10-Q 1 w-20220930.htm 10-Q w-20220930
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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 September 30, 2022
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 PlaceBostonMA02116
(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 classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share WThe 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 FilerAccelerated filer 
Non-accelerated filerSmaller 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 October 27, 2022
Class A Common Stock, $0.001 par value per share  81,430,576
Class B Common Stock, $0.001 par value per share 25,691,397


WAYFAIR INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended September 30, 2022
  Page
  
 
  
 
   
 
  
 
  
 
  
 

  
 
  
  
  
  
 
  
       39
  
 
1

PART I
 
FINANCIAL INFORMATION

Item 1. Unaudited Consolidated and Condensed Financial Statements

WAYFAIR INC.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(Unaudited)
September 30,
2022
December 31,
2021
(in millions, except share and per share data)
Assets:  
Current assets  
Cash and cash equivalents$731 $1,706 
Short-term investments557 693 
Accounts receivable, net332 226 
Inventories103 69 
Prepaid expenses and other current assets281 318 
Total current assets2,004 3,012 
Operating lease right-of-use assets852 849 
Property and equipment, net763 674 
Other non-current assets34 35 
Total assets$3,653 $4,570 
Liabilities and Stockholders' Deficit:
Current liabilities
Accounts payable$1,056 $1,166 
Other current liabilities905 1,051 
Total current liabilities1,961 2,217 
Long-term debt3,134 3,052 
Operating lease liabilities, net of current909 892 
Other non-current liabilities27 28 
Total liabilities6,031 6,189 
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 September 30, 2022 and December 31, 2021
  
Class A common stock, par value $0.001 per share: 500,000,000 shares authorized, 80,772,544 and 79,150,937 shares issued and outstanding at September 30, 2022 and December 31, 2021
  
Class B common stock, par value $0.001 per share: 164,000,000 shares authorized, 25,691,397 and 25,691,761 shares issued and outstanding at September 30, 2022 and December 31, 2021
  
Additional paid-in capital
565 337 
Accumulated deficit(2,929)(1,949)
Accumulated other comprehensive loss(14)(7)
Total stockholders’ deficit(2,378)(1,619)
Total liabilities and stockholders’ deficit$3,653 $4,570 
See notes to unaudited consolidated and condensed financial statements.
2

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 
 Three months ended September 30,Nine months ended September 30,
 2022202120222021
(in millions, except per share data)
Net revenue$2,840 $3,121 $9,117 $10,456 
Cost of goods sold2,016 2,238 6,594 7,442 
Gross profit824 883 2,523 3,014 
Operating expenses:  
Customer service and merchant fees156 140 469 432 
Advertising353 315 1,067 1,033 
Selling, operations, technology, general and administrative656 498 1,970 1,435 
Impairment and other related charges  40 12 
Restructuring charges31  31  
Total operating expenses1,196 953 3,577 2,912 
(Loss) income from operations(372)(70)(1,054)102 
Interest expense, net(5)(8)(19)(24)
Other (expense) income, net(1)4  (1)
Gain on debt extinguishment 96  96  
(Loss) income before income taxes(282)(74)(977)77 
Provision for income taxes, net1 4 3 6 
Net (loss) income$(283)$(78)$(980)$71 
(Loss) earnings per share:
Basic$(2.66)$(0.75)$(9.28)$0.68 
Diluted$(2.66)$(0.75)$(9.28)$0.65 
Weighted-average number of shares of common stock outstanding used in computing per share amounts:
Basic106 104 106104 
Diluted106 104 106107 
 
See notes to unaudited consolidated and condensed financial statements.

3

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 
 Three months ended September 30,Nine months ended September 30,
 2022202120222021
(in millions)
Net (loss) income$(283)$(78)$(980)$71 
Other comprehensive (loss) income:
Foreign currency translation adjustments(2) (5) 
Net unrealized loss on available-for-sale investments  (2) 
Comprehensive (loss) income$(285)$(78)$(987)$71 
 
See notes to unaudited consolidated and condensed financial statements









































4

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
Three Months Ended
Class A and Class B Common Stock
SharesAmountAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Loss
Total
Stockholders'
Deficit
(in millions)
Balance at June 30, 2021104 $ $132 $(1,669)$(5)$(1,542)
Net loss— — — (78)— (78)
Equity-based compensation expense — — 90 — — 90 
Balance at September 30, 2021104 $ $222 $(1,747)$(5)$(1,530)
Balance at June 30, 2022106 $ $513 $(2,646)$(12)$(2,145)
Net loss— — — (283)— (283)
Other comprehensive loss— — — — (2)(2)
Equity-based compensation expense — — 132 — — 132 
Premiums paid for capped calls (Note 4)— — (80)— — (80)
Balance at September 30, 2022106 $ $565 $(2,929)$(14)$(2,378)

See notes to unaudited consolidated and condensed financial statements.










5

Nine Months Ended
Class A and Class B Common Stock
SharesAmountAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Deficit
(in millions)
Balance at December 31, 2020100 $ $699 $(1,886)$(5)$(1,192)
Net income— — — 71 — 71 
Issuance of common stock upon vesting of RSUs1 — — — — — 
Equity-based compensation expense— — 257 — — 257 
Repurchase of common stock(1)— (300)— — (300)
Shares issued upon conversion of convertible notes (Note 4)4 — 265 — — 265 
Cumulative effect of adopting new credit allowance standard— — (699)68 — (631)
Balance at September 30, 2021104 $ $222 $(1,747)$(5)$(1,530)
Balance at December 31, 2021105 $ $337 $(1,949)$(7)$(1,619)
Net loss— — — (980)— (980)
Other comprehensive loss— — — — (7)(7)
Issuance of common stock upon vesting of RSUs2 — — — — — 
Equity-based compensation expense — — 383 — — 383 
Repurchase of common stock(1)— (75)— — (75)
Premiums paid for capped calls (Note 4)— — (80)— — (80)
Balance at September 30, 2022106 $ $565 $(2,929)$(14)$(2,378)

See notes to unaudited consolidated and condensed financial statements.

6

WAYFAIR INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) 
 Nine months ended September 30,
 20222021
(in millions)
Cash flows from operating activities:  
Net (loss) income$(980)$71 
Adjustments used to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization270 240 
Equity-based compensation355 237 
Amortization of discount and issuance costs on convertible notes7 6 
Impairment and other related charges40 12 
Gain on debt extinguishment(96) 
Other non-cash adjustments20 2 
Changes in operating assets and liabilities:
Accounts receivable, net(113)(58)
Inventories(35)(15)
Prepaid expenses and other current assets39 (38)
Other assets 1 
Accounts payable and other current liabilities(294)(133)
Other liabilities15 (4)
Net cash (used in) provided by operating activities(772)321 
Cash flows from investing activities: 
Purchase of short- and long-term investments(420)(775)
Sale and maturities of short- and long-term investments550 701 
Purchase of property and equipment(136)(78)
Site and software development costs(205)(129)
Other investing activities, net 5 
Net cash used in investing activities(211)(276)
Cash flows from financing activities: 
Repurchase of common stock(75)(300)
Proceeds from issuance of convertible notes, net of issuance costs678  
Premiums paid for capped calls(80) 
Payment of principal upon maturity of convertible debt(3) 
Payments to extinguish convertible debt(504) 
Other financing activities, net (2)
Net cash flows provided by (used in) financing activities16 (302)
Effect of exchange rate changes on cash and cash equivalents(8)(7)
Net decrease in cash and cash equivalents(975)(264)
Cash and cash equivalents:  
Beginning of period$1,706 $2,129 
End of period$731 $1,865 
Supplemental cash flow information:  
Cash paid for interest on long-term debt$26 $19 
Non-cash impact to equity upon conversion of convertible notes, net of taxes$ $265 
Purchase of property and equipment included in accounts payable and other liabilities$14 $22 
    See notes to unaudited consolidated and condensed financial statements.
7

Wayfair Inc.
Notes to Consolidated and Condensed Financial Statements
(Unaudited)
 
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated and condensed 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, references to “Wayfair,” “we,” “us” and “our” refer to Wayfair Inc. and its subsidiaries. In our opinion, the accompanying unaudited consolidated and condensed 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 our Annual Report on Form 10-K for the year ended December 31, 2021. Furthermore, interim results are not necessarily indicative of the results for the full year ended December 31, 2022 or future periods.

The Company has identified the 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 nine months ended September 30, 2022 to the items disclosed in Note 1, Summary of Significant Accounting Policies, included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2021.

In the fourth quarter of 2021, Wayfair changed its presentation from thousands to millions. As a result of the change in presentation, prior period amounts in the unaudited consolidated and condensed financial statements and notes thereto have been reclassified to conform to current period presentation and certain current and prior period amounts may not recalculate due to rounding.

2. Supplemental Financial Statement Disclosures
Accounts Receivable, Net
As of September 30, 2022, we reported accounts receivable of $332 million, net of allowance for credit losses of $19 million. As of December 31, 2021, we reported accounts receivable of $226 million, net of allowance for credit losses of $12 million. The changes in the allowance for credit losses were not material for the three and nine months ended September 30, 2022. Management believes credit risk is mitigated since approximately 97% of the net revenue recognized for the three and nine months ended September 30, 2022 was collected in advance of recognition.
Contract Liabilities
Contract liabilities included in other current liabilities was $237 million at September 30, 2022 and $306 million at December 31, 2021. During the nine months ended September 30, 2022, Wayfair recognized $214 million of net revenue that was included in other current liabilities as of December 31, 2021.
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 detail.
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Impairment and Other Related Charges
During the second quarter of 2022, Wayfair identified an indicator of impairment for one of our U.S. office locations, which was primarily due to current sublease market conditions. We performed an analysis and determined that the carrying amount of the asset group exceeded its fair value, which was calculated based on estimated future sublease income. As a result, we recorded a charge of $40 million during the second quarter of 2022, which included $32 million of non-cash impairment of the right-of-use (“ROU”) asset, $7 million for the non-cash impairment of fixed assets and the remainder for other items.
In the first quarter of 2021, Wayfair enacted a plan to consolidate certain customer service centers in identified U.S. locations to transition toward virtual service models. Factors that influenced our decision were our ability to utilize a greater use of remote and home office applications and our ability to provide superior customer care. As a result, we recorded a charge of $12 million during the third quarter of 2021, which included $6 million for the non-cash impairment of ROU assets, $5 million for the non-cash accelerated depreciation of fixed assets and the remainder for other items. The impairment of ROU assets represents the excess of estimated future remaining call center lease commitments over expected future sublease income in certain affected facilities.
Restructuring Charges
On August 19, 2022, Wayfair announced a workforce reduction involving approximately 870 employees in connection with its previously announced plans to manage operating expenses and realign investment priorities. This reduction represented approximately 5% of Wayfair’s global workforce and approximately 10% of Wayfair’s corporate team at that time.
As a result of this workforce reduction, Wayfair incurred a total of $31 million of costs, consisting primarily of one-time employee severance and benefit costs, substantially all of which were expensed in the third quarter of 2022 and recorded to restructuring charges within the consolidated and condensed statements of operations. As of September 30, 2022, Wayfair had $12 million recorded in other current liabilities for employee severance benefits which are expected to be paid in the fourth quarter of 2022.

3. Cash and Cash Equivalents, Investments and Fair Value Measurements
Investments
As of September 30, 2022 and December 31, 2021, 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. Wayfair did not have any realized gains nor losses during the three and nine months ended September 30, 2022 or 2021.
During the three and nine months ended September 30, 2022 and 2021, Wayfair did not recognize any credit losses related to its available-for-sale debt securities. Further, as of September 30, 2022 and December 31, 2021, Wayfair did not record an allowance for credit losses related to its available-for-sale debt securities.
The following tables present details of Wayfair’s investment securities as of September 30, 2022 and December 31, 2021:
 September 30, 2022
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
(in millions)
Short-term:    
Investment securities$559 $ $(2)$557 
 December 31, 2021
 Amortized
Cost
Gross Unrealized GainsGross
Unrealized
Losses
Estimated
Fair Value
(in millions)
Short-term:   
Investment securities$693 $ $ $693 
Fair Value Measurements
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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. We classify our cash equivalents within Level 1 because we value these investments using quoted market prices. The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security. We classify short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active. None of our cash and cash equivalents or investments are classified as Level 3.  
The following tables set forth the fair value of Wayfair’s financial assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
 September 30, 2022
 Level 1Level 2Level 3Total
(in millions)
Cash and cash equivalents:   
Cash$332 $ $ $332 
Cash equivalents399   399 
Total cash and cash equivalents731   731 
Short-term investments:
Investment securities 557  557 
Total$731 $557 $ $1,288 
 December 31, 2021
 Level 1Level 2Level 3Total
(in millions)
Cash and cash equivalents:    
Cash$906 $ $ $906 
Cash equivalents800   800 
Total cash and cash equivalents1,706   1,706 
Short-term investments:   
Investment securities 693  693 
Total$1,706 $693 $ $2,399 
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4. Debt and Other Financing
The following table presents the outstanding principal amount and carrying value of debt and other financing as of the dates presented:
September 30, 2022December 31, 2021
Debt InstrumentPrincipal AmountUnamortized Debt DiscountNet Carrying AmountPrincipal AmountUnamortized Debt DiscountNet Carrying Amount
(in millions)
Revolving Credit Facility$—$ $ 
2022 Notes$ $ $ $3 $ $3 
2024 Notes200 (2)198 575 (6)569 
2025 Notes1,289 (9)1,280 1,518 (13)1,505 
2026 Notes949 (8)941 949 (9)940 
2027 Notes690 (12)678    
2025 Accreting Notes37  37 36 (1)35 
Total Debt$3,134 $3,052 
Short-term debt$ $ 
Long-term debt$3,134 $3,052 
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 approximately $66 million in outstanding letters of credit as of September 30, 2022, primarily as security for lease agreements. As of September 30, 2022, there were no revolving loans outstanding under the Revolver.
Convertible Non-Accreting Notes
In September 2022, Wayfair issued $690 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2027 (the “2027 Notes”), which includes the exercise in full of a $90 million option granted to the initial purchasers. In connection with the issuance of the 2027 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2027 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2027 Notes (the “2027 Capped Calls”).
The following table summarizes certain terms related to our current outstanding non-accreting convertible notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”):
Convertible Non-Accreting NotesMaturity DateAnnual Coupon RateAnnual Effective Interest RatePayment Dates for Semi-Annual Interest Payments in Arrears
2024 NotesNovember 1, 20241.125%1.5%May 1 and November 1
2025 NotesOctober 1, 20250.625%0.9%April 1 and October 1
2026 NotesAugust 15, 20261.000%1.2%February 15 and August 15
2027 NotesSeptember 15, 20273.250%3.6%March 15 and September 15
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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.
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 NotesMaturity DateFree Convertibility DateInitial Conversion Rate per $1,000 PrincipalInitial Conversion PriceEarliest Potential Redemption Date
2022 NotesSeptember 1, 2022June 1, 20229.6100$104.06September 8, 2020
2024 NotesNovember 1, 2024August 1, 20248.5910$116.40May 8, 2022
2025 NotesOctober 1, 2025July 1, 20252.3972$417.15October 4, 2022
2026 NotesAugust 15, 2026May 15, 20266.7349$148.48August 20, 2023
2027 Notes September 15, 2027June 15, 2027 15.7597$63.45September 20, 2025
2025 Accreting NotesApril 1, 2025-13.7931$72.50May 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.
During the third quarter of 2022, upon maturity of the 2022 Notes, Wayfair paid in cash the remaining outstanding principal to the holders of the 2022 Notes.
Wayfair will settle any conversions of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 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;
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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 September 30, 2022, the 2024 Notes, 2025 Notes, 2026 Notes, and 2027 Notes are not convertible during the calendar quarter ended December 31, 2022.
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 Notes may require Wayfair to repurchase all or a portion of the Notes for cash at a price equal to 100% of the principal amount (or accreted principal amount) of the 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 indenture) may be entitled to a premium in the form of an increase in the 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 consolidated and condensed 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.
Interest for the Accreting Notes is amortized to interest expense, net using the effective interest method over the term of the Accreting Notes and recorded to other long-term liabilities in the consolidated and condensed balance sheet. Upon accretion to the principal amount on April 1 and October 1 of each year, Wayfair will reclassify the interest accrued as of that date to long-term debt.
Proceeds from 2027 Notes Transactions and Partial Extinguishment of 2024 Notes and 2025 Notes
The net proceeds from the issuance of the 2027 Notes were approximately $678 million after deducting the initial purchasers’ discounts and the offering expenses payable by Wayfair. Wayfair used approximately $80 million of the net proceeds from the issuance of the 2027 Notes to purchase the 2027 Capped Calls.
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In addition, Wayfair used approximately $506 million of the net proceeds from the issuance of the 2027 Notes to repurchase for cash approximately $375 million aggregate principal amount of the 2024 Notes and approximately $229 million aggregate principal amount of the 2025 Notes, as well as aggregate accrued interest of $2 million for both the 2024 Notes and 2025 Notes, in privately negotiated repurchase transactions. In accounting for the repurchases of the 2024 Notes and 2025 Notes, Wayfair recorded a $96 million gain on debt extinguishment, representing the difference between the cash paid for principal of $504 million and the combined net carrying value of the 2024 Notes and 2025 Notes of $600 million.
Wayfair intends to use the remaining net proceeds from the issuance of the 2027 Notes for working capital and general corporate purposes, including, but not limited to, operating and capital expenditures. We may also use a portion of the net proceeds to finance acquisitions, strategic transactions, investments, repurchases of our Class A common stock or the repayment, redemption, purchase or exchange of indebtedness (including the Notes).
Conversions of Notes
There were no conversions of the Notes in the three and nine months ended September 30, 2022.
During the nine months ended September 30, 2021, holders of the 2022 Notes and 2026 Notes converted $15 million of aggregate principal and received 147,374 shares of Wayfair’s Class A common stock. During the nine months ended September 30, 2021, GHEP VII Aggregator, L.P. (“Great Hill”) converted $253 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair's Class A common stock. In aggregate, these conversions increased additional paid-in capital by $265 million for the nine months ended September 30, 2021.
Interest Expense
Wayfair recognized contractual interest expense and debt discount amortization of $7 million and $2 million, respectively, for the three months ended September 30, 2022 and $21 million and $6 million, respectively, for the nine months ended September 30, 2022. We recognized contractual interest expense and debt discount amortization of $7 million and $2 million, respectively, for the three months ended September 30, 2021 and $18 million and $6 million, respectively, for the nine months ended September 30, 2021.
Fair Value of Notes
The estimated fair value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes was $167 million, $862 million, $597 million, $554 million, and $17 million respectively, as of September 30, 2022. 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. 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. The if-converted value of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes did not exceed the principal value as of September 30, 2022.
Capped Calls
The 2024 Capped Calls, 2025 Capped Calls, 2026 Capped Calls and 2027 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 correspond 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.
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The initial terms for the Capped Calls are presented below:
Capped CallsMaturity DateInitial Cap PriceCap Price Premium
2024 Capped CallsNovember 1, 2024$219.63150%
2025 Capped CallsOctober 1, 2025$787.08150%
2026 Capped CallsAugust 15, 2026$280.15150%
2027 Capped Calls September 15, 2027$97.62100%
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. Although the results of litigation and claims cannot be predicted with certainty, Wayfair does not currently believe that the outcome of any ongoing 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 September 30, 2022, 56,347,017 shares of Class B common stock were converted to the same number of shares of Class A common stock.
Stock Repurchase Programs
During the three months ended September 30, 2022 and September 30, 2021, Wayfair did not repurchase any shares of Class A common stock under its stock repurchase programs.
During the nine months ended September 30, 2022 and September 30, 2021, Wayfair repurchased $75 million and $300 million, respectively of Class A Common stock under its stock repurchase programs at an average price of $136.80 and $305.43 per share.

7. Equity-Based Compensation
2014 Incentive Award Plan
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 for awards to non-employee directors and by the compensation committee of the Board for other participants and provides for the issuance of stock options, SARs, restricted common stock, restricted stock units ("RSUs"), performance shares, stock payments, cash payments, dividend awards and other incentives.
The 2014 Plan initially made 8,603,066 shares of Class A common stock available for future award grants. The 2014 Plan also contains an evergreen provision whereby the shares available for future grants are increased on the first day of each calendar year from January 1, 2016 through and including January 1, 2024. As of September 30, 2022, 1,093,512 shares of Class A common stock were available for future grant under the 2014 Plan.
In October 2022, the 2014 Plan was amended (the “Amended 2014 Plan”) by the stockholders of Wayfair to increase the aggregate number of shares of Class A common stock authorized for issuance under the 2014 Plan by 5,000,000 shares.

15

Shares or RSUs forfeited, withheld for minimum statutory tax obligations, and unexercised stock option lapses from the Amended 2014 Plan are available for future grant under the Amended 2014 Plan.
The following table presents activity relating to RSUs for the nine months ended September 30, 2022:
 SharesWeighted-
Average Grant
Date Fair Value
Unvested at December 31, 20215,229,708 $208.62 
RSUs granted6,658,162 $93.98 
RSUs vested(2,169,217)$161.83 
RSUs forfeited/canceled(1,303,409)$165.97 
Unvested at September 30, 2022
8,415,244 $136.46 
The intrinsic value of RSUs vested was $210 million and $584 million for the nine months ended September 30, 2022 and 2021, respectively. The aggregate intrinsic value of RSUs unvested is $274 million as of September 30, 2022. Unrecognized equity-based compensation expense related to RSUs expected to vest over time is $1.0 billion with a weighted-average remaining vesting term of 1.3 years as of September 30, 2022.

8. Income Taxes
The provision for income taxes, net recorded in the three and nine months ended September 30, 2022 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 our 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 September 30, 2022 and December 31, 2021.


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9. (Loss) Earnings per Share
The following table presents the calculation of basic and diluted (loss) earnings per share:
 Three months ended September 30,Nine months ended September 30,
 2022202120222021
(in millions, except per share data)
Numerator:
Numerator for basic EPS - Net (loss) income
$(283)$(78)$(980)$71 
Effect of dilutive securities:
Interest expense associated with convertible debt instruments   (2)
Numerator for diluted EPS - net (loss) income available to common stockholders after the effect of dilutive securities
$(283)$(78)$(980)$69 
Denominator:
Denominator for basic EPS - weighted-average number of shares of common stock outstanding106 104 106104 
Effect of dilutive securities:
Restricted stock units   3 
Dilutive potential common shares   3 
Denominator for diluted EPS - adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities106 104 106 107 
(Loss) Earnings per Share:
Basic$(2.66)$(0.75)$(9.28)$0.68 
Diluted$(2.66)$(0.75)$(9.28)$0.65 
The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted (loss) earnings per share were as follows:
Three months ended September 30,Nine months ended September 30,
2022202120222021
(in millions)
Unvested restricted stock units8 4 8  
Shares related to convertible debt instruments26 15 26 16 
Total34 19 34 16 
Wayfair may settle conversions of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 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. As of September 30, 2022, the number of shares of Wayfair's Class A common stock potentially issuable at the respective conversion prices of the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes and 2025 Accreting Notes, is 1,714,506 shares, 3,089,893 shares, 6,389,662 shares, 10,874,193 shares and 507,179 shares. Under the Capped Calls outstanding as of September 30, 2022, the maximum cash value obtainable of the 2024 Capped Calls, 2025 Capped Calls, 2026 Capped Calls and 2027 Capped Calls, if exercised at maturity, is $177 million, $1.1 billion, $841 million and $372 million, respectively.
For more information on the structure of the Notes and the Capped Calls, see Note 4, Debt and Other Financing.
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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 (loss) income before depreciation and amortization, equity-based compensation and related taxes, interest expense, net, other expense (income), net, provision for income taxes, net, non-recurring items, and other items not indicative of our ongoing operating performance. These charges are excluded from 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.
Wayfair allocates certain operating expenses to the operating and reportable segments, including customer service and merchant fees and selling, operations, technology, general and administrative 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 charges, and restructuring charges, as well as interest expense, net, other expense (income), net, gain on debt extinguishment, and provision 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 of the U.S. provided greater than 10% of consolidated net revenue.
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The following tables present net revenues and Adjusted EBITDA attributable to Wayfair's reportable segments for the periods presented:
 Three months ended September 30,Nine months ended September 30,
 2022202120222021
(in millions)
U.S. net revenue$2,440 $2,595 $7,778 $8,514 
International net revenue400 526 1,339 1,942 
Total net revenue$2,840 $3,121 $9,117 $10,456 
Three months ended September 30,Nine months ended September 30,