W - Earnings call transcript Q4 2019

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Operator

Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair Q4 2019 Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator

of conference. and Head may Projects begin your Investor Gelfand, Special Relations you Jane

Jane Gelfand

and you With morning Co-Chairman; Fleisher, our Shah, Good Chief thank Chief Steve fourth will Today Co-founder, Co-Chairman; quarter review Conine, we Financial Cofounder XXXX and Officer Officer. results. Executive me and Niraj for are and joining Michael us.

today's will be We remarks. all available prepared for Q&A following

including remind statements events forward-looking to although like guarantee you for performance, during and expectations have we call, would will cannot forward-looking believe reasonable that we quarter I make statements first in and future this regarding financial We accurate, of our guidance the we assumptions. that been will XXXX. be any that

result identify to cause otherwise. company's we These to during not Also future will we statements please by whether events certain or financial factors Our undertake measures, materially XXXX differ review made required revise obligation these XX-K in replacements for that actual today. performance. the should considered filings of and should and non-GAAP any results together law, those for read with or the discuss GAAP as measures that call, we company's this no information, SEC our be projected note from as forward-looking any be as a update non-GAAP certain Except, financial new could publicly statements, results. subsequent

GAAP obtain available is on our measures a contains to non-GAAP measures be IR of for Please nearest reconciliations descriptions financial section call non-GAAP being webcast a website. of our the refer our and our to This and to Investor the replay release, will comparable of website copy recorded, earnings which Relations measures. of

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

Niraj Shah

five of and today. Jane, juncture celebrated our good progress. exciting given decade company out in is This all speak We're you transformation we everyone. particularly just as and to closed years a an interesting, Thanks, history pleased with public and morning,

ways, what to Wayfair's journey more enthusiastic But in strategic begin of as category to the think we come the remarkable. we're reap thus solidify as exciting In will our position even opportunity our even in far truth, home has the has been leader the and benefits more many large we about ahead. be investment.

as we're shareholder opportunity conference this you letter website. end, the next the some operating read to that our time of this through letter our to you'll that not on we annual and reflections We our our philosophy reach the on and To but it, using we year-end longer-term posted priorities history, about ahead through also call, in look hope to share we talk the just years. since IR XX take

know, quarters. As business we managed you over the not years,

most view But focus whole we'll our XXXX go XXXX. of through for performance remarks as briefly my our of I'll so a here And forward fiscal and on the first, quarter. fourth

XXXX, also operating billion holiday international, $X.X momentum QX year-over-year in representing of broad-based and net generated revenue, performance growth we and This million. was strong. year-over-year In growth was U.S. our the $XXX in across XX% and

saw share million we up shop they to customers Black Cyber taking category. strong holiday orders both consumer Monday, XX% of grew our period, Friday Over five to We equal integral repeat customers how year-over-year. engagement increasingly the consumers key Cyber as online with XX.X from with with seeing the and active

planned, a significant about at the making I'll year in forward EBITDA Looking at we're in to movement loss profitability quarterly more profitability $XXX while as ahead, discuss towards moment. in adjusted EBITDA looking million which came QX adjusted

is of customers. the we We goods we XX% our been home some that optimize revenue very a few rate of This our and at shed can a home that look captured XXXX a and let's Now grew historically with as our also online forward. and investments move that are The by demonstrate. year fronts fact our that online on testament things clear showed expenditures retailer. whole. progress working companies as but estimate many across moving that go-to size as light ever core solidified resonating standing $X strategy of the goods both to home every and offline We underserved and has we $X.XX net

XXXX the Our of and S. in visuals, goods by providing richer inspiring with from Across her ranging aided engaging customer and Gazebos; events features. by and to the broad and through selection subcategories our high variety home of focused basis levels than across of U. geographies and Kingdom. her improved and more XXXX sale reviews, by points features awareness Beds with we remained all created United in at very the her and remain Mailboxes nearly Area on a Rugs by collections

evolving our with is to also We products suppliers products unique Wayfair platform empowered home partnered and with through closely new of tools house brands share supplier the a our such create which as partner sponsored suppliers growing Extranet. and our

our to progress we XXXX considerable at million square XX logistics added middle initiatives. year feet end In X against the space three key - of mile our fulfillment across square last and strategic million We made feet. mile networks

Small we digit parcel that's large single basis the ship a cost XX% to returns of average also in per Compared on from financial order points the early this year improvement QX saw CastleGate prior low investments. XX%, penetration parcel and sits is to demonstrating up now our at XXXX. and XXX increased while as XX%

we we back in incredibly coverage the the reach October, have As consumer fast. we indicated geographic to need now

customer possible often In fact categories. our than our regularly competitors rapidly as more than faster in and also expects our

XXXX our drive have locations. opportunity capacity with footprint logistics square delivery footage expect do we this as in the significant existing to And In year. in utilization we and greater previously additions utilization not and opportunity centers with and throughput now stated much drive the have higher we fulfillment place we an to

both household see in doubled in along Germany. our our Europe we rates, selection in the repeat than trade in more index Germany attended now U.S. established the three versus In time decade, market same in where rapid the U.K. and conversion recently saw we and We trend suppliers trajectory. all XXXX U.K. awareness are progress I When and share tracking gains shows brand we the in and the earlier in. the

with services even now seeing economics our invest continue a customer as we also spectrum past also to these unit out new scale improve will and represent today. many customers. call built We've a to revisit We're all things in highlighted grow to we home of our again categories to and transitioning We've before for next our format quarter earnings Vanities of calls base.

did example years which you'll call XXXX. here, Through we've but updated first our you been actually dive in in we this was just this of It of earnings category QX not underpenetrated. to in across just sense give short categories and historically see category, far want many where come two how we deep we've a

with we also in case, and often without this challenges. classes believe these a year a manner. its continue in foundations And opportunity the pleased set XXXX is go investment to we've can after was not the We're lean deliberate

tariffs furniture For first the home the as chain. items, through time experienced and of for consumers reality years the good price supply to honors filter began decor in other most many inflation

so in wallet. our marketplace initial volatile on wave Our doing costs much of retail increasing consumer saw wholesale sustain pricing become We tariffs and pressure could XXXX. in of absorbed the rise, suppliers again in not XXXX who more

OpEx from over XXXX XXXX XXXX to of spent just absorbing doubling also the two We headcount roughly people our near years. people

dollars saw are moderate. we substantial, our half success. of revenue surge we we old know adding our dozens with our new is can across strained of execute And hallmark trend. we momentum initiatives The the ability that on a do recent remains a backdrop hiring Against year-over-year we back it's fashion and to our tight true actually this better believe than sales while

we've We've stronger and similar on side. the managed come other through episodes before out

first For of nearly of and net into revenue instance XX% in quarter over the XXXX. growth by from XXXX the first course year-over-year the XXXX saw XX% we to XXXX of half decelerate

We corrections hired many series then percent place by had curve led rapidly a rebound people XX-plus course and to time. at of to had throughout a we the rates all new productivity up that Back and growth year-end one then XXXX. coming put in of

had the talent groups inconsistent that different standards hiring to this across led found has also levels company. We and

various This and caused initiatives inefficiencies suffer. interdependencies between our increased roles growth that execution this and contributed to to the rapidly

then our objectives an as measurement to initiative the So remain we tighten and took to even course-correct our streamline our same. processes

our After out improve the levels, we inefficiencies We in increased, to resulting calibrated revenue improvements momentum. rebound led effectiveness roles. their a customers substantial drove talent and and people saw for and the mature let in execution connectivity

multiple great this that make also to is we has of the then talent methods two a consistently spent bring years the We success. in highest level. And creating all been sure

place XXXX, we see of inefficiency. our our thought signs team regular the prevent We business biannual put But we enough scarcity. we'd now this. we in underwent process create measures again hindsight review with fall the in prioritization not to and did saw of leadership that As

While context a weeks ago the this necessary in of these we're The we for cycles We'll work never some couple are. global smooth easy natural you decision X% to our of mobilizing is outcome our out at harder growing the of even volatility size business key these of rates perhaps a type future. is to which of address the probably to workforce. go to made quickly but more gives we issues a roughly let that

we growth of initiatives expect the success, a same see effectively chose a in future our very reorganize the to the clear fashion. promising disciplined and To we are to to more groups be in large. leaner and gains efficient list near remains maximize our But of number

of come is see be all fruit. the spend and are to While of the harvest frankly to that people areas some surgical most low-hanging Across headcount. reality relatively of is the XXX we just doesn't visible this letting to go opportunity more course approximately we corrections focused down and making,

lines even guidance, top these Well better with course XXXX say of over our cost various as our just let at we current L to P& I our expect the specifics growth line of of a I'll will you of share leverage the changes rate. result across Michael that the

underpinning Let even line us continue factors. expect though it's item. gross to never through gains now from to margin, it the take line, When walk a we moment opportunities a P&L to comes a straight each few substantial

to our and products sponsored customers, red speed Four, from continues our growth damaged incidences. ancillary now meaningful suppliers our in associated we that in our elsewhere, or shipping grown call that costs come. CastleGate be have many reduction high-quality and buy down scale, infrastructure costs; have of gross what issues as our driving brands categories advance improvement to price gains more emerging One, the from our three, merchandising from merchandising, while to up margin items account our that of other with two, available delivery business internally services that actually widely in it are benefits five, logistics to house as from are or to with six, not such items carpet from in a investments benefits us

is comprehensive, as make should are progress gross list these feel this give margin what you a long-term and well within underlies but in it should reach our And our we not These targets towards goals. confidence targets. to

Now and XXXX. should show let's a of revenue switch in cost by impacted net anniversary adversely mix percentage leverage as Ad in costs. ad headwinds XXXX. was We'll to which these

And our leverage. how ad this to will and additional hastened marketing be include dollars deploy to we constraint decision deliver an by spend

Let me explain.

in brands their targeted in be it's efficiently payback channels framework. all all saw within all geographies possible spending XXXX we core for to As and

of impact consolidated the the channels. delevers new to in mix result While investments and due effects

in want scarcity is acceptable and across of long is marketing applies is this that Wayfair this to asset run, While well. reemphasize an we the what to as part

growth, healthy. admit and sub-optimizing quantitative of that can the an we run the framework it's mechanism risk this keep tight to additional While

will And ensure these we're in customer And by traffic this greater later. so constraints. that off discuss we're in maximum kicking a and dual efficiency bit detail Michael first this to re-baselining getting QX process acquisition within

hiring expenses. now And other much which greater G&A increasingly efficiency runs approach SOT driving to our areas, greater work, should a switching This more line OpEx. as a to a of utilize and throughput. of rent our we also through but discipline of just reflect moderate namely flow our focus on the in to closer line or unutilized number natural And COGS rent operations and gain how and examination a

in benefits which further offsetting spend. efforts implemented since will the these manifest will exceptionally XXXX Cloud partnership in lower next of well the couple worked Somewhat and we over of Google years with be our the that it has of form of scaling CapEx

long-term that against is none our line the ability here exciting they're growth over cutbacks, beneficial invest to these of What's actually time to continue constrain bottom while initiatives. our to

revenue run apparent in as net have will Said been and prominent to to billion the you we've $XX U.S. internally differently, more us rate that achieved attractive a already at become annual much that well. unit economics the

both finish the opportunity will have by I advantages Wayfair that vast today of up many leader the run more the market. even a ahead America goods emerge North differentiated revenue Europe. rate scratched we in to addressable we're billion of surface $XX allow in already and excess that us our saying excited about total retail built in home in just as and at have of We're about a but net

are one few logistics drive which to footprint. us between resources of We benefits a competition. should scale bigger with world-class over wedge compound of the time and established very and The a have and our

to runway. have and that loyal of the unique libraries positioned marketing we oriented approach. enthusiastic base. world built a almost engine We penetration And and through largest and one well share customer XD in sophisticated the a selection unparalleled substantial have still share already yet on capture are our and entirely in-house wallet returns of And technology asset a quantitative

as Perhaps increasingly with our them built importantly platform enhancing take that and the even advantage we a with get day. we time model they are for partnership that we will have suppliers every true more only stronger of have

we when and focused seen but this all better Together focused wins Last not XXXXX every big employees growth. of that executing, are the is are tightly underpinning incredibly our powers on consistently the and our customers. customers have team day for our unlock our least, drive for This all better of experience who of success. we that making we talented

all thank us our all helping to for want employees, and present of I their work hard this valued past in of happen. make

the to Vanities. turn update call you now to on over I'll Steve And

Steve Conine

Thanks, for have for format this mind call. Niraj. In section fiscal XXXX something of we the the new in

investment years, and few time technologies. we used in-house highlight categories some past to our the typically Over this have of

their few business. marketing, to others, numerous you you the the talk For Europe, leaders Wayfair such quarters questions. supply firsthand as merchandising of some part our our of as the next pivotal afford to into This will and ability well dive invite chain management, deeper about we'll ask to leaders senior of a as parts category

But how we much We're at you and relatively before excited briefly it's make to this quarter. level we've and we short to come two to give a a micro transition doing years. highlight a sense before so, circle full next category a of far come overcome appropriate how in featured have

we've wish Vanities about single seeded. think made could categories across we've of we've the great for give the We the of discussed strides we we a you update today this which in but every we'll talk one home of spectrum goods which is the categories representation past,

in high which margin. shepherding damage $XXX hampered the challenging bring Vanities and We costs experience XXXX. times, lead had constrained Vanities A early originally shipping category provided by all a rates, rate and point in online. with an At over customer revenue. navigating just tasked to to that long were high team burdened was it million run it business was of and small annual introduction gross the

it robust to selection an difficult to beginning issues each it also customer customers build browsing to our online. delivery. the buy experience which merchandising the It was team's Vanities In confidence these create was from and our and lacking objective to of elevated address needed made

new we years, others. of focused and the across relationships on our on Over price last two the suppliers selection tiers, bringing course with entirely strengthening solidifying

brick-and-mortar typically Our satisfy on very limited of customers wide selection variant that and only in the saw to our early a was objective assortment any location. needs build tastes who would

and To end, to that were last we choice category the more years possible We unique meaningfully materials SKU make onboard customize two for personal. wherever to the added over able suppliers increase ability and new our also XX to finishes the and the count.

today. over update four a an Vanities When across catalog. provided vanities has almost we fruit. of product XX,XXX grown last XXX,XXX over bore different XX,XXX our for as with reviews merchandising given which nine expanded to reviews offered number to product efforts XX,XXX SKU the images we average This from The featured

ago to optimizing journey and delivery identify in damage suppliers closely mitigate to may why then we two us Another clear instances. was then, the for category, the with speed. work and where studied experience occur increasing this damage-prone opportunity end-to-end Since delivery these Vanities while years our for

unique meant for jewels developing created vanities. shipping journey; practice, plans our partnership along absorb specialized with vanities; with specifically accommodate suppliers. packaging this In shapes product designed and to storing, in unloading, to warehouses transporting packing fit any different our the materials and customer We racking for palletized

work them diagnose robust issues a introduced control then out future. to and any communication avoid the quality solutions also we and Together to in process

our by which to These us two years, increased reduced incident benefits As a XX% have each help dollars CastleGate XX% also grew for quarter. our saving third the and penetration suppliers' entities result, efforts of years. last vanities two rates a drive in vanities millions from over over

control taking network our the than coverage the quintuple to has to allowed of more for positioning three our inventory two in us forward and Strategically day category.

As withstand we our in organization, and headwinds mitigate ability business. parts we scaled have have the sophisticated become across of our to various across

In to which the consumers anti-dumping little the vanities Together for just in that inflation wholesale these of much on tariffs cost have life but to context XXX% more industry higher amount appetite. also in China-sourced retail to than this hit duties potential very vanities. XXXX. Translating pricing not average comes for

suppliers in relatively these as quick shifting to out-of-stocks months can six countries of supply and make this, they take suppliers their upwards chains move rising in avoid facing are production. response To to are other It transitions.

vanities to led a in the from online supply significantly this U.S. in curved sold of vanities the sourced issues category. has of supply chain majority and China With the being

shocked quarters is a industry work to we'll take the through. few While

anti-dumping a we leaning of outside that In manufacture to vanities. supplier suppliers rapidly tariffs to into while China. of our number and also of teams agile to further matter exposure mobilized diversify our duty-impacted were able Our mitigate base, weeks existing a

locations. the Today by our the the were offering time. they them was situation vanities we we are a scale to clear size of now logistics suppliers outside suppliers at position offer the China. of the here, we and China-facing needed help as within one to is footprint as they advantage of able store flipped. sell are transition A of ability CastleGate few fore space their able manufacturing a turbulent products large Meanwhile, manufactured majority to and our The

has maximize suppliers approximately rapid $XXX with and The gross growing and is been in million this category. revenue availability have growth strongly. meant that like business measures translated now Partnering These our we preserve have fundamental the able financial our wins results. to clear to rates still product in globally

have the Variable margins financial have points. category challenges the basis all This we along for to and particularly progress account achieved exceeded adapt unexpected XXX more expectations, taking contribution had than have into way. the for when milestones expanded

success market as embody on we see moment being all today. work to outcomes our to the Wayfair. presence pride across scale the that and to format necessary collaborative represent. the that calls, our quickly, Vanities that We T. successful evolve we to to teams continue has the such we if hard many we evidence further this kind move solidify of many spot As with highlighted categories the you'll the category desire iterate ourselves they thank entrepreneurial to conference is of teams want I led one and know of of to across a for take of a examples just and We these when

discuss to like to that, With and expectations. QX the to forward-looking on I'd Michael our call financials pass

Michael Fleisher

I financial on some morning, our XXXX good presentation release key earnings detailed fourth IR the our the information in investor will of in of results And for available site. with and our more Steve. provide Thanks, everyone. quarter highlights

to other net In QX year-over-year revenue our grew to relative In added words $XXX XX% we approximately $X.XXX in XXXX. billion. sales million QX

focus will has referenced now have that transitioning line historically revenue to net become we our net on revenue immaterial, only. be other forward-looking we Given and commentary it guidance and total our

October, in new QX format a direct QX net before we retail transitioning revenue now QX our results basis for provided since detail However to with I'll guide. guidance our on direct retail the

net retail direct XX% roughly to total segment representing was $X.XXX revenue revenue year-over-year. up retail $XXX billion, QX the $X.XXX increased U.S. year-over-year. XX% net billion, or million direct growth In

International Currency million. international the retail Direct net increased in to $XXX revenue to XX% QX. were net movements segment retail direct in revenue year-over-year year-over-year neutral

healthy. remained KPIs Our

XX% $XX.X strong active reflecting Niraj As up customers mentioned LTM repeat and this both new year-over-year, acquisition million totaled customer solid quarter, behavior.

repeat $XXX LTM from at and consolidated the LTM In XX% flat X.XX per and were orders revenue active the net orders customer per roughly respectively. customers active customer year-over-year of quarter represented mix.

basis, move non-GAAP which the of the financials impact remaining related and taxes As down fourth the $XX P&L, I'll quarter. referencing we million excluding a be equity-based compensation the on totaled in

$XXX the or quarter was XX.X% Our revenue. gross of profit for million net

dissipate we back up planned. some of we to due headwinds just as gross as at footing in arrives margin industry gross tariff-related in costs. on should a wholesale to expected more As to out playing part This ended due a outlined and headwinds was lower whole volatility, in potential equal we combination October mix bit which came brand different the category than which product tariff-related and margin

XX.X% expectations This and was of was consistent points our and with of guidance. or spend $XXX Advertising XX net deleverage represents about revenue year-over-year in million QX. basis

was Perigold, well brands us ramping in as spending last there negative international. As like continued quarter, case due was the in mix to shift as newer

There with media as experimented were mix newer some also some impacts, we channel formats.

its own, the dollars we also combination how want As may leads Niraj practices to sure marketing leverage. make are economically across said, while be company on smart to of improved the each these of spent

layer revenue there on to first so year-over-year level. current as a rate. the attractive acquisition have of between percent back we still and headwind ongoing in our a is is our to This intent a early ad in and XXXX as we at to began speak rebaseline back customer company to leverage net new growth we drive overall payback economics spend and basis optimize on spend. And channel-by-channel pull most do and the efficient as To from

and QX totaled non-GAAP expenses million. operations selling, $XXX in technology Our G&A

to you have hiring quarters. recent compensation line linked of the we And is this over know reflected costs. As surge that had much on

roughly In compensation this XXXX XX% heavy inflation engineering other people past QX in X,XXX in we grew faster than mix of clip through well employees. areas. costs to or the OpEx Headcount OpEx headcount given year-over-year at by a over as year, XXXX as that hires

which Cloud year-ago the not increases unutilized in were also period and costs Google contributed. rent year-over-year

Niraj expenses As efficient look a SOTG&A. costs at business. noted through we and will already taking opportunities the but other some to are also we've optimize identified flowing clear surgical take address These time more throughout to be

Adjusted was EBITDA for of and the for or million negative revenue. Adjusted business QX negative negative international $XX $XX X.X% $XXX EBITDA X.X% adjusted was or EBITDA the for U.S. was business negative million. net EBITDA negative segment million margin

Each last as these we you them were working what them. previously with to And But in and aggressively like quarter. planned not where to of line with improve we such mentioned be. would we these discussed are are as

cash for million approximately XXXX $X.X and of As operating cash, capital million quarter expenditures. and of long-term flow negative from Non-GAAP cash equivalents $XXX and net free of short- had on activities based $XX $XXX we the billion in million in investments. end cash the negative was

of CapEx revenue QX. in was X.X% net

at their rack number existing elevated remain fully in to capacity. X.X% X% to to centers as sales maximize of this expect QX we We fulfillment

of year percent sales CapEx expect do a as progresses. moderate as the we to However,

pronounced more tends later our timing usual biggest this quarter. Recall also to past Cyber that be this period, due cash to will year be than that a Five QX outflow dynamic

and leverage for want guidance, the that actions of improved leaves to the towards our on recognize first I a to as at year questions P&L opened turning our Before taking increased and focus guiding of current beyond. natural full quarter Niraj we're about the quarter talked concrete practice length some result. driving about only

To be winner. Wayfair's proven is already strategy a clear,

through. are We profitability are will benefits just cost flow our translate sharpening time flow some expect But our focus. efforts free and improving not instantaneous to begin we to trends. them take to it the for to cash execution and time our and Over associated

positive the in build of to at will more You are course will the see the over putting and them in point XXXX EBITDA U.S. lead consistent in we begin some XXXX. to changes place adjusted

in now that the expectations keep basis. net talk we our for to about are guiding on only Let mind and revenue please us a quarter first transitioning

revenue still momentum. net the just October weigh are year-over-year factors believe back is on experience our but we that under described We some our growth at customer trending disruptions weaning, XX%. growth tariff-related revenue to Quarter-to-date, our self-inflicted in

these spend first rebaselining and process ad just The is traffic deliberate associated discussed. as impact the of on-site of the we

The second tightening. of discussed transitory. our are that have are we are both inefficiencies impacted that Niraj these believe the execution impacts We now which

bit full Our in factors highly expectations performance of to quarter-to-date show market customer quarter guidance in up where philosophy the prudence and a has a mass dynamic business day. every

to QX result billion we revenue billion in As a $X.XXX approximately XX% range net a project our $X.XXX or XX% to growth year-over-year.

net to range revenues We forecast of year-on-year XX% up XX% to XX% expect international in be U.S. to and the revenue growth net XX% year-over-year.

we to and XX% translation case not margins as sequentially do the improve relative be QX. pre-tariff again described Niraj in a late to factor XX% to continues return in impacts unlock benefits We initiatives that territory, was XXXX. work currency to of to plays As forecast QX to will flow driving factor through pricing gross many expect major market QX, over across inventory internal our the Meanwhile, in of margin-oriented time. less once and a gross

reverse in goals. the individual show reflecting balance bottom-up level company-wide and our revenue finer the at plus percent to as a between trend XQ leverage year-over-year, last of the decision-making We net channel expect modest advertising of in year a

people of end will approximately fewer end XXX XXXX headcount than QX QX. at the OpEx the

to normal down pattern We are anticipating campus that acts with flat OpEx a headcount through which hiring remain largely seasonal the taking year natural rest attrition. into of will to the account backfill

quarter the first will OpEx be dollar growth it a moderate, we QX take couple the about sequentially quarters flat in in dollars year-over-year do versus OpEx to for to XXXX. So expect of

several time This in the will this years will the case. be first that be

quarter. about payroll show But As step-up in OpEx to benefits hiring not XQ you will felt, impact the until think force of this moving parts that continue run the mind of will fully up be the of tax in that recent occurs rate QX. keep the including XXXX the economic reduction full in

X.X% margins margins also spend Google in X.X%. remain U.S. to anniversary in $XX Google between negative will investments first Cloud in forecast adjusted costs Cloud in starting EBITDA million the QX to X.X% X.X% an international initial will quarter to And ramp negative translating the $XX as in EBITDA we we incremental negative with million range half year-over-year adjusted negative loss. of only to XXXX. All back a

the adjusted of associated to our EBITDA recent approximately million. $X not force QX reduction in In guidance $X does with severance include million costs

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

Now we The to before me on that how the back no prove keenly your if question Niraj, is turn minds. it impactful are a and is might doubt the spread let I address on. call something at all of coronavirus focused

guidance the in current Our potential does disruption not due to virus. any significant factor

is model vast our customers mitigating an factor for to marketplace selection our believe us. important we We offer where

for coming from any our suppliers' product given selection now So typically item substitution. in we origin, just various over manufactured is countries of half creating have options of additional China, for

path with for some Also of lived of alternatives because tariffs most our suppliers time, the down sourcing are our well industry creating has already.

navigate staying fluid situation look and coordination said, of suppliers to our that with planning our in as very we're together. we All this tightly aligned

to shocks to and with effectively, example benefit duties relevant able were use how vanity one disruption. our the customers assets anti-dumping potential is recent our suppliers and deal and a with know external we mitigate where on to just We major our

situation We will it evolves. as stay the to close

the questions. I'd Niraj before to now call your take to we like back turn

Niraj Shah

I very and excited year ahead. are about Thanks, Michael. Steve the

Wayfair continue to offer our so from improving that customers of on on to can online secular offline is what tailwind we focused to our All we capitalize the category. in

and that compromising strengthen includes experience, expense That ROI our the impactful. ability These of efforts without the parts on propel minimizing down while to supplier us customers' matter. the invest work path to highest projects, refocusing the behind the profitability our that really enhance our most less will partnerships initiatives organization further is significant and

we're to now of ready answer and We your thank some you all questions. for listening,

Operator

comes Thank Keith [Operator your line Peter you line of Your Peter, Instructions] is with Sandler. Piper from first the open. question

Peter Keith

everyone. morning, Good

Niraj Shah

Peter. Hey,

Peter Keith

wanted of I would of growth XXXX. EBITDA in made growth we that P&L of we at be? of leveraging around rate rate to U.S. rate next to the the you're of comments What couple growth that growth just current - Are QX for in quarters? tie the high-teens - type to the your get the the looking rate positioning few together now the by kind this XX% at positive if you continues path or

Michael Fleisher

the current assuming that described. Hey, Michael. it's QX rate, We growth I Peter, quarter-to-date were

Peter Keith

tell pulling Okay. I of Thank seem ad efficiently. think skepticism on lot will going you I which you. Niraj, the there's you, a spending the then at ad the I adjustment, then to happening back - subsequent on be does guys on on spending more think looking spend And to good it's are and revenue be now. deceleration,

sort for of think of as if out sort model So to re-accelerate? this frame you revenues within when adjustment any the time being normalizes give on the they roll you us can

Niraj Shah

sure, Yeah, the Thanks for question. Peter.

try to just back tie guess, together you sure it for kind make describe. So, trying let what exactly I me to you we're of understand to

XX over periods but trying up through so we've time inefficient. grow we're generally around quickly, fast, particularly ramping what in we've very had of like we we've growing where the really as years is, you if we business, become feeling to either headcount end been back fast, look So we these describe

efficiency new on are not driving we have so focus forth. people, do the sure often so the right the making sure And we initiatives, curve, then up initiatives the on and people hiring what is to we basically get by try making

purposely in where very that really kind on and that to used bigger, less jarring we headcount to through go cycle. making focused we've sure fast gotten a do down. way, gotten of we We've we've ramp absorption slow purposely an As tried really

right be large realized, way like the we not the do it. were best we XXXX XXXX, reasonably that And and the when period we example to man, and would still that's did

So lot what basically of were prevent that a place things put that. in we

couple that that rate. grew at the reasons can of see was the When And a years, we we we tremendously one in now were look back last headcount we of fast of and lot in what unit each happens, making customer-oriented, things its demands but economics sure was for thing caused the aggregate, amount optimizing system. a it sure of the own on

where spend, optimize constrained as does coming So, back as if much you're deleverage would you you you you, that economics you you unit through as On efficient that channel, the doesn't customer on or mean? an as because still specifically really efficiency it when keep technology innovation, ad each driving spend, it. driving further ad outcome can repeat of now the get what want, gains and that creative the you

of said, getting we're that hard channel hey, so requirement leverage. trade-offs as what having an payback, also we around just optimization instead at say, make also the overall hey, we're So some let's level let's here, doing solely

in that brands leverage, to additional say, would force are fact, brand or growing what that to channels an hey, show do we delever let's we the want you, So, let's want constraint. the is

would scarcity of we scarcity, the is does innovation. It's drive innovation and it mentioned, where you more in choosing marketing, the traffic. where it lean of not terms that need drives that is to but concept headcount unlock What scarcity where case you in be scarcity of to in just

constraint, get we so in constraint is to an what need you add that about and when within Well, additional back pull not hey, need to saying, you talked areas. do so operating rebaselining there, you're additional certain the do? what you with Well to

heightens certain of it areas, terms to but do around it have like we've measurement the basically So to what buy, much you that's mentioned limits move the in or I it, those going focus you're what those. and it what back methods new of in how always to optimization, targeting, you. we're is creative pulling around types or to then does on things, done, unlock Things choosing traffic you that but innovative

So, of business. in of think the a we fall, in in want the of decided on drive efficiency way about it time to is, terms areas we lot the your frame, question I

we our those organize didn't. we people folks we and put is of where where One how

So that was one part marketing. I what of of the on reorganization, where we ended up described just letting But go some was those folks.

hard have this you to you It's what the normally which point pull the a you arduous of expand the way constraint, even from entirely we quarter So it when more happens so additional down. and sequentially you is you grow a surgically, efficiency constraint this you and - headwinds, there. is traffic look which you would, it generally traffic, to pretty purposely the have very are that we that pull down pull do because words means acute than then hit constraint down can in has at then you with past other quarter, rebaselining it

So, I behind will frame, would future in well you the of of quarters, weight go now. months a couple you out And time roll as say midst into the be we're your it and right you. your

So, active thing now. an right it's

Peter Keith

all good guys. Appreciate and feedback the luck, Okay.

Niraj Shah

Thanks.

Operator

Your Heath Sachs. with Heath, next question line is your Terry comes from Goldman the open. of line

Heath Terry

is of dig meaning competitive Interested because us question. a thanks. this a that lower the of that traffic? into terms of becoming that How would Can higher much give you becoming within rates the traffic Great, bit costs versus to deeper expensive you category this? pieces more marketing the in traffic, of sense potentially little conversion how is disaggregate more is

itself which is talked I about on I conversion. more imagine assuming - impact expensive, becoming an would know product having the you

just your and what you you ultimately this control? is within think sort If driving down could of break what's

Niraj Shah

Yeah.

a primary what's spend you you those would you're amount want basically your driver you see, So and basically target what constraining the that's I driver say, down. is driving The if primary is of of to pick leverage two. neither

then you on experience. tailwinds in at headwinds, customer seen the conversion, a lot if as other you actually from tariffs, we've but said, of words, we've things - conversion is our So, you've look seen from for worked

some executed conversion feel conversion net and we we year, is things roll through as overall this as think could we well expand conversion to the as so drive we actually haven't have, will like expect the So, of flattish. We that actually we up.

right you look flattish Our when now is at conversion it year-over-year.

seeing down. you're not it So, net

the On story there. either do. been We've and continues side, the really on offset your targeting other marketing that costs, be to That the there's and about market not inflation. competitive generally optimization of with we're we costs, point the some that seeing

really Number what the ton customer competitive suppliers we're of not a really seeing first in that and field went in the still is up one categories across are to rank. even their trade quarter of our shows, changing North our we're trade they're bunch seeing e-commerce and the from whole customer generally and far because Europe, their America and in year just I in basically shows a the of

on as thing drive is, a manifest percentage as ad cost, the that we've would biggest imposed a so the we leverage want more So effectively ad revenue. cost view to of that

if payback. would going it roll faster down you see than in just time, drift you we channel each in as then naturally spent So, repeat through would down just for over number that the base

And think come because proactively will which scarcity, of is us because effectively for innovation that to that the down pulling we back. it out will faster, we want drive us be of productive

that your hopefully So, answers question.

Heath Terry

believe was coming China was around your that That your was had that you're and China. did deeper I to of coronovirus. mentioned comments - just over and the sales, industry now said you dig inventory, it want I maybe from XX%. into the I to half around that past closer it in helps. also around you One, at believe

at trajectory to you were where of you look do If that that, going? see the

yours to trade ability it the And supply provide your to now you're have are that that expect customers? right then, at shows. color you've anecdotal, Even sell that mentioned at those you that those times time the of it's spent expecting least trade can disruptions just you've a couple impact of an on seeing now if any chain partners on shows to at understanding or see not

Niraj Shah

sure. Yeah,

we historically, sourcing categories proactively really or in kicked our less up a yeah, more industry started setting average suppliers operations is which other seeing then categories XXXX, tariffs the that China, closer we've manufacturing to in in or of categories. So in XX%, our been the on in in countries. based And lot

a tariffs out, sort so of down just because so now because think I being want XX% of year-and-a to half, don't the what in so country they the they that from proceed went XX%, because ensuing think China sole to - of but a going China, come that, that's have on forth. I in low risk, tariffs moving, not folks And the are to into that's continue kind as the and because of over XXs. trend if it's to And play

broader they have base. to geographic So, a want

coming a lot of XX% product Now, from China. still

create And do we the so inventory about planning. when that you coronovirus, big supply question a lot is that there's that of a customer benefit no disruptions. of suppliers of The being talk our side joint

is what doing a of identifying terms inventory been whereas now, And a the just not, reliable products frankly things we've they right in have still products are they supply do so which - they which to kind have do are quantities one going have line of do in. disruption country, what of coming in inventory multi-month

to goods at where do we've spring the the and lot some are have that to summer, level, going maybe country, already in And of for the would and so, enough outdoor they're items season have the through and disruption, is been the make how a seasonal if example. be in those you'd about not we down we selections what you category are trying talk sure so, class when

everyone trying make selection sure with selection in that have aggregate, what the is have we huge on is we or we're a advantaged, enough we've doing in more of we're going been pretty reality and amount believe, Because work so, the right? to to And less site. industry, we

there the disruption supplier way. opportunities to this is meaningful in no having for by hit our but of is suppliers, large significant generally other just that given industry creates and a So supply question going

and going they're hit don't going do think these relations with them are with surprises. some I who don't reach -- so things to have suppliers planning, to advanced that of the our those And have to deep

Heath Terry

the appreciate I Niraj. Thanks, color. Great.

Niraj Shah

Sure. Heath. Thanks,

Operator

Matuszewski Your open. with Jonathan next line is the of Jefferies. your Jonathan, question comes from line

Jonathan Matuszewski

reduction. inefficiencies and taking questions. to if sensitive what for it on inning subject, some I a you corporate just it's in could on feel redundancies? as realize just of first there but kind of my eliminating relates I the thanks you one the the workforce you're Yeah, guess recent comment

my think that there. hiring then in guess, further in it so growth, really of did of commentary experiencing just maybe some place to kind of rails the obviously I guard regions, terms nice some prevent of question. thinking are I - first just some in touch And international That's maybe just excess And, which of any impact kind future. on the

Niraj Shah

Thanks. John. Sure,

four, certain terms of forth. fall a So groups, was The in we manifested the on around is force and reduction in and realized tackling to so one and think basically in ways about inefficiencies way that the in so there what inefficiencies, the different that few grown key they'd in - and where to just a point, items share let's up, priorities, the five, and of of from distracting three one kind instead priorities equal it was and and through attention on of focusing so six make that focus, are three. getting

more talk the of getting interactions order priority then the and operations platforms. those inefficiency from scalable needs But being of lot one, a other something, other group XX% support have when initiatives that initiatives us then group things initiative then XX% done, the prioritization each that technology this groups, maybe than different other you advancement say these average building six say by cause through in and particularly and is that needs issue to having or groups the on that other all three

to the to in of which So brought we organizing unfortunately around what we've caliber the that & when F here. reality whole teams priorities, phase actually done some is or identifying we've focus and only the the going it we not focus already here people said, the not E going cases, have around gotten role that what we on C, D, we're on to A, on reduction we the force B, going and a was do and want through to for problem, didn't wasn't of was we're do the E them really was meant,

that's behind so And us.

through. Well, while takes So you the roll things. gains from when on everyone’s Well, focus? good little a They is news see do the that? that to the right what is focus priority

future. while the now. are The I So, process that's execution in we're much think gains going is to in come the the tighter,

In we allowed years say, ago that a us of need terms things realize getting the of to a how way in you organize back of think about that couple as we guard one bigger rails, we're I going would to independently base is measurable initiative a was by and that was and working a in to the it senior done needed focused leaders be that going each way company. how broader track what that in on, of team was and just understand

that so process And we in. put

a them have - We -- we six every and year ago. months reviews did year, over them these a every we started twice

past to them we with we lot the been we've a investment of while, prioritization that a so, drive using And for and basically and this cycle drive started in fall, starting did decisions. doing

quite process that And so productive. been has

as making think hiring I what was how So forward, years sure roll think you piece. ago did we folks caliber a around think about key I you high

started thing. then of a is year we in monitor those last areas of important really with years key we what think how these ago couple with progress bi-annual a reviews I being

I unit I now puzzle. think the keep way $XX realization we puzzle us the frankly is the the of is the expanded lets that came of piece with the what we've around having last the economics have. the scale think, are, we And making do they we in added is billion piece sure to scarcity, that

what a actually can no trade-off, happens them unconstrained, execute. where is, The fund could did - all point when actually where we're at we want past just efficiently investments because by they we the the area a reality frankly, longer be each we still grew we is It's and what is point keeping profitable.

additional they our reality additional the get the additional gains. to the is undermined team size, ability initiatives, actually So our the expense,

realization, an also is that so both we're And but exciting retooling around. frankly, what

rail. notion think And going forward, guard I so of kind this is of another scarcity

comment The last least - made and, way phrase at would clarify, about International comment so I way the that's perceive just I want not thing think a because the I just want you I it. I to to be I on, exactly just to want

this We priorities marketing notion area hey, of every orienting do and this process around the let's the did of on of fact in company around side, the rebaseline.

innovation. for Let's sure make that we're brand, every let's really do that driving

and so And Canada affect businesses, our international did Europe. that

which where incredibly area a it's TAM, an we really doing for of example, Europe, reality the well. the is small have part But such is

have actually we investment posture there. very so, And a strong

International paying goods this that to tariffs over segment weighed Asia, as the The directly by the would ship is fact down so ramping that. in border, and the our things from CastleGate northbound around some - this dent Canada bring and FX still and much of we're we the of extra we're cost, starting the facility,

But actually the International excited is segment we're about. something very

or was International hit we're disproportionately not something so, have going is we're you. very not forward not And actually what investing excited in about. It's an area or

Jonathan Matuszewski

And just then advertising tweaked some has quarter. I helpful. experimentation, a color. been know media appreciate believe, ahead mentioned on philosophy marketing color past the obviously, I all Great. I regarding the mix channel you follow-up, all that quick this

bit, mediums Just that's that whether U.S. the much. whether little ambassador of just informing and less plan just and app with more and how ahead, mix in expensive of - on then regarding elaborate to that or announcement maybe leaning in tie kind that's you the methods a on first kind use obviously brand in strategy the marketing ahead. so the the Thanks other overall

Niraj Shah

Yeah, sure.

mix moving of channels from would or channels. is no saying, of real I away more transactional say expensive change there philosophy away more the oh, moving in from we're So,

I better. in arrows or think quiver we all total sort that all quiver the we more of using us that arrows them even is of view allow mix the to view like the the part optimize those as the in different that

to interplay. over kind of takes attribution the two done a that more of the channels our is we've one last way own way in more into account years And advance the a continue things captures of model that in and

quite So that's actually thing. exciting been an

brand and of the in is you're see going so Clarkson, mentioned perfect a I is lot we obviously You major channels. brand channels ambassador, featured one a ambassador our her Kelly for think television to and Wayfair mean, our of

quite So we're doing. we're about actually excited everything

while thing and I convey relatively to is we team you still and on can, do think around provide push scarcity breakthroughs. more one puts around being experiment, the with, of just to constraints forward pressure find hand, you concept on the innovate, can tight ad that the just the and think the cost kind which you

and the - XX now creating partners with a Facebook us sophisticated a have how Pinterest, for has most of one we've Discovery-Scripps. been advertiser, on how same on has their calls past and had breakthroughs historically how we mentioned their betas done of we've the we've as and years And Google or partnership been alphas featured we've lot deep

that think very I so, And about. role we're something excited is

have. That's We continue tech ad team a grown we to into the invest substantially. platforms we've

We big strategy have there. a investment

try I'd those so, to two concepts. And disconnect

to two to necessity So invest a driving money use one, we same technology constrain we're think a lot And looking the unlock time mutually we're the going staying thus larger of them comfortable to to tranches at innovation advertising them for the compatible. on team's of of and to ability spend. to scale of still creative those saying, very larger and we're innovation innovation lot ambitious, and more to yet, are drive we're

Jonathan Matuszewski

Excellent, that's helpful.

Niraj Shah

John. Thanks,

Operator

open. ISI. of comes Your is line next Wintermantel Evercore the your Oliver, Oliver line from question with

Oliver Wintermantel

looks do wondering and question regarding what Yeah, use it an And forward? statement three how cash In the be you will have how costs much. going -- I reducing the flow was there, then had you. your in to use cash a years, question XXXX, little forward? impact of think your on last -- your had thanks I maybe had very cash Thank of -- of just new two-part strategy flow. convertibles. like annual we a going bit cash accelerated the rate the Maybe we the

Niraj Shah

your We some us. is metric on Hey, to Oliver, - of let key a one thing then it free me over definitely of for I'll cash question. for more the parts turn Michael just and touch flow detailed

roll I revenue playing you. we time based a about way think have the the through we decisions EBITDA bunch we on made think can costs what as roll growth you'll to things expect we way find pick like leverage to we've see forward forward lot how ad and of come talked expand out and a things the we the the as what from up, OpEx expect and we way and we

in then time of and that gains. - heavily too, but Obviously, because to there continue the has we've free some actually from them which grow we'll going logistics leverage course, should out And, are CapEx of building historically impact that to will a the there. things as out, lot impacts network that invested plays been over EBITDA provide and be

the to only view So, while sure of do trajectory. we quarter, kind make we to you a guide the want

questions the guidance specific Michael let within your answer me he Let gave.

Michael Fleisher

is, - here. the then thoughts talked talk One about that of have couple to think flow. be now talking cash and Niraj a track has positive - of incremental obviously, we would So we future things both right? and I be flow been both positives, all would the Q&A, in in the about, it we through It -

if the we're about year-long a XXXX think also obviously not increasingly CapEx tight about I open if it any that's on our spending spend, CapEx rack out particularly frame, benefit. be frame, going to time still We you new a over going - are that buildings in year, to but - think noting buildings. time this you we're our But existing think

think And of flow use can - guide but you be of anticipate, a cash cash cash, use so than lower I'm lower you will XXXX to markedly I XXXX forward, not was. should going

one is historically, back-end the the pattern we just where in have The timing in holiday thing that in other they is because quarter December, you'll our would larger than in sales just QX I any that note of cash QX of float. of of seasonal there a know the outflow sit

we all and convertible talking we're of point, about we've going where think in been have on sheet December we good feel the question really cash at at the XX, balance as with like forward, on then And today. what the this of about plan I feel of we the with billion particularly $X.X debt,

I like need we So, think raise capital. have we feel to don't a burning additional

That very convertible said, has always markets, debt taken of markets, we've in the the good. been the particularly advantage past, which

of capital And on keep eye we'll so, is to opportunities I If we'll advantage think put it. more the continue take there sheet, that. an balance to on

notes, And a something XXXX. due horizon. we're will certainly the but in we in that XXXX to out our we're right, obviously that have thinking of about a longer-term -- eye Not something come is today, sort planning

Oliver Wintermantel

very Thanks luck. much. Good Right.

Niraj Shah

Thanks, Oliver.

of - time. I I think out we're think that's

Operator

On behalf this gentlemen, today's Wayfair concludes of and Ladies conference. participating. thank you for

may You now disconnect.

Wayfair (W) 28 Feb 202019 Q4 Earnings call transcript