W - Earnings call transcript Q2 2018

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Operator

Good morning. My name is Liandra, and I will your conference operator today. At this time, I would like to welcome everyone to the Wayfair Q2 2018 Earnings Release and Conference Call. [Operator Instructions]. Joe Wilson, Associate Director of Strategic Finance and Investor Relations, you may begin your conference.

Joe Wilson

you us. thank and morning, for joining Good Today, review our XXXX results. second quarter we will Niraj Chief Chief Shah, Co-Chairman; are Corporate me With Co-Founder, Co-Founder Julia Head Co-Chairman; Finance. and Steve Executive and Michael Officer; Fleisher, Financial Donnelly, of Conine, and Officer

all during following prepared XXXX. We performance, future and this would call be that remarks. will we including for expectations our that you any be will we we in guarantee the cannot financial of remind have regarding We to that available third guidance make and I been reasonable Q&A, will statements today's like forward-looking assumptions. quarter although for statements events forward-looking accurate, believe

company's in subsequent of is be the statements, website. by non-GAAP release, which being from to and for any be These copy review of Please Our together reconciliations will on otherwise. our a actual no filings any contain earnings This descriptions the XX-K measures note discuss to company's website be a and the revise our obtain or webcast SEC replay those a available Investor our measures and undertake our made we non-GAAP differ call, required of we to we comparable financial to forward-looking considered these materially non-GAAP replacements as obligation Relations certain should or should certain measures recorded, events the with performance. and GAAP not our as today. nearest for Except financial IR measures. factors future call refer will for statements results. non-GAAP of financial projected read GAAP identify publicly section of measures XXXX to Also, results law, during information, this as whether that cause result that update please could new

call Now Niraj. I turn like to to would over the

Niraj Shah

XX% million grew thank joining Direct and year-over-year, Thanks, us you revenue $XXX In year-over-year. net morning. by revenue net Joe, by grew and Retail or XX% QX, for total all this

with U.S. and versus Our U.S. Direct international up revenue net versus QX businesses million or Retail XX% and revenue million Retail $XXX Direct year. last year QX international last strong growth, exhibited up $XXX XX% both or

Direct our which quarter noteworthy in growth QX represented Retail the company's year. dollar history, year-over-year tougher is given in largest the last particularly This comparison

to a We consumers We reached first-ever this to result we event $XXX strong Way billion to was as and as the increasingly are in QX and strategic a count have million of Day our see in year and and all-time another increasingly three, in ahead market LTM high. particularly home of as we the position excited these QX, of put to reached $XXX, active business; their active keep see headcount gain XX.X At category to view make proprietary signals that continuing two, offerings, key customers, -- logistics international shop are in our out online to one, results are product us three and to customer continuing service our been with the customer revenue areas, network; namely, strong our us. that April. our choose making Wayfair. LTM our end build capturing yield purchases per we share opportunity investments results

The Canada, about I Canada. future develop we're both are updated out, to our and our with the outdoor initiatives product across work particular, the of single well today, I our earnings Last there the in we us, highlight history. for We're event our United we're I supply investments two first, extremely very in our and design strongly growth resonated broader I Each new offerings services, making will category provide the seeing revenue As But and international doing. specific and customers. repeat to and our we're quarter, we years. played within morning, improve the market. in as will event the logistics the making Way to second, as taking was service This of performed Kingdom services in X throughout the areas, different chain in that on within quarter involves mentioned pleased areas. meaningful other business develop examples last updates main brief quarter. and see investment Germany day no excited response on of Day cannibalization expansion are rest you the remainder addressable sales many of largest network; in our in resulting the to investments inbound And call, from examples customers. and work steps the we of further the in the the We are the headcount excited and remain these

United all-time of year, part the Wayfair enabling steps chain and mile great facilities Our Taking One availability, process are a are our last of is of in to Services home services network Promoter chain. where particularly And on over also shipping from and for shipping geographic greater costs improvements us to We're of continuing parcel control This damage physical we behalf reached lower control greater recent their conduct parcel the speed, we Maritime Portland, from we North suppliers, we in out approximately such and and Canadian or for us first the warehouse. as the core expand, of high This Transport additions and offer Commission companies and proprietary the operating the of convenient transportation a XX Asia Agency. satisfaction in increase the sourcing In Canadian strategy. smarter In large large of can us fab to in positioning Nashville of of taking. in to enabled mile lag our coverage with and network the the half our of taking customers. a stages factory Net of licenses through be These the to on Scores CastleGate now of new parcel delivery secured logistics our to across cross-docks us secured June, Wayfair-controlled inbound customer continues items orders we deliveries of the further reliance an products is large are our we And on of enabling U.S. parties our pilot take our Delivery improve our WDN, is supply this licenses this our areas product of endorsement warehouse behalf from contracted deliveries of this for XX% of reducing more steps where various middle the manufacturer's and the NVOCC design, parcel are in time area process. just of our United license we Wayfair, the is U.S. half middle up in-stock the XXXX, under Border system, delivery to is logistics focused can our which year, the giving Federal suppliers core an and free coordinate directly America, focus and network take to similar supply with and third more flowed mile Network, in more manufacturing. complex faster on home States. containers increased line-haul. China beneficial This adding the control our goods of to category, transportation large as costly of centers, expertise, In and our and and increasingly our an deliveries. on suppliers. level States. suppliers customers of through we year customers. delivery costs XX% of consolidation of Ministry delivery are the of our XX% to increase and from the These first own improve

ocean wider as addition freight suppliers, drayage services to scale a positive now of of and to other these the inbound pickup. are group pilot, Following freight conclusion a such CastleGate services, offering continuing to in we

are uniquely offer to positioned We services. these

have as possible position unlike that demand the third-party also we seeing logistics goods our of as the network are ensuring providers, across vested our meet CastleGate products in we we the customers. and a inbound from to As those efficiently are recipient interest

the grow X,XXX that As by coordinated example we equipping a result, is can do offer new sent to a with platform This engineers bringing further and of power lower can the a supply This shipping partially prohibitive a product for When for we purpose a the technology and product consolidation us today. from and in the suppliers, business. enabling have in that to even cost. By we business sending enabling in moving further filled. processes quickly North from we so a on benefit almost integrated CastleGate suppliers supply technology-based source potential suppliers products solution are that the of paper to is in as level are quantity a By to providing expansion container built or volume the quantities it a transit, of in will visibility of scientists yields platform goods This moving chain CastleGate developing us communications. data Asia, when range is we intermediaries we enable up and of economics desired transportation are in of suppliers a to quantities America diverse a facing basis. single of warehouses perfect trackability traditionally to Europe container with e-mail consolidation multiple CastleGate cost-effective in with our only that process, the or receive online by inbound scales. cargo suppliers, the about typically can what simple have Asia, excited a CastleGate of earlier U.S. of X/X to them ship product further results containers direct chain of Approximately comprehensive goods effectively given China, our in suppliers with to key minimum Malaysia. cost A to order our supply at area Vietnam of facility to even make product more send yet more closer CastleGate. to lowest optimal products of

strategy future its excited by the at piloting we're just but are present, potential. We

taking that the are in our look in with category. the the In has spring. as the to outdoor we to space deepening to making a quarter, that wider main wallet the highlighted, to morning, are category they tell second share the are The bathroom work to investment QX, home the broadening vanities an customers grow within capture I'll of we outdoor now to efforts of refresh I category. doing heightened proposition you by example, customers arrival that are This outdoor want our teams category. greater about share and the I as our value to appeal steps area Last turn their

outdoor in this Our business due share position has category. strong throughout on a of to retailers in can, their shorter put year. model use the stores space Brick-and-mortar across a than principally focus optimizing much typically season we their run us floor win to

we sales customers business, predict must outdoor period pick a advance most in online range will well products an in in of the that would over they the store. than see products customers As of of a season short they of retailers can a the longer their outdoor retail with year popular start be window. offer greater Brick-and-mortar

on them help season work able to. customer closely previously associated preparing vast become we business have their for worked our inventory. have more to model predict with a with we take analytics minimal to products help they to where are we the to avoid this risks demand for suppliers leveraging Instead, due selling comfortable and them than would data We longer Wayfair, the

to saunas. as suited result, to aisle a an Outdoor patio such We to is well popular as products sales. react ensure customers. business, our we seating, such as garden products, specific the opportunities ornaments scaled broad and customers have maximize offer decor range is have as of of structures early feeders, where avoid items a hot to help be and, tubs such bird we structures. outdoor also dining seen attractive on and proved use as out-of-stocks in decor can wider a from and outdoor lower And considered Products to higher-priced sheds, furniture, or data we to and category suppliers can we lower see us. we gazebos, more range for ticket, quickly and runs outdoor to success offer such endless trends and Outdoor as tables items, consideration items,

these and our in X,XXX including early sold our on with pleased considerable we over and sites XX,XXX customers with new and million. we outdoor and have XX believe early spa the We opportunity decisions. growth success continuing this as cross-functional like annual with, of rate we tub are $XXX We're in or categories, our engineering, are develop to categories enjoying specialized we across to scale routinely have and product as pounds. typically the example, information spa experience purchase our in can an parts customers, having build from last are specifications XXX Delivery hot requirements as confidence merchandising, areas, dedicated categories the people over have weigh response well sauna give these structures there revenue enhance make run for rich In service for technical and been but thousands teams decor to outdoor customer and a new of customers X months, in To visual where critical products of and merchandising invested gazebos very technical hiring installation structures retail over out products often hot tubs and to in overall accelerate further. teams combined to to the also is staff. dollars customer marketing category critical where are over informed offering specific where

We experience our way customers in that expansion, have to for an confident ability we other the in categories. give playbook and and lead a these will proven are category

enhance hiring In and services our structures, are offer like penetrate great also teams outdoor hiring customers. addition we to to to we decor categories product people the

huge without I today, an namely a which highlight offering, launched topic design service, last example not piece? of confirmation. is briefly are for right that they pick top of, question For advice our know customers with The reasons customers fully vision style. the who designer look the help stream And services that of XX professional the month. exciting by them to and leverage access site easy-to-use to services opportunity this designers my We aim in completing make struggle such million customers their to with we their customer's and achieve to find easier the projects. want fantastic. interior of With is interior vetted last of will also interior to the right their products suit and designers experienced to fun a our own their to a talented exactly one is something for connecting products more home friendly a purchase our They selection process confident tools, for ability basic think there's this steady over can design of seek while much that giving leave

able a work of For many design communicate by have, too more we built be enabling much proposition, either articulate $XX to are $XXX to and a phone detail. being expensive, live design the and solution. interior Customers of services and our see are customers, designers efficiently as in test uptake packages or accessible build priced excited possible proposition considered each. design best we traditional vision that will our this closely help view therefore, further responses We're with and customer create the for the grows. refine has rendered been to customers from with based plan the at over recommendations to on board before QX designer and who final an a vetted interior their even be $XXX online our the designers will key Customers with to value and point, and room to offering comprehensively part customers and in shopping floor a interaction visualize platform us by customers to to joining price mood more

with offering response business we best that taking a thrilled placed opportunity customers that our believe of are that We are to ahead possible lies and growth bring considerable, to category the that the we're steps winning our ideally is in number with seeing. online, the large We are across we and customers. keep

I'll to Now talk to over the customer and Steve our service call approach sales. turn about to

Steven Conine

category customer role about to feel to challenges of At central would service speak Niraj chandelier the the being plays in experience. achieve Wayfair technology, customers success often advantage, technology shopping View our the want to absence a to Thanks, team culture. in as with the central all Delivery previous giving customer remained key competitive the customers We this to but core their centrality of a is market. customer our the home. the and or customer Photo, specific service in started calls Today, of in plays and and first to our been close This to still Technology home it When business, we company. award-winning of with confidence a day more bunk category Search bringing when the to as our that listening delivery ability the the our our business The as On our hires and our end-to-end customers the that buy, bed, driver Room has customer alongside DNA, with and they technology experience part our I able staying business. online bringing of about a the and technology, possible possible service is problematic. part home hires joining combined do Boston when and company. We customers the to of is our of Niraj. Wayfair, with that the critical on installation the The answer real joined when product today new member from a easy this experience customer's be in this we best Day would with as in shopping differentiates possible service has shop and you tell us. of to that has a both as calls, in spoken customer on we've a make online. way leverage XD role to team, for new for key often I earning in support Tracking, believe us it's calls, a that the customer can success whether touch of a to

of built over in in team X staff a locations X,XXX and We have and service customer Europe. the U.S. sales across X

to avoiding autonomy team and team often depth results in service for through rather in delivering tape that give do our scripts true Wayfair sales of strongly of issues key approach a feeling the timely category. the as employees best and customer, team and of that caring sense the customer the build us customer the This survey our in outsourced, agents is than the is empowered of complex what with for XX% of the red customer the expertise enabling All service engagement We are recent to in to handle our with best solve customer-centric and get manner. way resonates a employee our problems. seen a employees

support across journey building delivery. in customer the presales have We support invested teams through of day from

our more to can important Matching expertise exploring confidence specialist equip has product a us we an the that provide who customers of with deep integral to require. shopper a purchase business category enables the to decision. we scaled this our ensure number that complex making specialized is team our have the knowledge that with product grown, is space in product a product with shoppers As people knowledge sales in with

phone self-service customers to dedicated categories the issues us, first order orders on fight shopping resolved. avoiding enables customers menu or we instantly fully to the our that call a through through their the to the they is options, selections Our consultant experts these provide extensive problem with data technology, connected until with be contact to connected person. when before that are service issues are a The can't resolved live complex they're routing they in ensures frustrating science for, handle

Our extensive allow analytics transit and provide delays items. our on when intervene proprietary them back-ordered team technology as to data with or proactively surface, members insights such and orders customer issues in

situations customer significantly issues customers. are which outreach this in shown compared with NPS raise not proactively have testing Our managed proactive for can

national geographies category, anxiety of on items. other been not we own to build the as source mobile can last that Delivery the delivery players or a best device customer for have in our Tracking we area necessary and scale believe historically their expected use experience. possible of often established In is customers where our their focus arrival delivery overlooked Day an of the Finally, the had agents, mile customers to have track delivery has

they there's in consultant with live may delivery with the locations, a leading Coupling can speak that with ability to their of resolve each these and home more to delivery issues about customers and speak detail. find Additionally, technology out have. Michael our bring I throughout. service customers informed to our position an in more to QX now of team customer to a call us will in puts empowered members turn discuss financials great the ideal over any experience

Michael Fleisher

$XXX good some investor on will of for highlights release approximately our our with and detailed available XX% our Retail the dollar in information of Direct in morning, more financial key presentation QX, business Steve, increased the provide Thanks, information year-over-year earnings our everyone. growth and year-over-year quarter I In to now $X,XXX,XXX,XXX, million. representing site. IR

total with to Our in dollar We're are increased we XX% revenue revenue seeing. delighted $X,XXX,XXX,XXX. growth net that the year-over-year

Way year. Niraj develop suppliers mentioned to further our future and this As results, Day for we're strength excited customers further and next to event added earlier,

the strong customers from our extremely report all-time on consolidated we're basis, reaching showcased Our highs. global with seeing which response a KPIs, we KPIs many

year-over-year of to customer, purchase in X.XX. our high XX% by to year-over-year. And per customers customer as a frequency, consecutive from LTM over grew in the XX% active by addition for growing quarter grew active QX, measured by new orders repeat orders In base QX seventh

revenue net last Turning our up versus to million, $XXX U.K. million our $X,XXX,XXX,XXX increased Direct of up in the Germany Retail net businesses year-over-year business. QX, representing in Retail year-over-year, XX% Canada, increased dollar in collectively million. growth now year. approximately $XXX from and international the QX revenue Direct U.S. quarter to $XXX to

remaining of the totaled the very XXXX. a long-term resonating taxes, with equity-based U.S. is we're non-GAAP financials compensation on and the excluding offer international result in QX taking and $XX which as related share of Our with share million in impact the markets, outside we're basis, investments a customers I'll pleased our market

to the For our earnings of refer site. IR to a GAAP please reporting, reconciliation non-GAAP release on

rates the our is Our over to net million are attractive our million new quarter, to year-over-year revenue all a of of XX.X% XX revenue, range. fulfillment was leverage growing of XX% continuing expenses, we XX.X% healthy advertising net of opportunities customers see base to customers gross behind QX repeat margins demonstrating. costs, $XXX expectations revenue. which delivery customers spend or conversion points, XX% a for invest gross for or as of in represents per from consistent basis of and We're product benefit both net lower and of with repeat invest who and repeat profit and ad $XXX the dollars in the dollar require ad engaging spend of level near-term

to revenue base delivered As due from a its percentage is at ad as to and revenue of and repeat shift a business the growth spend the a despite lower leverage reminder, U.S. the business, higher the negative share. we which year-over-year continues of impact take mix outpace our international of runs customers

QX did comfortable leaning revenue last customer QX, year-over-year spend level a of we're last KPIs. contribution spend, the ad to percentage in sequentially our given therefore, QX while as as versus on seeing of showing expect amount a in year. the payback of XX.X% to maintaining modest it QX, year, while leverage still net increase out Looking compared ad to ongoing strength We, in overall margin target, our X-year overall we're

expenses in and technology totaled operations $XXX driven by selling, QX, non-GAAP and are G&A compensation million. primarily Our costs

investment in out have our in continuing network building invest on on historically As the last I capabilities, where proprietary ramped-up international hiring services our as main under-indexed. detail earnings penetration are further of our based logistics and across results call, we our we we are the categories of increasing highlighted seeing our our we X areas developing business and

Our our talent XX, such second marketing, to first X,XXX to in feel and bullish the strengthened the we're QX. a is to OpEx XXX merchandising, across growth, this XXXX. June Approximately have numbers total great and the business. responding long-term a we half of central to are investments employees net taking is as customer for people quarter, XXX Hiring we in employees truly we were making. in conviction as we of extremely to operations high further KPIs in about and added In the approach how new the of areas, net the approach XXXX, QX technology, new building of similar employees added

our employer of recent compared to has is brand we in than pace a talent net strength imagined we at year, The success these adds and less the XXX we our careers this Our great activities this hiring incredible these will QX grown. the employees XXXX. of X,XXX recruiting our And of year, that the at the of half QX allowed showing has us levels awareness considerable areas faster offer added beginning of expect in first following new we of net and remain secure the this as elevated the seen top-notch campus at year. over year. QX in the In with of than business in whole areas success

we headcount that hires time higher-than-expected investment therefore, this we to weigh meaningfully and accelerated up, are new on in OpEx right are lead customers invested and we've priorities, These growth more investments prior a areas hiring profitability, be we the of to way that ahead but to seeing will the Across with they we contribute not the longer-term the see hiring make to in have step-down always and result our XXXX. them our match will from particular be medium- us. level we QX. seen normalized X given to we quarters do quarter a see incredibly base think of these the that and and term, ramp us, first we expect not if This in growth levels customers. share many of on-board to spending revenue on be long then date near-term the employee of which step-down bullish of a through have weren't we best in our of at anticipate we We the strategic staffed, made in reaction the are year, historically, us appropriately help leverage serves initiatives will well scale to sequential focused success X in of addressable new move adding incredibly we sequential This in us showing the away. not financials the positive as investments initiatives opportunity billion the market up our As will capturing main and of with about right their revenue will, to total a of ahead continue a the and would many in take sizable approximately our we, our attempt approach therefore, over believe we $XXX that has level, within our ability quarter. served

$X million cash business to operating X of business was net in XXXX on U.S. per QX. capital million Adjusted X.X% the OpEx. million. Turning adjusted CastleGate and $X international our to cash negative continue our Non-GAAP X.X% strong net unutilized of $XX growth. facilities the was negative for million, is EBITDA revenue. position U.S. Adjusted $XX million and a revenue $XX continues was million in in negative free QX to activities EBITDA to range million. CapEx of as in that build-out in was EBITDA in And international and flow countries. net internationally does on rent expenditures the $X weigh P&L our of quarter quarter the the logistics based of our spending for for million or mean investment. WDN continued us $X puts for QX we for The negative $XX for from invest It

QX, expect be to net For of X% to we revenue. X% CapEx

we XX, long-term million XXXX, and As June $XXX cash, equivalents of cash had and approximately of short- investments.

Before to context. our I the some quarter second third to want turn quarter, provide briefly for guidance I performance to additional revisit

million Direct our the earlier, resulted which the of stronger history. year-over-year result in of first-ever the U.S. of Part As the Retail this QX approximately dollar largest a event Niraj was Day our in in revenue year-over-year mentioned Canada comp growth, single second and year. at largest company's in day by last April, outstanding history in quarter our represented growth Way $XXX in driven despite

adds consumer payoff our normalized desire The and Retail of when difficult has to task of from the For Direct complexity. is our an quarter-to-date, at always various our guidance exact show mass-market of be more predicting our growth, back growth to of approximately the initiatives running every customer the we're and given business to where forecasting XX%. is in QX up QX day. a timing giving prudent additional that rate revenue for level a gross layer reflects Setting guidance

revenue of million, the for Direct total range Direct billion $X.XX dollar of year-over-year we For growth we of net U.S. expect international that, XX% year-over-year the We approximately billion Direct XX% forecast Direct QX of of Within Retail $XX in billion $X.XXX growth Retail to to Retail of Retail and be million third to representing in XX% XX% other XXXX, year-over-year revenue forecast $X.XXX rate to revenue growth approximately net year-over-year $X.XXX for and $XXX $XX quarter. XX% growth billion, range to a million. between to XX%. to the

For negative XXXX. consolidated adjusted negative X.X% of EBITDA, to QX we for margins forecast X%

in We $XX EBITDA to adjusted X% to negative U.K. in we negative deliver QX our resources expect expect U.S. to million in margin market. be Canada, we Germany. invest EBITDA the scale international In continue and as to million approximately add $XX primarily as headcount build business, we ad to of spend primary adjusted negative the in continued and

us we of earlier, as investing possible as long after the QX before expect QX, these continue by reduction it. the profitability, start result. both clearly ability both of hiring an we in KPIs to on to offering pace across strength and front term working hiring off and in with see of We the rate been in term. expected phased are to scale the and substantially our excited have of will larger to employee winning as base in growing, opportunity best of our sequential continue we the and strategic this share priorities the remain elevated on QX in in making the leverage go hiring initiatives. about incredibly highlighted slow see investments I near are weigh keep and growth customers at and business, As bullish market a to rate plan the that we levels bring our our customer The our the of many We we our

For million depreciation modeling to and of purposes $XX amortization and $XX equity-based approximately weighted million for and QX assume compensation million XX.X average shares outstanding million, to please XXXX, $XX million. related expense approximately tax $XX of of

turn let Niraj questions. we your take over to the Now me before call

Niraj Shah

of to I Thanks, the and year Michael. see this in in that we the opportunity about put very we have our and growth advantage ahead business and excited ourselves internationally. Steve of us, both U.S. position the the are take of

delivering proud extremely inspiring our and home driving taking selection, world-class almost move people of bring that, of are with fast With open we the a to few answer growing visual best terrific experience operator can team shopping up an and the customer your continuing category initiatives merchandising, I'll line, online. outsized we they are are in for the convenient ask we to the service. customers delivery home believe the share of XX,XXX by now Dollars when a the experience customer vast online, We can and to questions. keep so and

Operator

comes Instructions]. [Operator Keith question the from Piper with first line of And Peter Jaffray. your

Peter Keith

business of guided in that looking bigger-picture row flow. year historically that your you've flow investments, to I basis, question achieve clearly, know you at, the free want logistics probably, cash guys third positive cash wanted have cash ask negative but just an to annualized a a free on you you're very flow. around made free successful I that

you China, feel it you are and that ramp like flow? building feel sort Just further? flow if do thinking free flow will do logistics forward, will cash that positive getting push like of -- free you're to target out still their you're and such as that free cash passed so returns, now out begin CapEx building cash flow Or

Michael Fleisher

Pete, is Michael. it

and maybe start, me Let Niraj may want to add.

seen the accelerated while. -- I the think that for sort it's CapEx a growth, of you've

this sort build out building thing run through right, clearly so we to making the and remember, we at we set intent of network. ongoing of again CapEx, I first to That no went sort sort I think this have of logistics There's expand from period first quarter built. of CapEx it. solidly this sort to running we the went now as X, where think percentage like sort But of revenue. a of that. we're at X of it sort guided instead, get investments of continue sort of we're to And that build

think I that we're through phase.

adding to we're frame. scale that Now the on growing the is it. business during obviously, time of And dramatically

can right and see you some, don't the in to balance next the and dollars, CapEx to I flow guide our grown of cash always sort to in, long-term overall what going But still on making some we're investments comment on business things do business wants of even we're this the different. for free over and the can for know quite Niraj scale they've that are the quarter versus the and rollout. quarter if then of though other goal. to China breakeven trying positive. business. and invest with the a time I think we're So as generate the still the That's path

Niraj Shah

integrated about about think being margin, side thing function of CapEx-intensive just you you're thing like of the at think Those keep of have you What is China, be doing in with what to kind guess, variable to automated full The contribution ones not transportation, grow on, I CapEx-intensive. containers, when effectively and into a of that's think about, I more in a say significant have rate comment believe what more CapEx of a of that. building an be the do [indiscernible] a but EBITDA, is mind, you -- in I operations things Also, flow-through truckload, as that in that free -- China would entirely whereas sortation, warehousing, to would they're you basis. think tend wouldn't particularly going the we fulfillment. other you I ongoing on growth, be think to manual. rate would can we cash XX% tend China, are we more flow

continuing And the so to how you recent hiring this of headcount to -- to build. comments it year. this about $X as we moderate also while end ramped -- you you And see made going in some if give to growth, Michael it's the period, we've headcount, that get

you a forward. roll that and as see you also And flow flow see so have through leverage you'll cash what is you'll that on EBITDA, will create line,

Peter Keith

you're just Okay, feet update give the to very with you maybe out, remind millions XX on quick us in could logistics, of it I you you year-end? a some Can facilities. of square have now many good. And terms the close think you us on just CastleGate? And of on WDN, metrics said how with by targeted where like

Michael Fleisher

square continue add we DAs. footprint changed hasn't footage [indiscernible] because and didn't The number the Yes. to we quarter smaller open in this any

million I I'm the an still like was -- square gave I the number number trying that, that and So find to or is last number X just think -- feet something last in good. total

Niraj Shah

on fairly of agents, the this exactly a as XX the not so out rolled -- markets. to major the every those we're the expand as of unit DAs, we X density it's Promoter had to of X that get we've the continuing at have and are mentioned jump this cost of of because to Score, think you small quarter them look we But X we Ballpark, terms the month continue out. it's the delivery. markets. secondary buildings. delivery month. number, Net quarter, significant We're those average. most roll the done We of X when And benefit X when the kind it out, roll to in But the market. In Remember, to to we do a

going the with grow continue have make We density to we're that so work, to that. to

Operator

Your comes of Cowen. with question next from Blackledge John the line

John Blackledge

on the questions on A and couple of question a then the guide logistics.

international Is the the driven XX%. plus by the Just XX% guide, on kind revenue areas Michael, plus U.S. headcount, from in accelerated kind to levels? decel And What take modestly higher will investments, the the of growth? this taking EBITDA on of in So heard of how I the I competitors discuss kind growth of ramp think discussion Way on of supply this And XQ guide, any again? XQ, the international kind XQ chain could are to XQ. any negative headcount that's you then Niraj, just color long And program? for it being then Day there, inbound approach? impacts skewing aware for you rate

Michael Fleisher

start. I'll Great.

-- of out of and that at that continue talked faster about On and of really to quarter's team, able the beginning we'll to refer type the the is guide have find sort year. but this of areas we we -- point way to I the we last sort we in-depth that. I'd built where do call had engineering a of it been of than, as went type the we want kind of talent, we find like thing recruiting the do growth across team there's Obviously, the to sort areas anticipated we a we and in critical talent really the growth, very and really think, there And had back you the because headcount in we've decided good key to are time, can hiring and not of business. again

to And what were do to trying I'm and in, those X words, really, really do -- X it's been using quarters. quarters it's we're so doing we is accelerated, we've though able over what

when in substantial hire great QX, be backgrounds to QX. that's a And part, the And across in of people, lower but stellar. look been in and to great looking people, because number we start to great it will think, the for, of to the a marketing folks QX merchandise have been than at people, you the has it folks, so now talent number profiles QX, of spectrum add we'll was we're continue that operations I great folks, folks, people team, the right, and engineering these able

program, it getting a expectation. we're out that places people also of exceeded built of programs we've other of our is side substantial quality has the MBA campus The like in out recruiting and top-notch

the of all outdoor talk of sort people, places of we're one against categories, team, that the faced the cross-functional building that. And touches some of and about business. Niraj disciplines a we logistics team and areas about these each about off has so as those all a across investing, of build-out, And it's spoke of we're talking

in our So the terms we're think I like folks, so answer the the like in operations what sort at team services product program in what the execute customers, you those looks to the marketing engineering of that think are do. people scale To go to of on really with the that Canadian about that's couple that U.S. growth, design folks Canada, we of did and it a the onboard folks, Day business that folks, was on Way coming is business sort to international of there. question was run thoughts a One QX. positive spike the --

be are which example, will where quite to dollar to a lower. at growth a starting their separate then little good X remember, growth of being a their life Canada will businesses. are growth rates, of meaningful are And sort little bit and high, impact. in even get them, the very be their cycle, the their rates remaining that scale thing There different of businesses international And though so is, some points other a there's

guiding. strongly or think growth what sort I QX guide is did remaining the about QX, business the of if dollar what think you you'll dollar in see compared to the growth international of that the we're

Niraj Shah

this is And Niraj.

so to were add, million growth popped the see here up on we're in Canada, of continued going think, I a with of yes, we kind there, sort to solid we $XX look, believe. range, Just Way if Day but you international,

the out that they I who relatively a and we think is one major believe we you benefit, it's the frankly general, of aside, not particularly have think hold goods logistics what me, from. they're logistics, of in to that value in we're per if we competitors, low bulk, to dollar the but really be terms when tend sell has inbound retailer services, would you is same source because In Obviously, see you them about seeing don't there, way chain cubic foot. and think in should one invested Amazon benefit supply invested into notable

are X-day of goods We same to logistics goes to subset in attributes damage. where goes valuable, even These particularly prone world have a the more day. a a day, that make next

we a our you but about if can services. and there, think So providing our to think there's platform, we advantage have the these suppliers offer benefit we an of think -- lot just as we customers not by

now. So building it to be that's we that's in continue why what -- aggressive

Operator

line Oliver next Wintermantel comes from Your question the with of MoffettNathanson.

Oliver Wintermantel

regarding impact I had tariffs Wayfair. the question and a on

indirect us these imports? your from imports remind much are is are what maybe imports, could of And China. And you If how out direct the imports? what

Niraj Shah

reason is I than so you the platform, every of effectively to tariffs think market. will keep from other as if to they a the retailer. And every thing item going in us lot we affect sell us the less Yes, a is Sure. every supplier are think desire mind to virtually in

have platforms so our And we Asia. that goods on are manufactured in

platform United all have States. We -- different United Certain industries Certain manufactured in the ways. suppliers goods are industries the on Asia. are are Certain States. our different in all source industries in

all those of have we So goods.

number. we sales, retailers, significant you you what get retailers hurt think I reason that. mix is also Obviously, and not at looked out, break actually I we've Indonesia. different decisions. global that our terribly amounts of and other The find exact than look of made at amount out by And Asia, than Vietnam if China other which concerted the know it don't category the and our this, less come but you a kind is -- actual

outdoor and So bear the China from supplier's they they both then sourcing decided It's folks, in supplier any if were in those China, there's inventory. and we're then source we're from supplier buying the sourcing one and Indonesia, if cost they specific to will versus tariff. Whereas a it they source furniture, one the not well, tariff, inventory. of from

So frankly, take want item relative will suppliers better shop to advantage because worse consumer of on they'll terms the platform suppliers, do to to or want advantage other they if they in get some decide our to buy. whose where

does create what platform, But changes. do demand happened. abrupt is they When affected. One because there's different X Brexit. or with basically this then that our happen saw of of we rebalance over it time. an to are not nature we things the kind Suppliers so shocks, tend of things And

ultimately, The whole absorbed. these -- things there. just so impact, frankly, actually second inflationary of an market, and an which affects but we out right basically driver gets consumer, is sort have to feel the tend the things of it I -- the think the then it's But to less

Oliver Wintermantel

up, to And Got just repeat helpful. it. XX follow-up Way customer is one Day. quarter, and That's math up If is points. in order my the new the the is correct, XX%

So the growth relatively repeat growth is is -- the flat. new quite order lot, customer order a phased but up

is not did Way that was more fair repeat in customers more -- Day? see to by back So -- come Way customers it Day that case? is you Or repeat the assume your of

Niraj Shah

it that orders Yes. like mean, if of successful I repeats. XX%, are now are of way. be look XX% I Way look to quarter wouldn't at want ago, you share repeat, up to that from at at both. XX%, ago a it XX%; get our to very We found we're for a ticked orders Day you year

was year-over-year. up has an been just ago, flywheel. repeat quarter repeat A So over XX% ever-growing

This XX%. quarter, up was it

were last quarter -- customers New the up was XX%. in by

XX%. quarter, This it's up

a the good set and of a degree to customer repeat take a as of -- pace. because shipping to we their share to both the and strong portion customer, are simply specifically is on continuing now that they us. we get more fronts. more at of saw XX.X back up active both these once to fronts. And So start spending momentum count total delightful more momentum of the more good that. But we're bulk kind very And we new on million Day experience continues Way get to customers our

trends So both you numbers look are actually at the if strong, now. quite

Operator

with Securities. Your of Wedbush next the question line comes Basham from Seth

Seth Basham

question investments. Mike, your my around logistics is

higher rates talked from Have Net translating been about and into repeat Scores those Net higher higher your You order Delivery Wayfair revenues? Promoter Network. Promoter Scores

Niraj Shah

Score -- improve same we've many value The continue so. on hard are a is it's answer we try we've Thanks, When time that. what found net to correlated to in that very to of The long to period that and answer so isolate Seth. because measure we is you It's done is Promoter things other repeat look-backs there is Net that and to think growth. period. need long short lifetime

measure XX-day as tell Promoter Score the use X- indicators sure as answer and for it use driven, near-time do correlated. Score, long-term we Net X-, large stay rate, the operation, you and make I rate sort Net would look-backs of and parcel of that, So that Promoter but we repeat very data. a of we home they you separately can't is to believe kind specifically what specifically with yes. can't increasing But delivery I isolate it's is that of enough

Seth Basham

remaining burden that expect range. you've of I that's and would the sales Fair come enough. investments? to the less expect million margin the gross you less see the a from CastleGate operating from a logistics, in rising, when burden to should of would we it relates down, opening If warehouses And margin unutilized but new standpoint, not signaled as when secondly, from rent? you're And $X million to $X standpoint, pressure logistics keep

Michael Fleisher

Yes.

what from is part some there's a of I sort we quarters, like of In or bit a COGS, said the you'll logistics start and COGS the now words, a through. see of network, lot of operate the network put the that, efficiency line quarters over you'll a details. in more and and flow kind the to benefits up showing in some we think other of a efficiency. and that of sort the So of that we the the quarter. addition comes when -- while this drag as over And full but -- of for to continued that's see when, shipping you'll in quarter, little of line And the at gains and in that coming the will, the of peak course last Q haven't that of the out that of exactly particularly, COGS see coming course pin start the we're

we piece, building. rent CastleGate are unutilized network continuing the On at

others going the the was several and one, quarters. flow there's over then in Toronto sort recent are next that most to of So

let network of will, CastleGate grow, And effectively those some for sort as so sort network to be a got will going piece that where at of you're you never to the to -- now right the growth continue of growth when to a be of COGS think to But growth. far I facilities. rebalance tied rent as get able anticipating ongoing unutilized you of of of time, rate have But through we we rent period flow happens, the whole CastleGate and operating we're an the of because place to business. capacity all it XXX% the that

hit and enough as You got facility that you've sure grows like make holiday. ready the anticipatory, peak business demands got to you space and be as

Niraj Shah

One comment on other too. quickly gross margin,

driven margin, keep in in mind, being the Just see movements you gross logistics. to I by wouldn't correlate directly those

when Some follow it gross puts takes from some high and you in -- at margin quarter-to-quarter. a level,

shipping margin be the savings, but when logistics is a would thing could a negative category happened mix new thing drag. that ramping be to could then But drag. positive a facility to example, due gross For we're a a

power, So label, a grown new we scale. lot margin. to lower as at is and private is that's then the And benefit very we that's better gross does nicely, yet, better start a wholesale as for nicely the drag margin. But then We typically where the us, is which gross get categories which bigger, not The pricing. benefit. function have a buying at a run of get has and faster the of ramping mix international U.S. same gross growing margin because international international

not that are seeing international and for you huge providing you're negative benefits in a helping that things drag of a both us not us. benefits range, stay are XX% absorb in margin that the all positive you effect They're elsewhere. getting because or of gross actually category when future so and net And lot mix, drivers which we're actually XX% those sort there that much, of moved see of

them the area, logistics also. facilities getting obviously, absorbed and So unutilized and to net investment that's in, got you other kind new of all

a lot of made positive there, So in things too.

Operator

line Your Akshay next America the of Merrill from question with of comes Bhatia Bank Lynch.

Akshay Bhatia

within marketplace. the is in advertising One more that is space e-commerce becoming prevalent the thing

opportunity tailwind think what is you could this you there? wanted doing to So the be you ask see Wayfair margins do front? Maybe on the what what term? And longer advertising

Niraj Shah

excited of about. that, think A an very the fair, lot of We Yes. it's excited talk work be of that high that up one very fair, example we to about a [indiscernible] very great couple advertising a is an this for the of on area great we've about it. we're area When then, team hand, and people potential hiring work. the we're they're but over last headcount, really early benefit. quarters, we early on is I'm To be making stepped doing, investments with think

So in its the ways still little impact of terms when it's a out. real on P&L,

Page as what they're batteries, For us, on you're and example, help styles suppliers plaster do affect them. consumer we top, we folks think example, for customer engage because, to or selling long is experience we in do, of be need of where for doesn't launch of both continue can Duracell it advertising X new dominate to We diversity have and on But quickly Energizer you going help then let sure use making for that their that the the and can the the you the doesn't if Page negatively thoughtful to just to little other kind products on get because it whether terms right more matter there's fund more some product, nuance the page, a to X. be things the let momentum that.

both be, say in terms excited that say P&L out. ways but I'd about I'm advertising impact, the have about actually very that, how we're excited I'd of underway. some So big can But products we a also it that's

Akshay Bhatia

Anything you while you're it growing? marketing the leverage nearly to that Got just talk Or repeat it. you follow-up, on really the rate adding there? what X side maybe drive as still can can million And customers? about a is call out doing differently

Niraj Shah

thing you think our us is advertising, keep do we very paid when folks, on I compare thing to mind a and this other us all what for we technology to our in-house. is key built unique in the advertising

really, that. when your and your the and take your kind first building those clickstream take customer tech, own so to being are part say, us into us benefit. us them and life Facebook trusted huge ago. nuance beta and then think with whom on to We you home about algorithms data cycle alpha a integrate advertising ad PLAs able of codevelop they partner ad early data, stores. And named Google your a and Facebook, at publicly earnings your and then and who's partner have further that's own I'd their about their Pinterest, all of year units products, of then as things. categories fuel kind Google mentioned mentioned a call

so further can progress trends your we for And building platforms being for for an then products we by trends what and on and we you new that own understanding algorithms, is innovator tech bidding of what obviously, found the how on use. -- own bit these nuances have integration, our And sort of always ad and work you every the can data do. that the on

when of households about households -- customers. why think customers, Canada, XX% million million you reason that's So think not million less XX.X and million is there's Europe XX.X the that about potential if States, We in million, we United about no XXX XX still XX the that think than in -- many.

lot a But it's a a opportunity. the too. obviously, to of opportunity, your point, then, there's to So repeat get. huge new obviously, of wallet, customers big And is, share

a to I there's keep building get, lot that's we but why been our more tech advantage, ad a also customers own has adding. think so So huge

Operator

Canaccord. Graham line with comes Your next Michael of question from the

Michael Graham

terms the from lean in just past the the of or in you some spend. the be on And split really you added international? between your you growth, you leverage to comment spend U.S. seeing can about start ad different are customer on countries? brand Just in that Can the Any margins Like you refresh deleverage still robust advertising where us made in growth? customer a you when really customers. X on country in and lowest nearly had domestic cycle then on a are thoughts of million in high-level

Niraj Shah

Yes.

customer very about good in we're really the seeing excited U.S. we're so So international, and growth that.

said there, in early In we're terms the are days farthest Germany, really U.S. high. the there. have quite in awareness, ramping not we of we level the nicely. in is where quite nice along, that the And U.K. international Canada market, and but then very we've is

the that X. So month television we for we only just or watched example, last -- in advertising,

the rapidly stage the off but starting along. So each to has country U.K. still a base. and customer Germany beginning really is in grow stage, base, growing of is, a at of I'd customer the nice different a in evolution. it's say, far

aggregate And why have repeat farther But much still not a that that at P&L in repeat enough kind don't are the of when they very that impact Canada said, get look base, to losses, a and aggregate, You but still which very amortization, ramping, growing then have of far phase, albeit base all the is it that's I along. you it's you -- as doesn't nicely. because is see along. ramp in

Operator

question Oppenheimer. with comes Brian the from line final Nagel of Your

Brian Nagel

modeling just questions, near-term if couple a I may. So

gross persist? back of within quarter, fourth help quarter or can guidance. around looking guide given how were longer-term prior the like of -- fourth you on bit hiring a [indiscernible], a delta the you First But to than back in I help hiring, of guess, don't like we you subdued quarter to P&L to continue understand looking beyond long off, somewhat bake think year? gross a be? we a obviously, question, lot can what tick my maybe long then maybe a see of question to And you to Can bit do targets. your in rate before, the with and but plans that about that could how conversation that 'XX, -- other half saw pull the higher response you more assume us talked bounce a rate Can [indiscernible] through during we margins is the margin that already, fourth the -- second the quarter, that fair should saw bit still quarter. saying, we I you better it And should give a understand we second on obviously, this this

Niraj Shah

Sure.

both can answer let it. gross I of a On kind tell margin, puts and there's then think here's of more and Let lot questions, way I the quickly you, -- takes. provide me about Michael What color. me

really And given that's Well, a any so in fast. near quarter international drag. grows in term, the

too. Some new as categories in drag. there's seeing that's a you margin, and of mentioned, for the gross results, positive a investing we're of But lot great things then,

XX%, XX% I grow. you drop. wouldn't in in So it all a when should you should these wouldn't in I say the second say puts it takes. half, necessarily range the That net is half, and you see second

the I trends of you number kind gross say, yes, If number And are and of a actually view, of fundamentally, long-term become years margin frame. the the could nicely less in say, that of being the long-term longer-term the take you because trends things a over and a fact, a I'd expect are out, between drag now the what drag, very that -- years, positives erode they drags time be rise significant.

a then to on margin get just I specifics. movement gross but view there. have clarify. So positive, the want term, I'll Michael let long-term of do lot on And the is near significantly in you hiring, into

of coming the we're taking onboard. don't so to continue that, of that, jumped some to includes up take hiring. be hires, advantage going and this recruiting we're recruiting right while It's has more just said, takes That the all business incredible of down, specific. to Michael through are increase not the taking going net be to growth. roll also drop advantage them. [indiscernible] to advantage So recent little significantly, kind built a so and from increase leverage rate nice a net start But school to you that. capacity, a seeing we've now, it's standpoint, we're that, actually want sort we can still sequentially model absorbed of continued once be but rate will of going We financial

Michael Fleisher

to the QX. we're clear that QX, are, going to I been thing we've saying folks only pace not hiring we're at be that Yes. still the mean, in I add lot of I'd is not not a just QX, to QX, want hire we in

of of that's sort tax of remember hired said to will on x reset in and So in OpEx only expense But the the other to continues on sort I and to -- see tax though, for comp is we comp, folks the of it -- rate the there. that on, just think folks spending that payroll, like hiring. start you talk in that QX, your the ameliorate the the bring well then that in up as you increases QX tends impact of taxes, we as build. think I coming quarters. tied our spend sort all Remember, color back little to to payroll you QX will and therefore, that thing an in right, OpEx always QX I to going give sort as over a continue more I sequential note down. And to show

more be I a sustained think will long-term rate. that

is we pace. time, at but at course to line hiring an and business going that keep pace, We growing, see great you'll to this obviously, the people. add in start continue as accelerated incredible 'XX of leverage the at The to same -- are over don't

Joe Wilson

Thanks, on call the being today. with us everyone, for

Niraj Shah

guys. Thanks,

Operator

today's This concludes conference call.

disconnect. You may now

Wayfair (W) 2 Aug 182018 Q2 Earnings call transcript