of-use assets obtained in exchange for lease obligations
 
$
138,064

 
 
 
 
 
June 30, 2019
Additional lease information
 
 
Weighted average remaining lease term
 
10 years

Weighted average discount rate
 
6.9
%

Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows (in thousands):
 
 
Amount
2019 (excluding the six months ended June 30, 2019)
 
$
57,089

2020
 
121,836

2021
 
123,559

2022
 
117,310

2023
 
113,546

Thereafter
 
507,024

Total future minimum lease payments
 
1,040,364

Less: Imputed interest
 
(285,661
)
Total
 
$
754,703


The following table presents total operating leases (in thousands):
 
 
June 30, 2019
Balance sheet line item
 
 
Other current liabilities
 
$
69,214

Operating lease liabilities
 
685,489

Total operating leases
 
$
754,703


As of June 30, 2019, the Company has entered into $498.7 million of additional operating leases, primarily related to build-to-suit warehouse leases that have not yet commenced. As the Company does not control the underlying assets during the construction period, the Company is not considered the owner of the construction projects for accounting purposes. These operating leases will commence between 2019 and 2021 with lease terms of 2 to 15 years.
Before Adoption of ASU 2016-02
The Company established assets and liabilities for the estimated construction costs incurred under lease arrangements where the Company is considered the owner for accounting purposes only to the extent the Company is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease. These are referred to as "build-to-suit leases". Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If the Company continues to be the deemed owner, the facilities are accounted for as financing leases.
In the year ended December 31, 2018, the construction efforts related to three warehouse lease arrangements were completed. In the first warehouse lease arrangement, the Company concluded it had a letter of credit of $2.5 million and as a result the Company did not meet the sale-leaseback criteria for derecognition of the building assets and liabilities. In both the second and third warehouse lease arrangements, the Company provided non-recourse financing to the lessor and as a result the Company did not meet the sale-leaseback criteria for derecognition of the building assets and liabilities.

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Accordingly, these leases were accounted for as financing leases and $101.0 million was recorded in "Lease financing obligation, net of current portion" and "Property and equipment, net," respectively, in the Company’s consolidated and condensed balance sheet as of December 31, 2018.
7. Commitments and Contingencies
Letters of Credit
The Company has issued letters of credit for approximately $45.7 million and $26.8 million, primarily as security for certain lease agreements as of June 30, 2019 and December 31, 2018, respectively.
Legal Matters
On January 10, 2019 and January 16, 2019, putative securities class action complaints were filed against the Company and three of its officers in the U.S. District Court for the District of Massachusetts. The two complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. Each plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between August 2, 2018 and October 31, 2018 and seeks damages and other relief based on allegations that the defendants' conduct affected the value of such stock. The Company intends to defend these lawsuits vigorously. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of these cases or determine an estimate, or a range of estimates, of potential losses.
From time to time the Company is involved in claims that arise during the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company does not currently believe that the outcome of any of these other legal matters will have a material adverse effect on the Company'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 the Company's overall operations. In addition, the Company 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.
8. Equity-Based Compensation
The board of directors of the Company (the "Board") adopted the 2014 Incentive Award Plan ("2014 Plan") to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent. The 2014 Plan is administered by the Board with respect to awards to non-employee directors and by the compensation committee of the Board with respect to other participants and provides for the issuance of stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), performance shares, stock payments, cash payments, dividend awards and other incentives. Prior to the adoption of the 2014 Plan, Wayfair LLC issued certain equity awards pursuant to the Wayfair LLC Amended and Restated Common Unit Plan (the "2010 Plan"), which was administered by the board of directors of Wayfair LLC. Awards issued under the 2010 Plan that remain outstanding currently represent Class A or Class B common stock of the Company.
8,603,066 shares of Class A common stock were initially available for issuance under awards granted pursuant to the 2014 Plan. The 2014 Plan also contains an evergreen provision whereby the shares available for future grant are increased on the first day of each calendar year beginning January 1, 2016 and ending on and including January 1, 2024. As of January 1, 2019, 6,202,378 shares of Class A common stock were available for future grant under the 2014 Plan. Shares or RSUs forfeited, withheld for minimum statutory tax obligations, and unexercised stock option lapses from the 2010 and 2014 Plans are available for future grant under the 2014 Plan.
The following table presents activity relating to stock options for the six months ended June 30, 2019
 
 
Options
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term (Years)
Outstanding at December 31, 2018
 
79,802

 
$
3.05

 
2.5
Options exercised
 
(25,179
)
 
$
3.17

 
 
Outstanding and exercisable at June 30, 2019
 
54,623

 
$
3.00

 
2.0


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Intrinsic value of stock options exercised was $3.7 million for the six months ended June 30, 2019. Aggregate intrinsic value of stock options outstanding and currently exercisable is $7.8 million. All stock options were fully vested at June 30, 2019.
The following table presents activity relating to restricted common stock for the six months ended June 30, 2019
 
 
Shares
 
Weighted-
Average Grant Date Fair Value
Unvested at December 31, 2018
 
20,000

 
$
44.34

Unvested as of June 30, 2019
 
20,000

 
$
44.34


Aggregate intrinsic value of unvested restricted common stock is $2.9 million as of June 30, 2019. Unrecognized equity based compensation expense related to unvested restricted common stock is $0.9 million with a weighted average remaining vesting term of 0.5 years as of June 30, 2019
The following table presents activity relating to RSUs for the six months ended June 30, 2019
 
 
Shares
 
Weighted-
Average Grant
Date Fair Value
Outstanding at December 31, 2018
 
7,970,959

 
$
72.43

RSUs granted
 
1,939,275

 
$
151.00

RSUs vested
 
(1,330,455
)
 
$
65.87

RSUs forfeited/canceled
 
(581,240
)
 
$
83.66

Outstanding as of June 30, 2019
 
7,998,539

 
$
91.75


The intrinsic value of RSUs vested was $187.3 million for the six months ended June 30, 2019. Aggregate intrinsic value of RSUs unvested is $1.2 billion as of June 30, 2019. Unrecognized equity based compensation expense related to outstanding RSUs is $671.8 million with a weighted average remaining vesting term of 1.5 years at June 30, 2019.
9. Unearned Revenue
The Company has three types of contractual liabilities: (i) cash collections from its customers prior to delivery of products purchased, which are initially recorded in "Unearned revenue," and are recognized as net revenue when the products are delivered, (ii) unredeemed gift cards and store credits, which are initially recorded in "Unearned revenue," and are recognized in the period they are redeemed, and (iii) membership rewards redeemable for future purchases, which are earned by customers on purchases made with the Company's Wayfair branded, private label credit card, and are initially recorded in "Other current liabilities," and are recognized as net revenue when redeemed. The portion of gift cards and store credits not expected to be redeemed are recognized as net revenue based on historical redemption pattern, which is substantially within twenty-four months from the date of issuance.
Contractual liabilities included in "Unearned revenue" and "Other current liabilities" in the consolidated and condensed balance sheets were $155.8 million and $3.1 million at June 30, 2019 and $148.1 million and $3.1 million at December 31, 2018, respectively. During the six months ended June 30, 2019, the Company recognized $121.9 million and $1.5 million of net revenue included in "Unearned revenue" and "Other current liabilities," respectively, at December 31, 2018.
Net revenue from contracts with customers is disaggregated by Direct Retail and Other net revenue and by geographic region because this manner of disaggregation best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 10, Segment and Geographic Information, for additional detail.
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. The Company’s CODM is its Chief Executive Officer. 

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