Wayfair Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Wayfair operates an online home-goods marketplace through U.S. and international businesses.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenue | $3.478 billion | $2.330 billion |
| Gross profit / gross margin | $1.003 billion / 28.8% | $579.1 million / 24.9% |
| Operating income (loss) / margin | $26.3 million / 0.8% | $(262.1) million / (11.2)% |
| Net income (loss) | $18.2 million | $(285.9) million |
| Diluted EPS | $0.16 | $(3.04) |
| Adjusted EBITDA (non-GAAP) | $205.8 million | $(127.3) million |
| Operating cash flow | $176.6 million | $(256.3) million |
| Free cash flow (non-GAAP) | $111.2 million | $(354.6) million |
- Revenue rose 49.2%. U.S. revenue increased 42.8% to $2.821 billion; International revenue increased 85.0% to $656.8 million, or 72.5% on a constant-currency basis.
- Active customers grew 57.3% to 33.2 million. Orders delivered rose to 14.7 million from 9.9 million; average order value was $237 versus $235. LTM net revenue per active customer was $461 versus $449.
- Cost of goods sold increased 41.3%, slower than revenue growth; management attributed the lower cost ratio to merchandising gains and operational efficiencies. Operating expenses were 28.1% of revenue versus 36.0%.
- Segment Adjusted EBITDA was $227.2 million in the U.S. and $(21.5) million International, compared with $(45.1) million and $(82.2) million, respectively, a year earlier.
Liquidity, debt, and balance sheet
- At March 31, cash and cash equivalents were $2.086 billion and short-term investments were $608.5 million, totaling about $2.695 billion. Working capital was $996.9 million.
- Long-term debt carrying value was $3.060 billion; total liabilities were $6.245 billion. Stockholders’ deficit was $1.470 billion. The quarter-end debt figure was affected by adoption of a convertible-debt accounting standard, not simply new borrowing.
- A new $600 million senior secured revolver, maturing March 2026, replaced the previous $200 million facility. Approximately $56.2 million of letters of credit reduced availability; no revolver borrowings were reported. Wayfair stated it was in compliance with debt covenants.
- Cash and cash equivalents declined by $43.0 million during the quarter. Investing cash outflow was $212.3 million, including net purchases of investments; financing cash outflow was $0.1 million.
Changes, outlook, and risks
- Management attributed growth mainly to customer-base expansion, increased order frequency, and higher customer spending. It said COVID-19-related sales and order activity remained elevated, but the pandemic’s future effects were uncertain and could change materially.
- Management expected Q2 2021 capital expenditures of $80 million to $90 million, primarily for technology and logistics-network investments. The filing provides no specific revenue or earnings guidance.
- Wayfair recorded $12.2 million of customer-service-center consolidation charges, including $6.3 million of non-cash lease-asset impairment and $5.0 million of accelerated depreciation, as it shifted toward virtual service models.
- ASU 2020-06 adoption reduced Q1 2021 reported GAAP EPS: basic and diluted EPS would have been $0.49 and $0.47, respectively, under legacy accounting, versus reported $0.18 and $0.16. The adoption did not materially affect cash flows or covenant compliance. Adjusted diluted EPS was $1.00, versus $(2.30) in Q1 2020.
- Great Hill converted $253.1 million of accreted 2025 Accreting Notes into about 3.49 million Class A shares during the quarter; additional 2022 Notes conversions occurred in April. Other convertible notes may require cash settlement depending on Wayfair’s election, potentially affecting liquidity.
- Risks cited include uncertain COVID-19 effects, supply-chain and logistics disruptions, consumer spending and housing-market conditions, competition, customer growth and retention, foreign exchange, and legal proceedings. A shareholder derivative suit concerning the 2025 Accreting Notes was pending; Wayfair said it could not estimate potential losses. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether elevated pandemic-era demand persists and whether customer growth converts into repeat purchasing and profitable growth.
- How gross-margin gains, advertising efficiency, customer-service costs, and international segment performance develop.
- Convertible-note conversion activity, potential dilution or cash settlement needs, and the availability of the secured revolver after letters of credit.
- Execution and cost of planned technology and logistics investments, including the stated Q2 capital-expenditure range.
- Outcome and potential financial exposure, if any, from the shareholder derivative litigation and customer-service-center consolidation.