Wayfair Inc. — Q3 2022 Form 10-Q
Unaudited results for the quarter and nine months ended September 30, 2022; comparisons are with the same 2021 periods unless noted. Wayfair operates U.S. and international e-commerce businesses focused on home goods.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $2.840bn | $3.121bn | $9.117bn | $10.456bn |
| Gross profit / margin | $824m / 29.0% | $883m / 28.3% | $2.523bn / 27.7% | $3.014bn / 28.8% |
| Operating income (loss) | $(372)m | $(70)m | $(1.054)bn | $102m |
| Net income (loss) | $(283)m | $(78)m | $(980)m | $71m |
| Adjusted EBITDA | $(124)m | $101m | $(345)m | $618m |
| Operating cash flow | $(431)m | $(131)m | $(772)m | $321m |
| Free cash flow | $(538)m | $(205)m | $(1.113)bn | $114m |
Q3 operating and net margins were approximately (13.1)% and (10.0)%, versus (2.2)% and (2.5)% a year earlier. Basic and diluted Q3 loss per share was $2.66; nine-month loss per share was $9.28. The reported results include a $96m gain on debt extinguishment in Q3 and the nine-month period.
Revenue trends and material changes
- Q3 revenue fell 9.0%; nine-month revenue fell 12.8%. Management attributed the declines to fewer orders, post-pandemic consumer normalization and macroeconomic pressure. Higher average order values partially offset lower order volume.
- Q3 U.S. revenue declined 6.0% to $2.440bn; international revenue declined 24.0% to $400m. Nine-month declines were 8.6% and 31.1%, respectively; international constant-currency declines were 22.6% for Q3 and 29.6% for the nine months.
- Q3 orders delivered decreased to 9m from 11m, while average order value rose to $325 from $283. Active customers were 23m versus 29m; trailing-twelve-month revenue per active customer rose 13% to $547.
- Q3 operating expenses rose 25.5% to $1.196bn, or 42.1% of revenue versus 30.5%. Selling, operations, technology, general and administrative expense increased 31.7%; advertising rose to 12.4% of revenue from 10.1%.
Liquidity, debt and unusual items
- At September 30, cash and cash equivalents were $731m and short-term investments were $557m, totaling $1.288bn versus $2.399bn at December 31, 2021. Working capital was $43m, down from $795m.
- Long-term debt carrying value was $3.134bn; management reported $3.2bn of principal indebtedness. The $600m revolving facility had no borrowings outstanding; approximately $66m of letters of credit reduced availability. The company reported compliance with debt-agreement terms.
- Wayfair issued $690m principal amount of 3.25% convertible notes due 2027. Net proceeds were approximately $678m; about $506m funded repurchases of 2024 and 2025 notes, and $80m purchased capped calls. The repurchases generated the $96m accounting gain. Conversion of certain notes may require cash settlement, and outstanding notes may create dilution.
- Nine-month operating cash flow was a $772m use, versus $321m provided in 2021, reflecting the net loss and working-capital movements. Nine-month capital expenditures, including site and software development, were $341m.
- Q3 included $31m of restructuring charges after an August workforce reduction of approximately 870 employees, about 5% of the global workforce. A further $12m of severance was accrued for payment in Q4. A separate $40m office impairment charge was recorded in Q2.
Outlook, commentary and risks
Management said existing cash, investments, expected operating cash generation and Revolver availability should cover anticipated needs for the foreseeable future, while cautioning that liquidity assumptions could prove incorrect. Q4 2022 capital expenditures were expected to be $100m–$110m. The filing gives no numerical revenue or profitability guidance.
Management cited inflation, higher interest rates, housing-market conditions, changing customer spending and foreign exchange, along with supply-chain and logistics disruptions, as risks to performance. It said the long-term opportunity in online home shopping remained unchanged. The company reported no material changes to previously disclosed risk factors and did not expect ongoing legal matters to materially affect results or financial condition.
Key facts for investors to verify
- Whether order volume and active-customer trends stabilize, particularly in international markets, and whether higher average order value can continue to offset fewer orders.
- Cash burn, working-capital needs, and the adequacy of liquidity if operating losses persist; assess management’s liquidity assumptions against actual results.
- Debt maturities, conversion and potential cash-settlement obligations, Revolver availability and any future refinancing or liability-management actions.
- The sustainability of expense reductions and operating margins, including the effects of workforce cuts, elevated equity-based compensation and ongoing investment spending.
- Capital expenditure execution and whether the planned Q4 range and logistics and technology investments support improved operating efficiency.