Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to     
Commission File Number: 001-36666
Wayfair Inc.
(Exact name of registrant as specified in its charter)
Delaware36-4791999
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification Number)
4 Copley Place 7th Floor,
 Boston, MAMA02116
(Address of principal executive offices)(Zip Code)
(617) 532-6100
(Registrant’sRegistrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par valueWThe New York Stock Exchange

Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒    No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒    No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. 
Act:
Large accelerated filer xAccelerated Filer
☒
Accelerated filero
☐
Non-accelerated filero
(Do not check if a smaller reporting company)
☐
Smaller reporting companyo
☐
Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐    No x
☒
ClassOutstanding at October 26, 2017July 27, 2023
Class A Common Stock, $0.001 par value per share 56,541,83890,261,280
Class B Common Stock, $0.001 par value per share31,289,62825,691,323

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WAYFAIR INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended SeptemberJune 30, 2017
2023
Page
1
1
31
42
53
4
6
78
2018
3236
3336
36
3436
3436
3436
37
3637
3839


Table of Contents

PART I
- FINANCIAL INFORMATION

Item 1. Financial Statements

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions.
Forward-looking statements are based on current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from the Company’s expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
Factors that could cause or contribute to differences in our future results include, without limitation, the following:
•our ability to acquire new customers and sustain and/or manage our growth;
•our ability to increase our net revenue per active customer;
•our ability to build and maintain strong brands;
•our international growth and expansion;
•our ability to compete successfully;
•the rate of growth of the Internet and e-commerce;
•economic factors, such as interest rates, currency exchange fluctuations and changes in customer spending;
•world events, natural disasters, public health emergencies, civil disturbances, and terrorist attacks; and
developments in, and the outcome of, legal and regulatory proceedings and investigations to which we are a party or are subject, and the liabilities, obligations and expenses, if any, that we may incur in connection therewith.
A further list and description of risks, uncertainties and other factors that could cause or contribute to differences in our future results include the cautionary statements herein and in our other filings with the Securities and Exchange Commission, including those set forth under Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. We qualify all of our forward-looking statements by these cautionary statements.


WAYFAIR INC.
CONDENSED CONSOLIDATED AND CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 June 30,December 31,
 20232022
(Unaudited)
(in millions, except share and per share data)
Assets: 
Current assets  
Cash and cash equivalents$1,249 $1,050 
Short-term investments4 228 
Accounts receivable, net128 272 
Inventories77 90 
Prepaid expenses and other current assets316 293 
Total current assets1,774 1,933 
Operating lease right-of-use assets806 839 
Property and equipment, net759 774 
Other non-current assets43 34 
Total assets$3,382 $3,580 
Liabilities and Stockholders' Deficit:  
Current liabilities  
Accounts payable$1,104 $1,204 
Other current liabilities870 868 
Total current liabilities1,974 2,072 
Long-term debt3,205 3,137 
Operating lease liabilities, net of current861 893 
Other non-current liabilities40 28 
Total liabilities6,080 6,130 
Commitments and contingencies (Note 5)
Stockholders’ deficit:
Convertible preferred stock, $0.001 par value per share: 10,000,000 shares authorized and none issued at June 30, 2023 and December 31, 2022— — 
Class A common stock, par value $0.001 per share, 500,000,000 shares authorized, 86,919,329 and 82,903,862 shares issued and outstanding at June 30, 2023 and December 31, 2022— — 
Class B common stock, par value $0.001 per share, 164,000,000 shares authorized, 25,691,323 and 25,691,397 shares issued and outstanding at June 30, 2023 and December 31, 2022— — 
Additional paid-in capital988 737 
Accumulated deficit(3,681)(3,280)
Accumulated other comprehensive loss(5)(7)
Total stockholders' deficit(2,698)(2,550)
Total liabilities and stockholders' deficit$3,382 $3,580 
See notes to unaudited condensed consolidated financial statements.
1


September 30,
2017
December 31,
2016
Assets
 

 
Current assets
 
  
Cash and cash equivalents
$553,721
 $279,840
Short-term investments
56,699
 68,743
Accounts receivable, net of allowance of $4,507 and $3,115 at September 30, 2017 and December 31, 2016, respectively

27,521
 19,113
Inventories
18,613
 18,550
Prepaid expenses and other current assets
120,041
 90,845
Total current assets
776,595
 477,091
Property and equipment, net
318,873
 239,354
Goodwill and intangible assets, net
3,386
 4,230
Long-term investments
29,809
 30,967
Other noncurrent assets
9,477
 10,041
Total assets
$1,138,140
 $761,683
Liabilities and Stockholders' Equity
   
Current liabilities
   
Accounts payable
$381,661
 $379,493
Accrued expenses
121,218
 67,807
Deferred revenue
86,219
 65,892
Other current liabilities
61,151
 44,028
Total current liabilities
650,249
 557,220
Lease financing obligation 82,725
 28,900
Long-term debt
327,950

—
Other liabilities
74,187
 96,179
Total liabilities
1,135,111
 682,299
Commitments and contingencies (Note 6)


 

Convertible preferred stock, $0.001 par value per share: 10,000,000 shares authorized and none issued at September 30, 2017 and December 31, 2016
—
 —
Stockholders’ equity:


  
Class A common stock, par value $0.001 per share, 500,000,000 shares authorized, 56,355,606 and 49,945,202 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
56
 50
Class B common stock, par value $0.001 per share, 164,000,000 shares authorized, 31,290,483 and 35,885,692 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
31
 36
Additional paid-in capital
515,380
 409,225
Accumulated deficit
(510,495) (329,940)
Accumulated other comprehensive (loss) gain
(1,943) 13
Total stockholders’ equity
3,029
 79,384
Total liabilities and stockholders’ equity
$1,138,140
 $761,683
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The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.


WAYFAIR INC.
CONDENSED CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions, except per share data)
Net revenue$3,171 $3,284 $5,945 $6,277 
Cost of goods sold2,186 2,388 4,139 4,578 
Gross profit985 896 1,806 1,699 
Operating expenses:  
Customer service and merchant fees144 162 283 313 
Advertising352 378 679 714 
Selling, operations, technology, general and administrative630 688 1,254 1,314 
Impairment and other related net charges1 40 14 40 
Restructuring charges— — 65 — 
Total operating expenses1,127 1,268 2,295 2,381 
Loss from operations(142)(372)(489)(682)
Interest expense, net(5)(6)(10)(14)
Other income, net3 1 2 1 
Gain on debt extinguishment100 — 100 — 
Loss before income taxes(44)(377)(397)(695)
Provision for income taxes, net2 1 4 2 
Net loss$(46)$(378)$(401)$(697)
Loss per share:
Basic$(0.41)$(3.59)$(3.60)$(6.62)
Diluted$(0.41)$(3.59)$(3.60)$(6.62)
Weighted-average number of shares of common stock outstanding used in computing per share amounts:
Basic112 105 111 105 
Diluted112 105 111 105 

See notes to unaudited condensed consolidated financial statements.

2
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net revenue $1,198,198
 $861,525
 $3,281,879

$2,395,801
Cost of goods sold 917,889
 659,864
 2,495,221
 1,826,570
Gross profit 280,309
 201,661
 786,658
 569,231
Operating expenses:  
  
  
  
Customer service and merchant fees 42,949
 33,872
 117,132
 91,286
Advertising 141,714
 101,333
 384,220
 293,436
Merchandising, marketing and sales 56,934
 48,550
 160,033
 129,679
Operations, technology, general and administrative 112,669
 79,526
 292,988
 207,289
Total operating expenses 354,266
 263,281
 954,373
 721,690
Loss from operations (73,957) (61,620) (167,715) (152,459)
Interest (expense) income, net (2,008) (292) (3,857) 791
Other (expense) income, net (227) 889
 400
 1,804
Loss before income taxes (76,192) (61,023) (171,172) (149,864)
Provision for (benefit from) income taxes 237
 (83) 671
 555
Net loss $(76,429) $(60,940) $(171,843) $(150,419)
Net loss per share, basic and diluted $(0.88)
$(0.72)
$(1.98)
$(1.77)
Weighted average number of common stock outstanding used in computing per share amounts, basic and diluted 87,283
 85,105
 86,679
 84,779
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The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.


WAYFAIR INC.
CONDENSED CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions)
Net loss$(46)$(378)$(401)$(697)
Other comprehensive loss:  
Foreign currency translation adjustments(1)(2)1 (3)
Net unrealized gain (loss) on available-for-sale investments— — 1 (2)
Comprehensive loss$(47)$(380)$(399)$(702)

See notes to unaudited condensed consolidated financial statements.


3
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net loss $(76,429) $(60,940) $(171,843) $(150,419)
Other comprehensive loss:        
Foreign currency translation adjustments (856) (240) (1,959) (875)
Net unrealized (loss) gain on available-for-sale investments (40) (163) 3
 465
Comprehensive loss $(77,325) $(61,343) $(173,799) $(150,829)
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The accompanying notes are an integral part of these Unaudited Consolidated and Condensed Financial Statements.


WAYFAIR INC.
CONDENSED CONSOLIDATED AND STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)

Three Months Ended
Class A and Class B Common Stock
SharesAmountAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Deficit
(in millions)
Balance at March 31, 2022105 $— $374 $(2,268)$(10)$(1,904)
Net loss— — — (378)— (378)
Other comprehensive loss— — — — (2)(2)
Issuance of common stock upon vesting of RSUs1 — — — — — 
Equity-based compensation— — 139 — — 139 
Balance at June 30, 2022106 $— $513 $(2,646)$(12)$(2,145)
Balance at March 31, 2023111 $— $894 $(3,635)$(4)$(2,745)
Net loss— — — (46)— (46)
Other comprehensive loss— — — — (1)(1)
Issuance of common stock upon vesting of RSUs2 — — — — — 
Equity-based compensation— — 181 — — 181 
Premiums paid for capped calls— — (87)— — (87)
Balance at June 30, 2023113 $— $988 $(3,681)$(5)$(2,698)

See notes to unaudited condensed consolidated financial statements.
4
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WAYFAIR INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)

Six Months Ended
Class A and Class B Common Stock
SharesAmountAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders' Deficit
(in millions)
Balance at December 31, 2021105 $— $337 $(1,949)$(7)$(1,619)
Net loss— — — (697)— (697)
Other comprehensive loss— — — — (5)(5)
Issuance of common stock upon vesting of RSUs2 — — — — — 
Equity-based compensation— — 251 — — 251 
Repurchase of common stock(1)— (75)— — (75)
Balance at June 30, 2022106 $— $513 $(2,646)$(12)$(2,145)
Balance at December 31, 2022109 $— $737 $(3,280)$(7)$(2,550)
Net loss— — — (401)— (401)
Other comprehensive income— — — — 2 2 
Issuance of common stock upon vesting of RSUs4 — — — — — 
Equity-based compensation— — 338 — — 338 
Premiums paid for capped calls— — (87)— — (87)
Balance at June 30, 2023113 $— $988 $(3,681)$(5)$(2,698)

See notes to unaudited condensed consolidated financial statements.
5
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WAYFAIR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
(Unaudited)
 Six Months Ended June 30,
 20232022
(in millions)
Cash flows from (for) operating activities:  
Net loss$(401)$(697)
Adjustments to reconcile net loss to net cash provided by (used) in operating activities:  
Depreciation and amortization206 176 
Equity-based compensation expense308 233 
Amortization of discount and issuance costs on convertible notes3 4 
Impairment and other related net charges14 40 
Gain on debt extinguishment(100)— 
Other non-cash adjustments(3)32 
Changes in operating assets and liabilities:
Accounts receivable, net144 (86)
Inventories13 (29)
Prepaid expenses and other current assets(11)4 
Other assets3 — 
Accounts payable and other current liabilities(118)(18)
Other liabilities12 — 
Net cash provided by (used in) operating activities70 (341)
Cash flows from (for) investing activities:
Purchase of short- and long-term investments— (402)
Sale and maturities of short- and long-term investments225 447 
Purchase of property and equipment(71)(93)
Site and software development costs(105)(141)
Net cash provided by (used in) investing activities49 (189)
Cash flows from (for) financing activities:
Repurchase of common stock— (75)
Proceeds from issuance of convertible notes, net of issuance costs678 — 
Premiums paid for capped call confirmations(87)— 
Payments to extinguish convertible debt(514)— 
Net cash provided by (used in) financing activities77 (75)
Effect of exchange rate changes on cash and cash equivalents3 (7)
Net increase (decrease) in cash and cash equivalents199 (612)
Cash and cash equivalents:
Beginning of period$1,050 $1,706 
End of period$1,249 $1,094 

See notes to unaudited condensed consolidated financial statements

6
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  Nine months ended September 30,
  2017 2016
Cash flows from operating activities  
  
Net loss $(171,843) $(150,419)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 62,588
 38,528
Equity based compensation 46,740
 35,188
Amortization of discount and issuance costs on convertible notes 874
 —
Other non-cash adjustments 913
 (134)
Changes in operating assets and liabilities:    
Accounts receivable (8,697) (6,773)
Inventories (38) 716
Prepaid expenses and other current assets (27,776) (12,493)
Accounts payable and accrued expenses 44,692
 53,443
Deferred revenue and other liabilities 50,450
 33,556
Other assets (1,148) (2,292)
Net cash used in operating activities (3,245) (10,680)
     
Cash flows from investing activities    
Purchase of short-term and long-term investments (47,639) (76,458)
Sale and maturities of short-term investments 60,540
 82,060
Purchase of property and equipment (76,528) (81,844)
Site and software development costs (34,885) (21,444)
Cash received from the sale of a business, net of cash sold —
 1,508
Other investing activities, net —
 (1,000)
Net cash used in investing activities (98,512) (97,178)
     
Cash flows from financing activities    
Proceeds from issuance of convertible notes, net of issuance costs 420,449
 —
Premiums paid for capped call confirmations (44,160) —
Taxes paid related to net share settlement of equity awards (1,277) (18,426)
Net proceeds from exercise of stock options 213
 166
Net cash provided by (used in) financing activities 375,225
 (18,260)
Effect of exchange rate changes on cash and cash equivalents 413
 286
Net increase (decrease) in cash and cash equivalents 273,881
 (125,832)
     
Cash and cash equivalents  
  
Beginning of period 279,840
 334,176
End of period $553,721
 $208,344
     
Supplemental disclosure of non-cash investing activities  
  
Purchase of property and equipment included in accounts payable and accrued expenses and in other liabilities $9,255
 $5,744
Construction costs capitalized under finance lease obligation and other leases $16,153
 $29,726
WAYFAIR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying(Unaudited)

Six Months Ended June 30,
20232022
(in millions)
Supplemental Cash Flow Information:
Cash paid for interest on long-term debt$22 $13 
Purchase of property and equipment included in accounts payable and other liabilities$1 $36 

See notes are an integral partto unaudited condensed consolidated financial statements.
7
Table of these Unaudited Consolidated and Condensed Financial Statements.Contents


Wayfair Inc.
Notes to Condensed Consolidated and Condensed Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
Wayfair Inc. (the “Company”) is one of the world's largest online destinations for the home. Through its e-commerce business model, the Company offers visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over eight million products from approximately 10,000 suppliers.
The accompanying unaudited condensed consolidated and condensed financial statements and other disclosures contained in this Quarterly Report on Form 10-Q are those of Wayfair Inc. and its wholly-owned subsidiaries. Unless the Company. Thecontext indicates otherwise, “Wayfair,” “the Company," or similar terms refer to Wayfair Inc. and its subsidiaries. In the Company’s opinion, the accompanying unaudited condensed consolidated and condensed balance sheet data as of December 31, 2016 was derived from audited financial statements. The accompanying consolidated and condensed balance sheet as of September 30, 2017, the consolidated and condensed statements of operations, consolidated and condensed statements of comprehensive loss, and consolidated and condensed statements of cash flows for the periods ended September 30, 2017 and 2016 are unaudited. The unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The information included in this Quarterly Report on the same basis asForm 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessaryCompany’s Annual Report on Form 10-K for the fair statement of the Company’s financial position as of September 30, 2017 and statements of operations, comprehensive loss, and cash flows for the periodsyear ended September 30, 2017 and 2016. The financial data and the other information disclosed in these notes to the consolidated and condensed financial statements related to these periods are unaudited.
The consolidated and condensed statements of operations, comprehensive loss, and cash flows for the period ended September 30, 2017December 31, 2022. Furthermore, interim results are not necessarily indicative of the results of operations and cash flows that may be expected for the full year endingended December 31, 2017,2023 or for any other period. future periods.
2. Summary of Significant Accounting Policies
The Company has identified the significant accounting policies that are critical to understanding its business and results of operations. The CompanyWayfair believes that there have been no significant changes during the ninethree and six months ended SeptemberJune 30, 20172023 to the items disclosed in Note 2, 1, Summary of Significant Accounting Policies, included in Part II, Item 8, Financial Statements and Supplementary Data, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Recent Accounting Pronouncements
The Company has considered recently issued accounting pronouncements and does not believe that any are applicable or expected to have a material impact on the consolidated financial statements.
2. Supplemental Financial Statement Disclosures
Accounts Receivable, Net
As of June 30, 2023, accounts receivable was $128 million, net of allowance for credit losses of $30 million. As of December 31, 2022, accounts receivable was $272 million, net of allowance for credit losses of $24 million. The changes in the allowance for credit losses were not material for the three and six months ended June 30, 2023. Management believes credit risk is mitigated for the three and six months ended June 30, 2023, as approximately 99.8% and 99.6%, respectively, of the net revenue recognized was collected in advance of recognition.
Contract Liabilities
Contract liabilities included in other current liabilities were $250 million at June 30, 2023 and $224 million at December 31, 2022. During the six months ended June 30, 2023, Wayfair recognized $146 million of net revenue that was included within other current liabilities as of December 31, 2022.
Net revenue from contracts with customers is disaggregated by geographic region because this manner of disaggregation best depicts how the nature, amount, timing, and uncertainty of net revenue and cash flows are affected by economic factors. Refer to Note 10, Segment and Geographic Information, for additional information.
Impairment and Other Related Net Charges
During the six months ended June 30, 2023, Wayfair recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S. locations. During the three and six months ended June 30, 2023, Wayfair recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S. locations. These charges are recorded within impairment and other related net charges on the condensed consolidated statements of operations.
Restructuring Charges
On January 20, 2023, Wayfair announced an update to the Company’s cost efficiency plan, including a workforce reduction involving approximately 1,750 employees. As a result of this workforce reduction, during the six months ended June 30, 2023,
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Wayfair incurred $65 million of charges recorded within restructuring charges on the condensed consolidated statements of operations. Wayfair does not expect to incur any further material charges related to this workforce reduction. The charges consist primarily of one-time employee severance and benefit costs.
3. Marketable SecuritiesCash and Cash Equivalents, Investments and Fair Value Measurements
Marketable SecuritiesInvestments
As of SeptemberJune 30, 20172023 and December 31, 2016,2022, all of the Company’sWayfair’s marketable securities, were classified as available-for-sale and their estimated fair values were $86.5 million and $99.7 million, respectively. The Company periodically reviews its available-for-sale securities for other-than-temporary impairment. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period, and its intent to sell. As of September 30, 2017, the Company’s available-for-sale securitieswhich primarily consisted of corporate bonds and other government obligations that are priced at fair value.value, were classified as available-for-sale investments. During the three and ninesix months ended SeptemberJune 30, 20172023 and 2016, the Company did not recognize any other-than-temporary impairment losses. The maturities of the Company’s long-term marketable securities generally range from one to three years. The cost basis of a marketable security sold is determined by the Company using the specific identification method. During the three and nine months ended September 30, 2017 and 2016, we2022, Wayfair did not have any realized gains or losses.
During the three and six months ended June 30, 2023 and 2022, Wayfair did not recognize any credit losses related to its available-for-sale debt securities. Further, as of June 30, 2023 and December 31, 2022, Wayfair did not have an allowance for credit losses recorded related to its available-for-sale debt securities.
The following tables present details of the Company’s marketable securities as of September 30, 2017 and December 31, 2016 (in thousands):Wayfair’s investment securities:
 June 30, 2023
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
(in millions)
Short-term:    
Investment securities$4 $— $— $4 
Total$4 $— $— $4 
  September 30, 2017
  
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term:  
  
  
  
Investment securities $56,719
 $12
 $(32) $56,699
Long-term:       

Investment securities 29,837
 22
 (50) 29,809
Total $86,556
 $34
 $(82) $86,508

  December 31, 2016
  
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term:  
  
  
  
Investment securities $63,135
 $7
 $(39) $63,103
Commercial paper 5,641
 1
 (2) 5,640
Long-term:        
Investment securities 30,985
 16
 (34) 30,967
Total $99,761
 $24
 $(75) $99,710
 December 31, 2022
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair Value
(in millions)
Short-term:    
Investment securities$229 $— $(1)$228 
Total$229 $— $(1)$228 
Fair Value Measurements
The Company'sWayfair's financial assets and liabilities are measured at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The three levels of inputs used to measure fair value are as follows:
▪Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities
▪Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full-term of the asset or liability
▪Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability
▪Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities
▪Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full-term of the asset or liability
▪Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability
This hierarchy requires the CompanyWayfair to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company measures itsWayfair classifies cash equivalents and short-term and long-term investments at fair value. The Company classifies its cash equivalents and restricted cashcertificate of deposits within Level 1 because the Company values these investmentsare valued using quoted market prices. The fair value of the Company's Level 1 financial assets is based on quoted market prices of the identical underlying security. The CompanyWayfair classifies short-term and long-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active. The CompanyWayfair does not have any assets or liabilitiesthat are classified as Level 3 financial assets.  3.
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The following tables set forth the fair value of the Company’sWayfair's financial assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 based on the three-tier value hierarchy (in thousands):basis:
 June 30, 2023
 Level 1Level 2Level 3Total
(in millions)
Cash and cash equivalents:   
Cash$823 $— $— $823 
Cash equivalents426 — — 426 
Total cash and cash equivalents1,249 — — 1,249 
Short-term investments:   
Investment securities— 4 — 4 
Total$1,249 $4 $— $1,253 
 December 31, 2022
 Level 1Level 2Level 3Total
(in millions)
Cash and cash equivalents:   
Cash$430 $— $— $430 
Cash equivalents620 — — 620 
Total cash and cash equivalents1,050 — — 1,050 
Short-term investments:
Investment securities— 228 — 228 
Total$1,050 $228 $— $1,278 
  September 30, 2017
  Level 1 Level 2 Level 3 Total
Cash equivalents:  
  
  
  
Money market funds and other funds $512,929
 $—
 $—
 $512,929
Short-term investments:       

Investment securities —
 56,699
 —
 56,699
Restricted cash:        
Certificate of deposit 5,000
 —
 —
 5,000
Long-term:       

Investment securities —
 29,809
 —
 29,809
Total $517,929
 $86,508
 $—
 $604,437


  December 31, 2016
  Level 1 Level 2 Level 3 Total
Cash equivalents:  
  
  
  
Money market funds $200,867
 $—
 $—
 $200,867
Short-term investments:  
  
  
 

Investment securities —
 63,103
 —
 63,103
Commercial paper —
 5,640
 —
 5,640
Restricted cash:        
Certificate of deposit 5,000
 —
 —
 5,000
Long-term:  
  
  
 

Investment securities —
 30,967
 —
 30,967
Total $205,867
 $99,710
 $—
 $305,577
4. Intangible Assets and Goodwill
The following table summarizes intangible assets as of September 30, 2017 and December 31, 2016 (in thousands):
  
Weighted - Average Amortization
Period (Years)
 September 30, 2017
   
Gross Carrying
Amount
 
Accumulated
Amortization
 Net Book Value
Trademarks 5 $1,900
 $(1,583) $317
Technology 3 1,453
 (525) 928
Customer relationships 5 1,300
 (1,083) 217
Total   $4,653
 $(3,191) $1,462
  
Weighted - Average Amortization
Period (Years)
 December 31, 2016
   
Gross Carrying
Amount
 
Accumulated
Amortization
 Net Book Value
Trademarks 5 $1,900
 $(1,298) $602
Technology 3 1,453
 (161) 1,292
Customer relationship 5 1,300
 (888) 412
Total   $4,653
 $(2,347) $2,306
Amortization expense related to intangible assets was $0.3 million and $0.2 million for the three months ended September 30, 2017 and 2016, respectively, and $0.8 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively.
Goodwill as of September 30, 2017 was $1.9 million, unchanged from December 31, 2016.

5. Property and Equipment, net
The following table summarizes property and equipment, net as of September 30, 2017 and December 31, 2016 (in thousands): 
  September 30,
2017		 December 31,
2016
Furniture and computer equipment $198,903
 $133,297
Site and software development costs 108,456
 77,429
Leasehold improvements 80,512
 62,090
Construction in progress 10,416
 47,013
Buildings (leased - Note 6) 83,681
 29,856
  481,968
 349,685
Less accumulated depreciation and amortization (163,095) (110,331)
Property and equipment, net $318,873
 $239,354
Property and equipment depreciation and amortization expense was $22.6 million and $15.2 million for the three months ended September 30, 2017 and 2016, respectively, and $61.7 million and $37.9 million for the nine months ended September 30, 2017 and 2016, respectively. 
6. Commitments and Contingencies
Leases
The Company leases office and warehouse spaces under non-cancelable leases. These leases expire at various dates through 2029 and include discounted rental periods and fixed escalation clauses, which are amortized straight-line over the terms of the lease. Rent expense under operating leases was $10.6 million and $9.1 million in the three months ended September 30, 2017 and 2016, respectively, and $33.3 million and $23.9 million in the nine months ended September 30, 2017 and 2016, respectively. The Company has issued letters of credit for approximately $13.8 million and $10.6 million as security for these lease agreements as of September 30, 2017 and December 31, 2016, respectively.
As of December 31, 2016, the future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year totaled $568.7 million. Subsequent to December 31, 2016, the Company entered into additional non-cancelable leases in the United States ("U.S.") with initial or remaining terms in excess of one year with total future minimum lease commitments of $231.0 million. Future lease payments have not been reduced by minimum sublease rentals of $9.4 million due to the Company in the future under non-cancelable subleases through 2020.
The Company establishes assets and liabilities for the estimated construction costs incurred under lease arrangements where the Company is considered the owner for accounting purposes only, or build-to-suit leases, to the extent the Company is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If the Company continues to be the deemed owner, the facilities are accounted for as financing leases.
The construction of one warehouse lease arrangement was completed during the three months ended June 30, 2016, and because the Company concluded it had a letter of credit of $1.2 million, the Company did not meet the sale-leaseback criteria for derecognition of the building asset and liability. The construction of a second warehouse lease arrangement was completed in the three months ended March 31, 2017, and because the Company concluded it had a letter of credit of $0.8 million, the Company did not meet the sale-leaseback criteria for derecognition of the building asset and liability. The construction of a third warehouse lease arrangement was completed in the three months ended June 30, 2017, and because the Company concluded it had a letter of credit of $1.0 million, the Company did not meet the sale-leaseback criteria for derecognition of the building asset and liability. Accordingly, these leases were accounted for as financing obligations and $28.9 million, $12.6 million, and $41.2 million was recorded in "Lease financing obligation" in the Company’s unaudited consolidated and condensed balance sheets as of June 30, 2016, March 31, 2017, and June 30, 2017, respectively. The monthly rent payments made to the lessor under the lease agreement are recorded in the Company’s financial statements as land lease expense and principal and interest on the financing obligation. Interest expense on the lease financing obligation reflects the portion of the Company's monthly lease payments that is allocated to interest expense. For the three and nine months ended September 30, 2017, land lease expense was $0.2 million and $0.7 million, respectively, and interest expense on lease financing obligations was $2.0 million and $4.9 million, respectively. As of September 30, 2017, future minimum commitments related to the financing obligations were $6.7 million and $39.0 million for principal and interest, respectively, through September 30, 2022.

Collection of Sales or Other Similar Taxes
In the U.S., Supreme Court decisions restrict states' rights to require remote sellers to collect state and local sales taxes (although some states are seeking to have the Supreme Court revisit these decisions). States have, and may again in the future, issued assessments and presented legal claims alleging that the Company is required to collect and remit sales or other similar taxes. The Company does not believe that it is obligated to collect and remit such taxes, and intends to vigorously defend its position. At this time, the Company believes any losses that may arise from these assessments and claims would be immaterial; however, no assurance can be given as to the outcomes and the Company could be subject to significant additional tax liabilities.
Legal Matters
In September 2016, a putative class action complaint was filed against the Company in the Superior Court of the province of Quebec (Naomi Zouzout v. Wayfair LLC, Case No. PQ 500-06-000809-166) by an individual on behalf of herself and on behalf of all other similarly situated individuals alleging violations of various Canadian consumer protection statutes. Among other remedies, this lawsuit seeks compensatory and punitive money damages, costs, and various fees. In June 2017, the Company entered into a settlement of the litigation, subject to judicial approval. The parties presented the settlement for review and approval by the court in September 2017. This settlement is not expected to have a material adverse effect on the Company's results of operation or financial condition.
From time to time the Company is involved in claims that arise during the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company does not currently believe that the outcome of any of these other legal matters will have a material adverse effect on the Company's results of operation or financial condition. Regardless of the outcome, litigation can be costly and time consuming, as it can divert management's attention from important business matters and initiatives, negatively impacting the Company's overall operations. In addition, the Company may also find itself at greater risk to outside party claims as it increases its operations in jurisdictions where the laws with respect to the potential liability of online retailers are uncertain, unfavorable, or unclear.
7. Equity-Based Compensation
The board of directors of the Company (the "Board") adopted the 2014 Incentive Award Plan ("2014 Plan") to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent. The 2014 Plan is administered by the Board with respect to awards to non-employee directors and by the compensation committee of the Board with respect to other participants and provides for the issuance of stock options, SARs, restricted stock, restricted stock units ("RSUs"), performance shares, stock payments, cash payments, dividend awards and other incentives. Prior to the adoption of the 2014 Plan, Wayfair LLC issued certain equity awards pursuant to the Wayfair LLC Amended and Restated Common Unit Plan (the “2010 Plan”), which was administered by the board of directors of Wayfair LLC. Awards issued under the 2010 Plan that remain outstanding currently represent Class A or Class B common stock of the Company.
8,603,066 shares of Class A common stock were initially available for issuance under awards granted pursuant to the 2014 Plan. The 2014 Plan also contains an evergreen provision whereby the shares available for future grant are increased on the first day of each calendar year beginning January 1, 2016 and ending on and including January 1, 2024. As of January 1, 2017, 8,389,750 shares of Class A common stock were available for future grant under the 2014 Plan. Shares or RSUs forfeited, withheld for minimum statutory tax obligations, and unexercised stock option lapses from the 2010 and 2014 Plans are available for grants of awards under the 2014 Plan. All equity awards granted prior to the initial public offering ("IPO") were subject to two vesting conditions: (i) a service period (typically five years) and (ii) a performance condition (a liquidity event in the form of either a change of control or an IPO, each as defined in the 2010 Plan). Employees were able to retain provisionally vested stock options and shares upon departure. The Company determined that a liquidity event was not probable until the closing of its IPO on October 7, 2014, and as such, no expense was recognized until that date. After the IPO, pre-IPO awards for employees that continued providing service continued to vest over the remaining service period. 2014 Plan awards are expected to vest over the service period.
The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-09, "Compensation - Stock Compensation" ("ASU 2016-09") as of January 1, 2017. For additional information, refer to Note 14, Recent Accounting Pronouncements.

The following table presents activity relating to stock options for the nine months ended September 30, 2017: 
  Options 
Weighted-
Average Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
Outstanding at December 31, 2016 209,759
 $2.98
 4.5
Options exercised (72,296) $2.92
  
Outstanding and exercisable at September 30, 2017 137,463
 $3.01
 3.7
Intrinsic value of stock options exercised was $4.1 million for the nine months ended September 30, 2017. Aggregate intrinsic value of stock options outstanding and currently exercisable is $8.9 million. All stock options were fully vested at September 30, 2017.
The following table presents activity relating to restricted common stock for the nine months ended September 30, 2017: 
  Shares 
Weighted-
Average Fair Value
Outstanding at December 31, 2016 60,000
 $35.05
Unvested at September 30, 2017 60,000
 $67.40
Aggregate intrinsic value of restricted common stock unvested is $4.0 million as of September 30, 2017. Unrecognized equity based compensation expense related to unvested restricted common stock is $2.7 million with a weighted average remaining vesting term of 1.3 years as of September 30, 2017. 
The following table presents activity relating to RSUs for the nine months ended September 30, 2017: 
  Shares 
Weighted-
Average Grant
Date Fair Value
Outstanding at December 31, 2016 6,986,776
 $34.21
RSUs granted 2,271,235
 $52.39
RSUs vested (1,766,511) $32.30
RSUs forfeited/canceled (1,117,090) $37.53
Outstanding at September 30, 2017 6,374,410
 $41.04
The intrinsic value of RSUs vested was $99.3 million for the nine months ended September 30, 2017. Aggregate intrinsic value of RSUs outstanding is $429.6 million as of September 30, 2017. Unrecognized equity based compensation expense related to outstanding RSUs is $231.5 million with a weighted average remaining vesting term of 1.7 years at September 30, 2017.
8. Segment and Geographic Information
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. 
Beginning the fourth quarter of 2016, the Company changed its operating and reportable segments to U.S. and International. These segments reflect the way the CODM allocates resources and evaluates financial performance, which is based upon each segment's Adjusted EBITDA. Adjusted EBITDA is defined as loss before depreciation and amortization, equity-based compensation and related taxes, interest and other income and expense, provision for income taxes, and non-recurring items. These charges are excluded from evaluation of segment performance because it facilitates reportable segment performance comparisons on a period-to-period basis. Refer to Note 2, Summary of Significant Accounting Policies forthe accounting policies of segments.
The Company allocates certain operating expenses to the operating and reportable segments, including "Customer service and merchant fees," "Merchandising, marketing and sales," and "Operations, technology, general and administrative" based on the usage and relative contribution provided to the segments. It excludes from the allocations certain operating expense lines,

including "Depreciation and amortization, "Equity based compensation and related taxes," "Interest (income), net," "Other (income) expense, net," and "Provision for income taxes." There are no revenue transactions between the Company's reportable segments.
U.S.
The U.S. segment primarily consists of amounts earned through product sales through the Company's sites in the U.S. and through sites operated by third parties in the U.S.
International
The International segment primarily consists of amounts earned through product sales through the Company's international sites.
Revenue from external customers for each group of similar products and services are not reported to the CODM. Separate identification of this information for purposes of segment disclosure is impractical, as it is not readily available and the cost to develop it would be excessive. No individual country outside of the U.S. provided greater than 10% of total revenue.
The following tables present Direct RetailDebt and Other net revenues and Adjusted EBITDA attributable to the Company's reportable segments for the periods presented (in thousands):
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
U.S. Direct Retail $1,033,669
 $759,674
 $2,847,898
 $2,134,782
U.S. Other 16,975
 28,127
 57,843
 91,613
U.S. segment net revenue 1,050,644
 787,801
 2,905,741
 2,226,395
International Direct Retail 147,554
 72,724
 376,138
 165,119
International Other —
 1,000
 —
 4,287
International segment net revenue 147,554
 73,724
 376,138
 169,406
Total net revenue $1,198,198
 $861,525
 $3,281,879
 $2,395,801
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Adjusted EBITDA        
U.S. $4,531
 $(7,857) $28,684
 $(11,816)
International (27,203) (22,992) (74,498) (64,850)
Total reportable segments Adjusted EBITDA (22,672) (30,849) (45,814) (76,666)
Less: reconciling items (1) (53,757) (30,091) (126,029) (73,753)
Net loss $(76,429) $(60,940) $(171,843) $(150,419)
(1) Adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net loss including the following (in thousands):
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Depreciation and amortization (1) $22,913
 $15,463
 $62,588
 $38,528
Equity based compensation and related taxes 19,598
 15,308
 50,539
 37,265
Interest expense (income), net 2,008
 292
 3,857
 (791)
Other expense (income), net 227
 (889) (400) (1,804)
Provision for (benefit from) income taxes 237
 (83) 671
 555
Other (1) 8,774
 —
 8,774
 —
Total reconciling items $53,757
 $30,091
 $126,029
 $73,753

(1) The Company recorded $9.6 million of one-time charges in the three and nine months ended September 30, 2017 in "Operations, technology, general and administrative" in the unaudited consolidated and condensed statements of operations related to a warehouse the Company vacated in July 2017. Of the $9.6 million charges, $8.8 million was included in "Other" and related primarily to the excess of the Company's estimated future remaining lease commitments through 2023 over its expected sublease income over the same period, and $0.8 million was included in "Depreciation and amortization" related to accelerated depreciation of leasehold improvements in the warehouse.Financing
The following table presents the activity related to the Company’s net revenue from Direct Retail sales derived through the Company’s sitesoutstanding principal amount and Other sales derived through sites operated by third partiescarrying value of debt and fees from third-party advertising distribution providers (in thousands):other financing:
June 30, 2023December 31, 2022
Debt InstrumentPrincipal AmountUnamortized Debt DiscountNet Carrying AmountPrincipal AmountUnamortized Debt DiscountNet Carrying Amount
(in millions)
Revolving Credit Facility$— $— 
2024 Notes$117 $(1)116 $200 $(1)199 
2025 Notes754 (4)750 1,289 (8)1,281 
2026 Notes949 (6)943 949 (7)942 
2027 Notes690 (10)680 690 (12)678 
2028 Notes690 (12)678 — — — 
2025 Accreting Notes38 — 38 37 — 37 
Total Debt$3,205 $3,137 
Short-term debt— — 
Long-term debt$3,205 $3,137 
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  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net revenue  
  
  
  
Direct Retail $1,181,223
 $832,398
 $3,224,036
 $2,299,901
Other 16,975
 29,127
 57,843
 95,900
Net revenue $1,198,198
 $861,525
 $3,281,879
 $2,395,801
Revolving Credit Facility
The following table presents long-lived assets by segment (in thousands):
  September 30,
2017		 December 31,
2016
Geographic long-lived assets  
  
U.S. $311,565
 $233,099
International 7,308
 6,255
Total $318,873
 $239,354
9. Income Taxes
Income tax expense (benefit) was $0.2 million and $(0.1) million for the three months ended September 30, 2017 and 2016, respectively, and $0.7 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively. The income tax expense recorded in the three and nine months ended September 30, 2017 and 2016 is primarily related to various foreign income tax assessments, state income taxes and toWayfair has a lesser extent the amortization of goodwill for tax purposes for which there is no corresponding book deduction.
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The Company has deferred tax assets related to its net operating loss carryforwards accumulated since the fourth quarter of 2014 and related to net operating loss carryforwards of certain of its foreign subsidiaries. A valuation allowance against net deferred tax assets is required if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company reassesses the valuation allowance on a quarterly basis and has provided a valuation allowance for the full amount of its net deferred tax assets.
The Company had no unrecognized tax benefits as of September 30, 2017 and December 31, 2016. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. 

10. Stockholders’ Equity (Deficit)
Preferred Stock
The Company authorized 10,000,000 shares of undesignated preferred stock, $0.001 par value per share, for future issuance. As of September 30, 2017, the Company had no shares of undesignated preferred stock issued or outstanding.
Common Stock
The Company authorized 500,000,000 shares of Class A common stock, $0.001 par value per share, and 164,000,000 shares of Class B common stock, $0.001 par value per share, of which 56,355,606 and 49,945,202 shares of Class A common stock and 31,290,483 and 35,885,692 shares of Class B common stock were outstanding as of September 30, 2017 and December 31, 2016, respectively. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. In addition, upon the date on which the outstanding shares of Class B common stock represent less than 10% of the aggregate number of shares of the then outstanding Class A common stock and Class B common stock, or in the event of the affirmative vote or written consent of holders of at least 66 2/3% of the outstanding shares of Class B common stock, all outstanding shares of Class B common stock shall convert automatically into Class A common stock. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of common stock are entitled to receive dividends out of funds legally available if the Board, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Board may determine. Since the IPO through September 30, 2017, 43,039,105 shares of Class B common stock were converted to Class A common stock. 
11. Credit Agreement
On February 22, 2017, the Company entered into a $40 million credit card program and a credit agreement consisting of a $100 millionfive-year senior secured revolving credit facility (the "Revolver") with Citibank, N.A. ("Citibank"). The Citibank credit facility replaced the Company's existing credit facility with Bank of America, N.A. ("Bank of America"“Revolver”), which was terminatedmatures on February 22, 2017 as described below. On September 11, 2017,March 24, 2026, and provides for non-amortizing revolving loans in an aggregate amount of $600 million. Under the Citibank credit agreement was amended with a new letterRevolver, Wayfair may, from time to time, request letters of credit, sublimit ($25 million) and to make clarifying edits towhich reduce the mandatory prepayment provisions of the credit agreement.
The Citibank Revolver has a $25 million letteravailability of credit sublimit and a $10 million swing line sublimit, and a final maturity date of February 21, 2020. Wayfair LLC is the borrower (the "Borrower") under the CitibankRevolver. Wayfair had $77 million in outstanding letters of credit agreement. Subject to certain conditions, the Borrower has the right to increase the Revolver by $25 million. Borrowings under the Revolver will bear interest through maturity at a variable rate based upon, at the Borrower’s option, either the Eurodollar rate or the base rate (which is the highestas of (x) Citibank's prime rate, (y) one-halfJune 30, 2023, primarily as security for lease agreements. As of 1.00% in excess of the federal funds effective rate, and (z) 1.00% in excess of the one-month Eurodollar rate), plus, in each case an applicable margin. From closing until SeptemberJune 30, 2019, the applicable margin for Eurodollar rate2023, there were no revolving loans is 1.75% per annum and the applicable margin for base rate loans is 0.75% per annum. After September 30, 2019, the applicable margin is subject to specified changes depending on the applicable consolidated leverage ratio. Any amounts outstanding under the Revolver are due at maturity. In addition, subject to the terms and conditions set forth in the credit agreement, the Borrower is required to make certain mandatory prepayments prior to maturity.
The Citibank credit agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, will limit or restrict the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Citibank credit agreement requires the Company to maintain certain financial ratios. As of September 30, 2017, the Company was in compliance with its covenants under the Revolver.
The Company previously had a credit agreement with Bank of America, which was replaced by the Citibank credit agreement on February 22, 2017. The Bank of America credit agreement provided the Company with a $20.0Convertible Non-Accreting Notes
In May 2023, Wayfair issued $690 million revolving line of credit to support direct borrowings and letters of credit, provided that a maximum of $5.0 million could be applied to direct borrowings under the revolving line of credit, plus an additional $45.0 million credit card program (which the Company continued to utilize on a transitional basis as of September 30, 2017), for a maximum aggregate commitment of $65.0 million. Subject to the terms and conditions of the Bank of America credit agreement, advances under the line of credit, if any, would bear interest at the LIBOR rate, plus 1.75%. The Bank of America credit agreement also required the Company to maintain certain covenants, including debt service coverage, tangible net worth and unencumbered liquid assets.

The Company did not borrow any amounts under the Revolver or the Bank of America credit agreement during the nine months ended September 30, 2017 and the year ended December 31, 2016.
12. Convertible Debt
On September 15, 2017, the Company issued $431.25 millionin aggregate principal amount of 0.375%3.50% Convertible Senior Notes due 20222028 (the "Notes"“2028 Notes”), which includes the exercise in full of the $56.25a $90 million over-allotment option granted to Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC as the initial purchaserspurchasers. In connection with the issuance of the 2028 Notes, Wayfair entered into capped calls that covered, initially, the number of shares of Wayfair’s Class A common stock underlying the 2028 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2028 Notes (the "Initial Purchasers"“2028 Capped Calls”).
The net proceeds fromfollowing table summarizes certain terms related to the saleCompany’s current outstanding non-accreting convertible notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”):
Convertible Non-Accreting NotesMaturity DateAnnual Coupon RateAnnual Effective Interest RatePayment Dates for Semi-Annual Interest Payments in Arrears
2024 NotesNovember 1, 20241.125%1.5%May 1 and November 1
2025 NotesOctober 1, 20250.625%0.9%April 1 and October 1
2026 NotesAugust 15, 20261.000%1.2%February 15 and August 15
2027 NotesSeptember 15, 20273.250%3.6%March 15 and September 15
2028 NotesNovember 15, 20283.500%3.8%May 15 and November 15
Convertible Accreting Notes
No cash interest is payable on the 2025 Accreting Notes. Instead, the 2025 Accreting Notes accrue interest at a rate of 2.50% per annum, which accretes to the principal amount on April 1 and October 1 of each year. The 2025 Accreting Notes will mature on April 1, 2025, unless earlier purchased, redeemed or converted. The annual effective interest rate of the 2025 Accreting Notes is 2.7%.
Seniority of the Notes were approximately $420.4 million, after deducting the Initial Purchasers’ discounts and the estimated offering expenses payable by the Company. The Company used approximately $44.2 million of the net proceeds from the offering to pay the cost of the capped call transactions, as further described below, with three financial institutions (the "Option Counterparties"). The Company intends to use the remainder of the net proceeds for working capital and general corporate purposes.
The Notes were issued pursuantare general senior unsecured obligations of Wayfair. The Notes rank senior in right of payment to an indenture, dated September 15, 2017 (the "Indenture"),any of Wayfair’s future indebtedness that is expressly subordinated in right of payment to the Notes, rank equal in right of payment to Wayfair’s existing and future unsecured indebtedness that is not so subordinated and are effectively subordinated in right of payment to any of Wayfair’s secured indebtedness to the extent of the value of the assets securing such indebtedness. The Non-Accreting Notes are structurally subordinated to all existing and future indebtedness and liabilities of Wayfair’s subsidiaries, including Wayfair LLC’s guaranty of the 2025 Accreting Notes, and the 2025 Accreting Notes are structurally subordinated to all existing and future indebtedness and liabilities of Wayfair’s subsidiaries (other than Wayfair LLC).
Indentures
The Notes are governed by separate indentures between the CompanyWayfair, as issuer, and U.S. Bank National Association, as trustee. The Company will pay interest onNon-Accreting Notes indenture also includes Wayfair LLC, as guarantor. Each indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Notes semiannuallytrustee or the holders of not less than 25% in arrears at a rate of 0.375% per annum on March 1 and September 1 of each year commencing on March 1, 2018. The Notes are convertible based upon an initial conversion rate of 9.61 shares of the Company’s Class A common stock per $1,000aggregate principal amount of the respective Notes (equivalent to a conversion price of approximately $104.06 per sharethen outstanding may declare the entire principal amount or accreted principal amount, as the case may be, of the Company’s Class A common stock). respective Notes plus accrued interest, if any, to be immediately due and payable.

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Conversion and Redemption Terms of the Notes
Wayfair's Notes will mature at their maturity date unless earlier purchased, redeemed or converted. The Notes’ initial conversion terms are summarized below:
Convertible NotesMaturity DateFree Convertibility DateInitial Conversion Rate per $1,000 PrincipalInitial Conversion PriceRedemption Date
2024 NotesNovember 1, 2024August 1, 20248.5910$116.40May 8, 2022
2025 NotesOctober 1, 2025July 1, 20252.3972$417.15October 4, 2022
2026 NotesAugust 15, 2026May 15, 20266.7349$148.48August 20, 2023
2027 NotesSeptember 15, 2027June 15, 202715.7597$63.45September 20, 2025
2028 NotesNovember 15, 2028August 15, 202821.8341 $45.80May 20, 2026
2025 Accreting NotesApril 1, 2025-13.7931$72.50May 9, 2023
The conversion rate will beis subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of the Company’sWayfair’s Class A common stock, but will not be adjusted for accrued and unpaid interest. The Company
Wayfair will settle any conversions of the Non-Accreting Notes in cash, shares of the Company’sWayfair’s Class A common stock or a combination thereof, with the form of consideration determined at Wayfair’s election. The holders of the Company’s election.
TheNon-Accreting Notes will mature on September 1, 2022, unless earlier purchased, redeemed or converted. Prior to June 1, 2022, holders may convert all or a portion of theirsuch Notes onlyprior to certain specified dates (each, a “Free Convertibility Date”) under the following circumstances: (1) circumstances (in each case, as applicable to each series of Non-Accreting Notes):
•during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of the Company’sWayfair’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) 
•during the five business-business day period after any ten consecutive trading day period (the "measurement“measurement period") in which the trading price (as defined in the applicable indenture) per $1,000 principal amount of Notesthe notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’sWayfair’s Class A common stock and the conversion rate on each such trading day; (3) with respect to any Notes called
•if Wayfair calls the notes for redemption, by the Company, at any time prior to 5:00 p.m. (New York City time) (“the close of businessbusiness”) on the second scheduled trading day immediately preceding the redemption date; or (4) and
•upon the occurrence of specified corporate events. events (as set forth in the applicable indenture).
On andor after June 1, 2022the applicable Free Convertibility Date until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, holders of the Non-Accreting Notes may convert their Non-Accreting Notes at any time.
Because the conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes were not triggered during the calendar quarter ended June 30, 2023, the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible during the calendar quarter ended September 30, 2023. The conditional conversion features of the 2028 Notes are not applicable until the calendar quarter ending December 31, 2023.
The holders of the 2025 Accreting Notes may convert all or a portion of their 2025 Accreting Notes at any time regardlessprior to the close of business on the second business day immediately preceding the maturity date. Wayfair will settle any conversion of 2025 Accreting Notes with a number of shares of Wayfair’s Class A common stock per $1,000 original principal amount of 2025 Accreting Notes equal to the accreted principal amount of such original principal amount of 2025 Accreting Notes divided by the conversion price.
Upon the occurrence of a fundamental change (as defined in the applicable indenture), holders of the foregoing circumstances.applicable series of Notes may require Wayfair to repurchase all or a portion of such Notes for cash at a price equal to 100% of the principal amount (or accreted principal amount) of such Notes to be repurchased plus any accrued but unpaid interest to, but excluding, the fundamental change repurchase date (such interest to be included in the accreted principal amount for the 2025 Accreting Notes). Holders of the Non-Accreting Notes who convert their respective Notes in connection with a make-whole fundamental change or a notice of redemption (each as defined in the Indenture)applicable indenture) may be entitled to a premium in the form of an increase in the
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conversion rate of the respective Notes. Holders of the 2025 Accreting Notes who convert in connection with a make-whole fundamental change (as defined in the applicable indenture) may be entitled to a premium in the form of an increase in the conversion rate of the Notes.rate.
The CompanyWayfair may not redeem the Notes prior to September 8, 2020.certain dates (the “Redemption Date”). On or after September 8, 2020, the Companyapplicable Redemption Date, Wayfair may redeem for cash all or part of the applicable series of Notes if the last reported sale price of the Company’sWayfair’s Class A common stock equals or exceeds 130% (Non-Accreting Notes) or 276% (2025 Accreting Notes) of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the five trading days immediately preceding the date on which the CompanyWayfair provides notice of redemption, during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which the CompanyWayfair provides notice of the redemption. The redemption price will be either 100% of the principal amount (or accreted principal amount) of the Notesnotes to be redeemed, plus accrued and unpaid interest, if any.
Uponany, or the occurrence of a fundamental change (as defined inif-converted value if the Indenture), holders may require the Companyholder elects to repurchase all or a portion ofconvert their Notes for cash at a price equal to 100%upon receiving notice of the principal amount ofredemption.
Accounting for the Notes to be repurchased plus any accrued but unpaid interest to, but excluding, the fundamental change repurchase date.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare the entire principal amount of all the Notes plus accrued interest, if any, to be immediately due and payable.
The Notes are general unsecured obligations of the Company. The Notes rank senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes; rank equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; are effectively subordinated in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and are structurally subordinated to all existing and future indebtedness and liabilities of the Company’s subsidiaries.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Notes. The difference between the principal amount of the Notes and the liability component represents the debt discount, which is recorded as a single unit within liabilities in the condensed consolidated balance sheets as the conversion features within the Notes are not derivatives that require bifurcation and the Notes do not involve a substantial premium. Transaction costs to issue the Notes were recorded as direct deductiondeductions from the related debt liability in the consolidated and condensed balance sheetliabilities and amortized to interest expense, net using the effective interest method over the termterms of the corresponding Notes.

Proceeds from 2028 Notes Transactions and Partial Extinguishment of 2024 Notes and 2025 Notes
The equity componentnet transaction amount from the issuance of the 2028 Notes was $591 million after deducting the initial purchasers’ discounts, the offering expenses payable by Wayfair and the net proceeds used to purchase the 2028 Capped Calls.
In addition, Wayfair used $514 million of the net transaction amount to repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions. In accounting for the repurchases of the 2024 Notes and 2025 Notes, Wayfair recorded a $100 million gain on debt extinguishment, representing the difference between the cash paid for principal of $514 million and the combined net carrying value of the 2024 Notes and 2025 Notes of approximately $95.8 million is included in additional paid-in capital in$614 million. Wayfair intends to use the consolidated and condensed balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The Company allocated transaction costs related to the Notes using the same proportions as theremaining net proceeds from the Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the related debt liability in the consolidated and condensed balance sheet and amortized to interest expense over the termissuance of the Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders’ equity.
Interest expense related to the2028 Notes for working capital and general corporate purposes, including, but not limited to, operating and capital expenditures. Wayfair may also use a portion of the net proceeds to finance acquisitions, strategic transactions, investments, repurchases of Class A common stock or the repayment, redemption, purchase or exchange of indebtedness (including the Notes).
Conversions of Notes
During the three and ninesix months ended SeptemberJune 30, 2017 was $0.92023, there were no conversions of the Notes.
Interest Expense
During the three months ended June 30, 2023, Wayfair recognized contractual interest expense and debt discount amortization of $14 million and $0.9$2 million, respectively, which is also comprisedand during the six months ended June 30, 2023, contractual interest expense and debt discount amortization of $25 million and $3 million, respectively.
During the three months ended June 30, 2022, Wayfair recognized contractual interest expense and debt discount amortization of $7 million and $2 million, respectively, and during the six months ended June 30, 2022, contractual interest expense and debt discount amortization of $13 million and $4 million, respectively.
Fair Value of Notes
As of June 30, 2023, the estimated fair value of the amortization of debt discount2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes, 2028 Notes and debt issuance costs2025 Accreting Notes was $116 million, $648 million, $784 million, $856 million, $1.1 billion and the contractual coupon interest. Accrued interest related to the Notes as of September 30, 2017 was $0.9$34 million, and is recorded in "Accrued expenses" in the unaudited consolidated and condensed balance sheet.
respectively. The estimated fair value of the Notes was $415.0 million as of September 30, 2017. The estimated fair value of theNon-Accreting Notes was determined through consideration of quoted market prices. The estimated fair value isof the 2025 Accreting Notes was determined through an option pricing model using Level 3 inputs including volatility and credit spread. The fair values of the Non-Accreting Notes and the 2025 Accreting Notes are classified as Level 2 and Level 3, respectively, as defined in Note 3, Marketable SecuritiesCash and Cash Equivalents, Investments and Fair Value Measurements.
On September 11, 2017, As of June 30, 2023, the Company entered into privately negotiated capped call transactions (the "Base Capped Call Transactions") with the Option Counterparties and, in connection with the exercise in fullif-converted value of the over-allotment option2027 Notes and 2028 Notes exceeded the principal value by $17 million and $289 million, respectively. As of June 30, 2023, the Initial Purchasers, on September 14, 2017 entered into additional capped call transactions (such additional capped call transactions,if-converted value of the "Additional 2024 Notes, 2025 Notes, 2026 Notes and 2025 Accreting Notes did not exceed the principal value.
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Capped Call Transactions"Calls
The 2024 Capped Calls, 2025 Capped Calls, 2026 Capped Calls, 2027 Capped Calls and together with2028 Capped Calls (collectively, the Base Capped Call Transactions, the "Capped Call Transactions"“Capped Calls”) with the Option Counterparties. The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Non-Accreting Notes upon conversion of the Non-Accreting Notes if the market price per share of Wayfair’s Class A common stock is greater than the strike price of the applicable Capped Call (which corresponds to the initial conversion price of the applicable Non-Accreting Notes and is subject to certain adjustments under the terms of the applicable Capped Call), with such reduction and/or offset subject to a cap based on the cap price of the applicable Capped Calls (the “Initial Cap Price”). The Capped Calls can, at Wayfair’s option, remain outstanding until their maturity date, even if all or a portion of the Non-Accreting Notes are converted, repurchased or redeemed prior to such date.
Each of the Capped Calls has an initial cap price per share of Wayfair’s Class A common stock, which represented a premium over the last reported sale price (or, with respect to the 2025 Capped Calls, the volume-weighted average price) of Wayfair’s Class A common stock on the date the corresponding Non-Accreting Notes were priced (the “Cap Price Premium”), and is subject to certain adjustments under the terms of the corresponding agreements. Collectively, the Capped Calls cover, initially, the number of shares of Wayfair’s Class A common stock underlying the Non-Accreting Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Non-Accreting Notes.
The initial terms for the Capped Calls are presented below:
Capped CallsMaturity DateInitial Cap PriceCap Price Premium
2024 Capped CallsNovember 1, 2024$219.63150%
2025 Capped CallsOctober 1, 2025$787.08150%
2026 Capped CallsAugust 15, 2026$280.15150%
2027 Capped CallsSeptember 15, 2027$97.62100%
2028 Capped CallsNovember 15, 2028$73.28100%
The Capped Calls are separate transactions from the Non-Accreting Notes, are not subject to the terms of the Non-Accreting Notes and will not affect any holder’s rights under the Non-Accreting Notes. Similarly, holders of the Non-Accreting Notes do not have any rights with respect to the Capped Calls. The Capped Calls do not meet the criteria for separate accounting as a derivative as they are indexed to Wayfair's stock and meet the requirements to be classified in equity. The premiums paid for the Capped Calls were included as a net reduction to additional paid-in capital within stockholders’ deficit when they were entered.
5. Commitments and Contingencies
Legal Matters
From time to time, Wayfair is involved in claims that arise during the ordinary course of business. The Company records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Although litigation is inherently unpredictable and claims cannot be predicted with certainty, Wayfair does not currently believe that the outcome of any legal matters will have a material adverse effect on Wayfair's results of operation or financial condition. Regardless of the outcome, litigation can be costly and time consuming, as it can divert management's attention from important business matters and initiatives, negatively impacting Wayfair's overall operations. In addition, Wayfair may also find itself at greater risk to outside party claims as it increases its operations in jurisdictions where the laws with respect to the potential liability of online retailers are uncertain, unfavorable, or unclear.
6. Stockholders’ Deficit
Common Stock
Since Wayfair's initial public offering through June 30, 2023, 56,347,091 shares of Class B common stock were converted to the same number of shares of Class A common stock.
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Stock Repurchase Programs
During the three and six months ended June 30, 2023, Wayfair did not repurchase any shares of Class A common stock under its stock repurchase programs. During the three months ended June 30, 2022, Wayfair did not repurchase any shares of Class A common stock. During the six months ended June 30, 2022, Wayfair repurchased 548,173 shares of Class A common stock for $75 million under its stock repurchase programs.
7. Equity-Based Compensation
On April 25, 2023 (the “2023 Plan Effective Date”), Wayfair’s stockholders approved the 2023 Incentive Award Plan (the “2023 Plan”) to replace Wayfair’s 2014 Incentive Award Plan, as amended (the “2014 Plan” and, together with the 2023 Plan, the “Incentive Plans”). The Incentive Plans were adopted by the board of directors (the “Board’) to grant cash and equity incentive awards to eligible participants in order to attract, motivate and retain talent. The Incentive Plans are administered by the Board for awards to non-employee directors and by the compensation committee of the Board for other participants and provide for the issuance of equity-based awards including stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and stock payments.
Under the 2023 Plan, the number of Class A common stock reserved for future award grants is the sum of (i) 15,000,000 shares of Class A common stock, (ii) any shares of Class A common stock which remained available for grant under the 2014 Plan as of the 2023 Plan Effective Date and (iii) any shares of Class A common stock subject to 2014 Plan awards that become available for issuance under the 2023 Plan pursuant to its terms after the 2023 Plan Effective Date.
Under the 2023 Plan, 20,525,663 shares of Class A common stock initially were available for future award grants. As of June 30, 2023, 17,636,121 shares of Class A common stock remained available for future grant under the 2023 Plan.
The following table presents activity relating to RSUs for the six months ended June 30, 2023:
 SharesWeighted-Average
Grant Date
Fair Value
Unvested at December 31, 202210,170,203 $100.05 
RSUs granted3,379,303 $37.47 
RSUs vested(4,015,393)$72.07 
RSUs forfeited/canceled(1,636,284)$107.73 
Unvested at June 30, 20237,897,829 $85.88 
The intrinsic value of RSUs that vested during each of the six months ended June 30, 2023 and 2022 was $166 million. As of June 30, 2023, the aggregate intrinsic value of unvested RSUs was $513 million.
As of June 30, 2023, unrecognized equity-based compensation expense related to RSUs expected to vest over time is $497 million with a weighted-average remaining vesting term of 0.7 years.
Equity-based compensation was classified as follows in the condensed consolidated statements of operations:
 Three Months Ended June 30,Six Months Ended
 2023202220232022
(in millions)
Cost of goods sold$2 $2 $5 $5 
Customer service and merchant fees8 8 16 16 
Selling, operations, technology, general and administrative154 118 287 212 
Total equity-based compensation expense$164 $128 $308 $233 
Equity-based compensation costs capitalized as software costs were $17 million and $30 million for the three and six months ended June 30, 2023, respectively, and $10 million and $18 million for the three and six months ended June 30, 2022, respectively.
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8. Income Taxes
The provision for income taxes, net recorded during the three and six months ended June 30, 2023 is primarily related to income tax benefits for tax losses earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes, as well as related changes in increases in the Company’s valuation allowance on deferred tax assets, as well as some U.S. state minimum and foreign taxes. Wayfair had no material unrecognized tax benefits as of June 30, 2023 and December 31, 2022.
9. Loss per Share
The following table presents the calculation of basic and diluted loss per share:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions, except per share data)
Numerator:
Numerator for basic and diluted loss per share - net loss$(46)$(378)$(401)$(697)
Denominator:
Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding112 105 111 105 
Loss per share  
Basic$(0.41)$(3.59)$(3.60)$(6.62)
Diluted$(0.41)$(3.59)$(3.60)$(6.62)
The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted loss per share were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(in millions)
Unvested restricted stock units8 9 8 9 
Shares related to convertible debt instruments36 16 36 16 
Total44 25 44 25 
Wayfair may settle conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or any combination thereof at its election. Wayfair will settle conversions of the 2025 Accreting Notes in shares. The Capped Calls are generally expected to reduce the potential dilution of Wayfair's Class A common stock upon any conversion of the Notes and/or offset the cash payments Wayfair is required to make in excess of the principal amount of the Notes upon conversion of the Notes into the event thatextent the market price per share of the Company’sWayfair’s Class A common stock is greater than the strike price of the Capped Call TransactionsCalls (which initially corresponds to the initial conversion priceprices of the Non-Accreting Notes, and is subject to certain adjustments under the terms of the Capped Call Transactions)Calls), with such reduction and/or offset subject to a cap based oncapped at the cap price of the Capped Call Transactions. The Capped Call Transactions have an initial cap price of $154.16 per share of the Company’s Class A common stock, which represents a premium of 100% over the last reported sale price of the Company’s Class A common stock on September 11, 2017, and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s Class A common stock underlying the Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Notes.Initial Cap Price.
The Capped Call Transactions are separate transactions, in each case, entered into by the Company with the Option Counterparties, and are not part of the terms of the Notes and will not affect any holder’s rights under the Notes. Holders of the Notes will not have any rights with respect to the Capped Call Transactions. The Capped Call Transactions do not meet the criteria for separate accounting as a derivative as they are indexed to the Company's stock. The premiums paid for the Capped Call Transactions have been included as a net reduction to additional paid-in capital within shareholders’ equity.
13. Net Loss per Share
Basic and diluted net loss per share is presented using the two class method required for participating securities: Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. For more information on the rightsstructure of Class A and Class B common stockholders, see Note 10, Stockholders' Equity (Deficit).
Basic net loss per share attributable to common stockholders is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders is computed using the weighted-average number of shares of common stock and, if dilutive, common stock equivalents outstanding during the period. The Company's common stock equivalents consist of shares issuable upon the release of restricted stock units and unvested restricted stock, the exercise of stock options and potential shares from instruments convertible into common stock. The dilutive effect of these common stock equivalents is reflected in diluted earnings per share by application of the treasury stock method. The Company's basic and diluted net loss per share are the same because the Company has generated net loss attributable to common stockholders and common stock equivalents are excluded from diluted net loss per share because they have an antidilutive impact.

The Company allocates undistributed earnings between the classes on a one-to-one basis when computing net loss per share. As a result, basic and diluted net loss per Class A and Class B shares are equivalent.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data): 
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net loss $(76,429) $(60,940) $(171,843) $(150,419)
Weighted average common shares used for basic and diluted net loss per share computation 87,283
 85,105
 86,679
 84,779
Net loss per share:        
Basic and Diluted $(0.88) $(0.72) $(1.98) $(1.77)
Dilutive common stock equivalents, representing potentially dilutive common stock options, restricted stock and restricted stock units, of 6.6 million for the three and nine months ended September 30, 2017 and 6.8 million for the three and nine months ended September 30, 2016, were excluded from diluted earnings per share calculations for these periods because of their anti-dilutive effect. For the three and nine month periods ended September 30, 2017, the Company also excluded the potentially dilutive impact to Class A shares from the issuance of the Notes, since their effect would have been anti-dilutive. The Capped Call Transactions are designed to reduce potential dilution of our Class A shares upon conversion of the Notes. For more information on the Notes and the Capped Call Transactions,Calls, see Note 12, Convertible4, Debt and Other Financing.

14. Recent Accounting Pronouncements10. Segment and Geographic Information
Stock CompensationOperating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. Wayfair’s CODM is its Chief Executive Officer. 
In March 2016,Wayfair's operating and reportable segments are the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation" ("ASU 2016-09"). This ASU revisesU.S. and International. These segments reflect the accountingway the CODM allocates resources and evaluates financial performance, which is based upon each segment's Adjusted EBITDA. Adjusted EBITDA is defined as net income or loss before depreciation and amortization, equity-based compensation and related taxes, interest income or expense, net, other income or expense, net, provision or benefit for share-based payment transactions,income taxes, net, non-recurring items, and other items not indicative of ongoing operating performance. These charges are excluded from the evaluation of segment performance because it facilitates reportable segment performance comparisons on a period-to-period basis as these costs may vary independent of business performance.
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Wayfair allocates certain operating expenses to the operating and reportable segments, including customer service and merchant fees and selling, operations, technology, general and administrative expenses based on the income tax consequences, classification of awards as either equity or liabilities,usage and an optionrelative contribution provided to recognize gross stockthe segments. It excludes from the allocations certain operating expense lines, including depreciation and amortization, equity-based compensation expense with actual forfeitures recognized as they occur,and related taxes, impairment and other related net charges and restructuring charges, as well as certain classificationsinterest income or expense, net, other income or expense, net, gain or loss on the statement of cash flows. This ASU is effectivedebt extinguishment and provision or benefit for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting year, and early adoption is permitted.income taxes, net. There are no net revenue transactions between Wayfair's reportable segments.
U.S.
The Company adopted ASU 2016-09 asU.S. segment primarily consists of January 1, 2017 using a modified retrospective approach with the option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, with a cumulative-effect adjustment to retained earnings recognized asamounts earned through product sales through Wayfair's family of January 1, 2017 of $8.7 million. The adoption of ASU 2016-09 also requires all income tax adjustments to be recordedsites in the consolidated and condensed statementsU.S.
International
The International segment primarily consists of operations.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU was originally effective for annual reporting periods beginning after December 15, 2016 and early adoption was not permitted.
In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers – Deferral of the Effective Date" (ASU-2015-14), which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting year.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers - Principal versus Agent Considerations" ("ASU 2016-08"). This ASU clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. This ASU is effective at the same period as ASU 2015-14 and ASU 2014-09.
Management expects to adopt ASU 2014-09, ASU 2015-14, and ASU 2016-08 (collectively, the "Revenue Recognition Accounting Pronouncements") for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting year. While management is still in its assessment process, management generally expects to identify substantially similar performance obligations after adoption of the Revenue Recognition Accounting Pronouncements as compared with deliverables and separate units of accounting under previous revenue recognition guidance. Therefore, the Company generally does not expect the impact of the adoption of the Revenue Recognition Accounting Pronouncements to be significant to its consolidated financial statements, processes, or systems. As we continue to evaluate the impact of the Revenue Recognition Accounting Pronouncements, we have identified no material changes to our current revenue recognition accounting policy foramounts earned through product sales generated through Wayfair's international sites.
Net revenue from external customers for each group of similar products and services are not reported to the Company's sites, or Direct Retail, which we identified as our most significant revenue stream. Management expects to apply the Revenue Recognition Accounting Pronouncements retrospectively with the cumulative effect of initially applying the Revenue Recognition Accounting Pronouncements recognized at the date of initial application recorded as an adjustment to retained earnings, referred to as the "Modified Retrospective Approach."
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). This ASU revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions. This ASU is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. Management expects to adopt ASU 2016-02 for annual reporting periods beginning after December 15, 2018. Management is currently evaluating the impact of the adoptionCODM. Separate identification of this ASUinformation for purposes of segment disclosure is impractical, as it is not readily available and the cost to develop it would be excessive. No individual country outside the U.S. provided greater than 10% of consolidated net revenue.
The following tables present net revenue and Adjusted EBITDA attributable to Wayfair’s reportable segments for the periods presented:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions)
U.S. net revenue$2,785 $2,796 $5,200 $5,338 
International net revenue386 488 745 939 
Total net revenue$3,171 $3,284 $5,945 $6,277 
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions)
Adjusted EBITDA:
U.S.$161 $(28)$190 $(58)
International(33)(80)(76)(163)
Total reportable segments Adjusted EBITDA128 (108)114 (221)
Less: reconciling items (1)
(174)(270)(515)(476)
Net loss$(46)$(378)$(401)$(697)
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(1)The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net loss:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions)
Depreciation and amortization$102 $91 $206 $176 
Equity-based compensation and related taxes167 133 318 245 
Interest expense, net5 6 10 14 
Other income, net(3)(1)(2)(1)
Provision for income taxes, net2 1 4 2 
Other:
Impairment and other related net charges (a)
1 40 14 40
Restructuring charges (b)
— — 65 — 
Gain on debt extinguishment (c)
(100)— (100)— 
Total reconciling items$174 $270 $515 $476 
(a)
During the six months ended June 30, 2023, Wayfair recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S. locations. During the three and six months ended June 30, 2023, Wayfair recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S. locations.
During the three and six months ended June 30, 2022, Wayfair recorded $40 million of lease impairment and other charges related to changes in market conditions around future sublease income for one office location in the U.S.
(b)During the six months ended June 30, 2023, Wayfair incurred $65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions.
(c)During the three and six months ended June 30, 2023, Wayfair recorded a $100 million gain on debt extinguishment upon repurchase of $83 million in aggregate principal amount of the 2024 Notes and $535 million in aggregate principal amount of the 2025 Notes.
See “Non-GAAP Financial Measures” in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q for more information regarding the Company’s consolidated financial statements, and expects it will have a material impact on our consolidated financial statements, primarily the consolidated balance sheets and related disclosures.use of Adjusted EBITDA.


ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition and Results of Operations
The following discussionForward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our financial conditioninvestment plans and anticipated returns on those investments, our future customer growth, our future results of operations should be readand financial position, including our financial outlook and profitability goals, the financial impact and expected savings of our recent reduction in conjunction with the consolidatedworkforce, available liquidity and condensed financial statementsaccess to financing sources, our business strategy, plans and objectives of management for future operations, including our international expansion and omni-channel strategy, consumer activity and behaviors, developments in our technology and systems and anticipated results of those developments and the notes thereto included elsewhereimpact of macroeconomic events, interest rates and rising inflation, and our response to such events, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “continues,” “could,” “intends,” “goals,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.
Forward-looking statements are based on current expectations of future events. We cannot guarantee that any forward-looking statement will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Investors should realize that if underlying assumptions prove inaccurate or that known or unknown risks or uncertainties materialize, actual results could vary materially from Wayfair’s expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise.
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Factors that could cause or contribute to differences in our future results include, without limitation, the following:
•adverse macroeconomic conditions, including inflation, slower growth or the potential for recession, disruptions in the global supply chain and other conditions affecting the retail environment for products we sell, and other matters that influence consumer spending and preferences;
•our ability to manage our growth and the impacts of our internal restructuring and workforce reduction;
•our ability to acquire and retain customers in a cost-effective manner;
•our ability to increase our net revenue per active customer;
•our ability to build and maintain strong brands;
•our ability to manage our growth and expansion initiatives;
•our ability to expand our business and compete successfully;
•disruptions, capacity constraints or inefficiencies in our information systems network, or any potential cybersecurity incident;
•world events, natural disasters, public health emergencies, civil disturbances and terrorist attacks; and
•developments in, and the outcome of, legal and regulatory proceedings and investigations to which we are a party or are subject, and the liabilities, obligations and expenses, if any, that we may incur in connection therewith.
A further list and description of risks, uncertainties and other factors that could cause or contribute to differences in our future results include the cautionary statements in this Quarterly Report on Form 10-Q and in our audited consolidated financial statementsother filings with the Securities and related notes includedExchange Commission, including those set forth under Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2016. This discussion contains2022. We qualify all of our forward-looking statements that involve risksby these cautionary statements.
All dollar and uncertainties. As a result of many factors, such as those included in the Special Note Regarding Forward Looking Statements and in Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016, our actual results may differ materially from those anticipated in these forward-looking statements.
The following discussion includes financial information prepared in accordance with generally accepted accounting principles ("GAAP"), as well as certain adjusted or non-GAAP financial measures such as Adjusted EBITDA, non-GAAP diluted net loss per share and free cash flow. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Management believes the use of these non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance of our business by presenting comparable financial results between periods. For more information on these non-GAAP financial measures, including reconciliationspercentage comparisons made refer to the most directly comparable GAAP financial measures, see "Non-GAAP Financial Measures" below.three and six ended June 30, 2023, compared with the three and six ended June 30, 2022, unless otherwise noted.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "Wayfair," "the Company," "we," "us" or "our" refer to Wayfair Inc. and its consolidated subsidiaries. 
Overview
We areWayfair is one of the world'sworld’s largest online destinations for the home. Through our e-commerce business model, we offer visually inspired browsing, compelling merchandising, easy product discovery and attractive prices for over eight40 million products from approximately 10,000over 20 thousand suppliers. Because
We believe an increasing portion of the largedollars spent on home goods will be spent online and that there is an opportunity for acquiring more market share. Our business model is designed to grow our net revenue by acquiring new customers as well as stimulating repeat purchases from our existing customers. Through increasing brand awareness as well as paid and unpaid advertising, we attract new and repeat customers to our family of sites. We turn these customers into recurring shoppers by creating a seamless shopping experience across their entire journey — offering best-in-class product discovery, purchasing, fulfillment and customer service.
In the second quarter of 2023, our business generated lower sales compared to the second quarter of 2022. As of June 30, 2023, we had 22 million active customers, and 80.1% of second quarter 2023 orders came from repeat buyers. The lower sales were a function of normalization in average order value as we lapped a period of intense inflation in 2022, which was offset by a recovery in order volume, which showed positive growth year-over-year. We also continued to manage our advertising spend according to a return on investment-oriented approach that carefully tracks and monitors the results of advertising campaigns as we seek to maintain appropriate return targets.
Global Considerations
We are continuing to closely monitor macroeconomic impacts, including, but not limited to, rising and fluctuating interest rates and inflation on our business, results of operations and financial results. These developments have and may continue to negatively impact global economic activity and consumer behavior, which have and may continue to adversely affect our business and our results of operations. As our customers react to these global economic conditions, we may take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity.
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While it is difficult to quantify and predict all of the impacts these global economic events, including rising and fluctuating inflation and interest rates, will have on our business and to predict consumer spending in the near term, we believe the long-term opportunity that we see in front of us,for shopping for the home online remains unchanged.
We will continue to monitor economic conditions as we are currently investing acrosswork to manage our business to meet the evolving needs of our customers, employees, suppliers, partners, stockholders and communities.
Factors Affecting our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including investments to expand our international business, to build our proprietary logistics network and to continue developing various product categories.
Beginning in the fourth quarter of 2016, we changed our operating and reportable segments from one segment to two operating and reportable segments, U.S. and International. The following table presents Direct Retail and Other net revenues attributable to the Company’s reportable segments for the periods presented (in thousands):
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
U.S. Direct Retail $1,033,669
 $759,674
 $2,847,898
 $2,134,782
U.S. Other 16,975
 28,127
 57,843
 91,613
U.S. segment net revenue 1,050,644
 787,801
 2,905,741
 2,226,395
International Direct Retail 147,554
 72,724
 376,138
 165,119
International Other —
 1,000
 —
 4,287
International segment net revenue 147,554
 73,724
 376,138
 169,406
Total net revenue $1,198,198
 $861,525
 $3,281,879
 $2,395,801
For more information on our segments, see Note 8, Segment and Geographic Information, includedthose discussed in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly1A, Risk Factors, in our Annual Report on Form 10-Q.10-K for the year ended December 31, 2022.

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Key Financial Statement and Operating Metrics
We measure our business using boththe key financial statement and operating metrics. metrics that are reflected in the below table. See “Non-GAAP Financial Measures” below for more information regarding our use of Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings or Loss per share and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure.
Our free cash flow metricFree Cash Flow and Adjusted Diluted Earnings or Loss per share are measured on a consolidated basis, while our Adjusted EBITDA is measured on a consolidated basis. Our net revenue and Adjusted EBITDA metrics are measured on a consolidated andreportable segment basis. See Note 8, Segment and Geographic Information, included in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly Report on Form 10-Q. All other key financial statement and operating metrics are derived and reported from our Direct Retail sales, which includes sales generated primarily through our sites. These metrics do not includeconsolidated net revenue derived from the sites operated by our retail partners. We do not have access to certain customer level information on net revenue derived through our retail partners and therefore cannot measure or disclose it.revenue.
We use the following metrics to assess the near-termnear and longer-term performance of our overall business (in thousands, except LTM Net Revenue per Active Customer and Average Order Value):  
business:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions, except LTM net revenue per active customer, average order value and per share data)
Key Financial Statement Metrics:
Net revenue$3,171 $3,284 $5,945 $6,277 
Gross profit$985 $896 $1,806 $1,699 
Loss from operations$(142)$(372)$(489)$(682)
Net loss$(46)$(378)$(401)$(697)
Loss per share:
Basic$(0.41)$(3.59)$(3.60)$(6.62)
Diluted$(0.41)$(3.59)$(3.60)$(6.62)
Net cash provided by (used in) operating activities$217 $(115)$70 $(341)
Key Operating Metrics:
Active customers (1)
22 24 22 24 
LTM net revenue per active customer (2)
$545 $537 $545 $537 
Orders delivered (3)
10 10 20 20 
Average order value (4)
$307 $330 $297 $308 
Non-GAAP Financial Measures:
Adjusted EBITDA$128 $(108)$114 $(221)
Free Cash Flow$128 $(244)$(106)$(575)
Adjusted Diluted Earnings (Loss) per share$0.21 $(1.94)$(0.90)$(3.90)
  Three months ended September 30,  
  2017 2016 % Change
Consolidated Financial Metrics  
  
  
Net Revenue $1,198,198
 $861,525
 39.1%
Adjusted EBITDA $(22,672) $(30,849)  
Free cash flow $(18,463) $(13,968)  
Direct Retail Financial and Operating Metrics      
Direct Retail Net Revenue $1,181,223
 $832,398
 41.9%
Active Customers 10,250
 7,362
 39.2%
LTM Net Revenue per Active Customer $408
 $406
 0.5%
Orders Delivered 4,719
 3,417
 38.1%
Average Order Value $250
 $244
 2.5%
  Nine months ended September 30,  
  2017 2016 % Change
Consolidated Financial Metrics  
  
  
Net Revenue $3,281,879
 $2,395,801
 37.0 %
Adjusted EBITDA $(45,814) $(76,666)  
Free cash flow $(114,658) $(113,968)  
Direct Retail Financial and Operating Metrics      
Direct Retail Net Revenue $3,224,036
 $2,299,901
 40.2 %
Active Customers 10,250
 7,362
 39.2 %
LTM Net Revenue per Active Customer $408
 $406
 0.5 %
Orders Delivered 13,209
 9,343
 41.4 %
Average Order Value $244
 $246
 (0.8)%
Non-GAAP Financial Measures
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this Quarterly Report on Form 10-Q Adjusted EBITDA, a non-GAAP financial measure that we calculate as income (loss) before depreciation and amortization, equity-based compensation and related taxes, interest and other income and expense, provision for income taxes, and non-recurring items. We have provided a reconciliation below of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. 
We have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis. Accordingly, we believe that Adjusted EBITDA

provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: 
▪Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
▪Adjusted EBITDA does not reflect equity based compensation and related taxes;
▪Adjusted EBITDA does not reflect changes in our working capital;
▪Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us;
▪Adjusted EBITDA does not reflect depreciation and interest expenses associated with the lease financing obligations; and
▪Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.
(1)The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods indicated (in thousands): 
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Reconciliation of Adjusted EBITDA  
  
  
  
Net loss $(76,429) $(60,940) $(171,843) $(150,419)
Depreciation and amortization (1) 22,913
 15,463
 62,588
 38,528
Equity based compensation and related taxes 19,598
 15,308
 50,539
 37,265
Interest expense (income), net 2,008
 292
 3,857
 (791)
Other expense (income), net 227
 (889) (400) (1,804)
Provision for (benefit from) income taxes 237
 (83) 671
 555
Other (1) 8,774
 —
 8,774
 —
Adjusted EBITDA $(22,672) $(30,849) $(45,814) $(76,666)
(1) We recorded $9.6 million of one-time charges in the three and nine months ended September 30, 2017 in "Operations, technology, general and administrative" in the unaudited consolidated and condensed statements of operations related to a warehouse we vacated in July 2017. Of the $9.6 million charges, $8.8 million was included in "Other" and related primarily to the excess of our estimated future remaining lease commitments through 2023 over our expected sublease income over the same period, and $0.8 million was included in "Depreciation and amortization" related to accelerated depreciation of leasehold improvements in the warehouse.
Free Cash Flow
To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this Quarterly Report on Form 10-Q free cash flow, a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less net cash used to purchase property and equipment and site and software development costs. We have provided a reconciliation below of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.
We have included free cash flow in this Quarterly Report on Form 10-Q because it is an important indicator of our business performance as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.

Free cash flow has limitations as an analytical tool because it omits certain components of the cash flow statement and does not represent the residual cash flow available for discretionary expenditures. Further, other companies, including companies in our industry, may calculate free cash flow differently. Accordingly, you should not consider free cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.
The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities for each of the periods indicated (in thousands):
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net cash provided by (used in) operating activities $24,752
 $15,621
 $(3,245) $(10,680)
Purchase of property and equipment (30,980) (20,408) (76,528) (81,844)
Site and software development costs (12,235) (9,181) (34,885) (21,444)
Free cash flow $(18,463) $(13,968) $(114,658) $(113,968)
Key Operating Metrics (Direct Retail)
Active Customers
As of the last date of each reported period, we determine our number of active customers by countingrepresents the total number of individual customers who have purchased at least once directly from our sites during the preceding twelve-month period. The change in active customers in a reported period captures both the inflow of new customers as well as the outflow of existing customers who have not made a purchase in the last twelve months. We view the number of active customers as a key indicator of our growth.
LTM Net Revenue Per Active Customer
We define LTM(2) Last twelve months (“LTM”) net revenue per active customer asrepresents our total net revenue derived from Direct Retail sales in the last twelve months divided by our total number of active customers for the same preceding twelve-month period. We view LTM net revenue per active customer as a key indicator of our customers'customers’ purchasing patterns, including their initial and repeat purchase behavior.
(3)Orders Delivered
We define orders delivered asrepresent the total Direct Retail orders delivered in any period, inclusive of orders that may eventually be returned. As we ship a large volume of packages through multiple carriers, actual delivery dates may not always be available, and as such we estimate delivery dates based on historical data. We recognize net revenue when an order is delivered, and therefore orders delivered, together with average order value, is an indicator of the net revenue we expect to recognize in a given period. We view orders delivered as a key indicator of our growth.
Average Order Value
(4)We define average order value as total Direct Retail net revenue in a given period divided by the orders delivered in that period. We view average order value as a key indicator of the mix of products on our sites, the mix of offers and promotions and the purchasing behavior of our customers.
Factors Affecting
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Results of Consolidated Operations
Comparison of the three months ended June 30, 2023 and 2022
Net revenue
During the three months ended June 30, 2023, net revenue decreased by $113 million, or 3.4%, compared to the same period in 2022, which reflects recent macroeconomic pressures felt by consumers. The decrease in net revenue was due to lower average order value due, in part, to normalization of inflationary pressures in the supply chain compared to the same period in 2022.
During the three months ended June 30, 2023, our PerformanceUnited States (“U.S.”) net revenue decreased by 0.4% and International net revenue decreased by 20.9% compared to the same period in 2022. During the three months ended June 30, 2023, International Net Revenue Constant Currency Growth was (18.2)% (see “Non-GAAP Financial Measures” below).
We believe that
 Three Months Ended June 30, 
 20232022% Change
(in millions)
U.S. net revenue$2,785 $2,796 (0.4)%
International net revenue386 488 (20.9)%
Net revenue$3,171 $3,284 (3.4)%
For more information on our performancesegments, see Note 10 Segment and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those set forth underGeographic Information, included in Part II,I, Item 1A, Risk Factors1, Financial Statements, ofin this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016.

Components of Our Results of Operations
Net Revenue
Net revenue consists primarily of sales of product from our sites and through the sites of our online retail partners and includes related shipping fees. We deduct cash discounts, allowances and estimated returns from gross revenue to determine net revenue. We recognize product revenue upon delivery to our customers. Net revenue is primarily driven by growth of new and active customers and the frequency with which customers purchase. The products offered on our sites are fulfilled with product we ship to our customers directly from our suppliers and, increasingly, from our CastleGate warehouses.
We also generate net revenue through third-party advertisers that pay us based on the number of advertisement related clicks, actions, or impressions for advertisements placed on our sites. Net revenue earned under these arrangements is included in net revenue and net revenue through our third-party advertisers is recognized in the period in which the click, action or impression occurs. This revenue has not been material to date.10-Q.
Cost of Goods Soldgoods sold
Cost of goods sold consists of the cost ofis sensitive to many factors, including quarter-to-quarter variability in product sold to customers,mix, pricing strategies, changes in wholesale, shipping and handlingfulfillment costs and shipping supplies and fulfillment costs. Fulfillment costs include costs incurred in operating and staffingfees earned for supplier services rendered. During the fulfillment centers, such as costs attributed to receiving, inspecting, picking, packaging and preparing customer orders for shipment. Costthree months ended June 30, 2023, cost of goods sold also includes direct and indirect labor costs, including equity-based compensation, for fulfillment center oversight, including payroll and related benefit costs.decreased by $202 million, or 8.5%, as compared to the same period in 2022. The increasedecrease in cost of goods sold is primarily driven by growth in orders delivered, the mix of the product available for sale on our sites and transportation costs related to delivering orders to our customers.operational cost savings initiatives.
We earn rebates on our incentive programs with our suppliers. These rebates are earned upon shipment of goods. Amounts due from suppliers as a result of these rebate programs are included as a receivable and are reflected as a reduction of cost of goods sold on the consolidated and condensed statements of operations. We also perform logistics services for suppliers through our CastleGate solution, which are earned upon completion of preparing customer orders for shipment and are reflected as a reduction of cost of goods sold on the consolidated and condensed statements of operations. We expect cost of goods sold expenses to remain relatively stable asAs a percentage of net revenue, but some fluctuations are expectedcost of goods sold decreased to 68.9% for the three months ended June 30, 2023 compared to 72.7% in the same period in 2022 due to the wide varietymix shifts, operational efficiencies and decreased logistics costs.

 Three Months Ended June 30, 
 20232022% Change
(in millions)
Cost of goods sold$2,186$2,388(8.5)%
As a percentage of net revenue68.9 %72.7 %
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Table of products we sell.Contents
Customer Service and Merchant Fees
Customer service and merchant fees
Operating expenses
Operating expenses consist of labor-related costs, including equity-based compensation, of our employees involved in customer service activities and merchant processing fees associated with customer payments made by credit cards and debit cards. Increases in our customer service and merchant fees, are driven by the growth in our revenue and are expected to remain relatively consistent as a percentage of revenue.
Advertising
Advertising consists of direct response performance marketing costs, such as display advertising, paid search advertising, social media advertising, search engine optimization, comparison shopping engine advertising, television advertising, direct mail, catalog and print advertising. We expect advertising expense to continue to increase but decrease as a percentage of net revenue over time due to our increasing base of repeat customers.
Merchandising, Marketing and Sales
Merchandising, marketing and sales expenses include labor-related costs, including equity-based compensation, for our category managers, buyers, site merchandisers, merchants, marketers and the team who executes our advertising strategy. Sales, marketing and merchandising expenses are primarily driven by investments to grow and retain our customer base. We expect merchandising, marketing and sales expenses to continue to increase as we grow our net revenue.
Operations, Technology and General and Administrative
Operations, technology, general and administrative expenses primarily include labor-related costs, including equity-based compensation, of our operations group that leads our supply chain and logistics function, our technology team, which builds and supports our sites, and our corporate general and administrative, which includes human resources, finance and accounting personnel. Also included are administrative and professional service fees including audit and legal fees, insurance and other corporate expenses, including depreciation and rent. We expectselling, operations, technology, general and administrative expenses will continue to increase as we grow ourand impairment and other related net revenuecharges. We disclose separately the equity-based compensation and operations.related taxes that are included in customer service and merchant fees and selling, operations, technology and general and administrative expenses.
 Three Months Ended June 30,
 20232022% Change
(in millions)
Customer service and merchant fees (1)
$144 $162 (11.1)%
Advertising352 378 (6.9)%
Selling, operations, technology, general and administrative (1)
630 688 (8.4)%
Impairment and other related net charges1 40 (97.5)%
Total operating expenses$1,127 $1,268 (11.1)%
As a percentage of net revenue:   
Customer service and merchant fees (1)
4.5 %4.9 % 
Advertising11.1 %11.5 % 
Selling, operations, technology, general and administrative (1)
19.9 %21.0 % 
Impairment and other related net charges— %1.2 %
35.5 %38.6 % 

Interest (Expense) Income, Net
Interest (expense) income, net consists primarily of interest earned on cash, cash equivalents and short-term and long-term investments held by us and partially offset by interest expense on the lease financing obligations.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of foreign currency (losses) gains.
Results of Consolidated Operations (in thousands)
Comparison of the three months ended September 30, 2017 and 2016
Net revenue
  Three months ended September 30,  
  2017 2016 % Change
Direct Retail $1,181,223
 $832,398
 41.9 %
Other 16,975
 29,127
 (41.7)%
Net revenue $1,198,198
 $861,525
 39.1 %
In the three months ended September 30, 2017, net revenue increased by $336.7 million, or 39.1% compared to the same period in 2016, primarily as a result of an increase in Direct Retail net revenue. In the three months ended September 30, 2017, Direct Retail net revenue increased by $348.8 million, or 41.9% compared to the same period in 2016, primarily due to sales to a larger customer base, as the number of active customers increased 39.2% as of September 30, 2017 compared to September 30, 2016. The $12.2 million or 41.7% decrease in Other revenue in the three months ended September 30, 2017 as compared to the same period in 2016 was primarily due to decreased sales through our retail partners, as we continue to focus more on our Direct Retail business over time.
Cost of goods sold
  Three months ended September 30,  
  2017 2016 % Change
Cost of goods sold $917,889
 $659,864
 39.1%
As a percentage of net revenue 76.6% 76.6%  
In the three months ended September 30, 2017, cost of goods sold increased by $258.0 million, or 39.1%, compared to the same period in 2016. Of the increase in cost of goods sold, $201.9 million was due to the increase in products sold to our larger customer base. In addition, shipping and fulfillment costs increased $56.1 million as a result of the increase in products sold during the period. Cost of goods sold as a percentage of net revenue was consistent in the three months ended September 30, 2017 compared to the same period in 2016.

Operating expenses  
  Three months ended September 30,  
  2017 2016 % Change
Customer service and merchant fees (1) $42,949
 $33,872
 26.8%
Advertising 141,714
 101,333
 39.8%
Merchandising, marketing and sales (1) 56,934
 48,550
 17.3%
Operations, technology, general and administrative (1) 112,669
 79,526
 41.7%
  $354,266
 $263,281
 34.6%
As a percentage of net revenue:  
  
  
Customer service and merchant fees (1) 3.6% 3.9%  
Advertising 11.8% 11.8%  
Merchandising, marketing and sales (1) 4.8% 5.6%  
Operations, technology, general and administrative (1) 9.4% 9.2%  
  29.6% 30.5%  
(1) Includes equity-based compensation and related taxes as follows:
Three Months Ended June 30,
20232022
(in millions)
Customer service and merchant fees$8 $9 
Selling, operations, technology, general and administrative$157 $121 
During the three months ended June 30, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $35 million, or 26.9% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.
  Three months ended September 30,  
  2017 2016  
Customer service and merchant fees $636
 $627
  
Merchandising, marketing and sales $8,849
 $6,588
  
Operations, technology, general and administrative $9,831
 $7,881
  
The following table summarizes operating expenses as a percentage of net revenue, excluding equity-based compensation and related taxes:
Three Months Ended June 30,
20232022
Customer service and merchant fees4.3 %4.7 %
Selling, operations, technology, general and administrative14.9 %17.3 %
Customer Service and Merchant Fees
  Three months ended September 30,  
  2017 2016  
   
  
  
Customer service and merchant fees 3.5% 3.9%  
Merchandising, marketing and sales 4.0% 4.9%  
Operations, technology, general and administrative 8.6% 8.3%  
Excluding the impact of equity based compensation and related taxes, customer service costs and merchant processing fees increased by $9.1 million inDuring the three months ended SeptemberJune 30, 20172023, excluding the impact of equity-based compensation, our expenses for customer service and merchant fees decreased by $17 million, or 11.1%, compared to the same period in 2016, primarily2022. The decrease in customer service and merchant fees is due to the increasedecrease in net revenue during the three months ended September 30, 2017.
Our advertising expenses increased by $40.4 million in the three months ended September 30, 20172023 compared to the same period in 2016, primarily as a result of an increase in online and television advertising. Advertising was consistent as2022.
As a percentage of net revenue, intotal customer service and merchant fees decreased to 4.5% for the three months ended SeptemberJune 30, 20172023 compared to 4.9% in the same period in 2016.2022 due to decreased compensation costs.
Excluding the impact
23
Table of equity based compensation and related taxes, merchandising, marketing and sales expenses increased by $6.1 million inContents


Advertising
During the three months ended SeptemberJune 30, 2017 compared to the same period in 2016, primarily due to the increase in headcount to grow and retain2023, our customer base.
Excluding the impact of equity based compensation and related taxes, operations, technology, general and administrative expense increasedadvertising expenses decreased by $31.1 million in the three months ended September 30, 2017 compared to the same period in 2016. As our revenue continues to grow, we have invested in headcount in both operations and technology to continue to deliver a great experience for our customers. The increase in operations, technology, general and administrative expense was primarily attributable to personnel costs, rent, information technology, and depreciation and amortization.

Comparison of the nine months ended September 30, 2017 and 2016
Net revenue
  Nine months ended September 30,  
  2017 2016 % Change
Direct Retail $3,224,036
 $2,299,901
 40.2 %
Other 57,843
 95,900
 (39.7)%
Net revenue $3,281,879
 $2,395,801
 37.0 %
In the nine months ended September 30, 2017, net revenue increased by $886.1$26 million, or 37.0% compared to the same period in 2016, primarily as a result of an increase in Direct Retail net revenue. In the nine months ended September 30, 2017, Direct Retail net revenue increased by $924.1 million, or 40.2% compared to the same period in 2016, primarily due to sales to a larger customer base, as the number of active customers increased 39.2% as of September 30, 2017 compared to September 30, 2016. The $38.1 million or 39.7% decrease in Other revenue in the nine months ended September 30, 20176.9%, as compared to the same period in 2016 was2022. The decrease reflects our response to changing market conditions as we sought to maintain our return targets across various channels.
As a percentage of net revenue, advertising expenses decreased to 11.1% for the three months ended June 30, 2023 compared to 11.5% in the same period in 2022 due, in part, to changes in advertising channel mix and our efforts to drive efficiency across our channel portfolio.
Selling, operations, technology, general and administrative
During the three months ended June 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $94 million, or 16.6% as compared to the same period in 2022. The decrease is primarily due to lower personnel and information technology costs, partially offset by increases in depreciation and amortization.
As a percentage of net revenue, total selling, operations, technology, general and administrative expenses decreased to 19.9% for the three months ended June 30, 2023 compared to 21.0% in the same period in 2022, primarily due to decreased sales through our retail partners, as we continue to focus more on our Direct Retail business over time.compensation costs.
Cost of goods sold
Impairment and other related net charges
  Nine months ended September 30,  
  2017 2016 % Change
Cost of goods sold $2,495,221
 $1,826,570
 36.6%
As a percentage of net revenue 76.0% 76.2%  
InDuring the ninethree months ended SeptemberJune 30, 2017, cost2023, impairment and other related charges decreased by $39 million or 97.5% as compared to the same period in 2022. As a percentage of goods soldnet revenue, impairment and other related net charges decreased to an immaterial percentage from 1.2% in the same period in 2022.
During the three months ended June 30, 2023, we recorded a charge of $1 million related to construction in progress assets at identified U.S. locations.
Interest expense, net
During the three months ended June 30, 2023, our interest expense, net decreased by $1 million, or 16.7% compared to the same period in 2022, primarily due to higher interest income.
 Three Months Ended June 30,
 20232022% Change
(in millions)
Interest expense, net$(5)$(6)(16.7)%
Other income, net
During the three months ended June 30, 2023, other income, net increased by $668.7$2 million or 36.6%200.0% compared to the same period in 2022. Included in our other income, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.
 Three Months Ended June 30,
 20232022% Change
(in millions)
Other income, net$3 $1 200.0 %

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Gain on debt extinguishment
During the three months ended June 30, 2023, we used $514 million of the net transaction amount from the issuance of the 2028 Notes to repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions. In accounting for the repurchases of the 2024 Notes and 2025 Notes, we recorded a $100 million gain on debt extinguishment, representing the difference between the cash paid for principal of $514 million and the combined net carrying value of the 2024 Notes and 2025 Notes of $614 million. Refer to Note 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for additional information.
 Three Months Ended June 30,
 20232022% Change
(in millions)
Gain on debt extinguishment$100 $— 
n.m. (1)
(1) Not meaningful (n.m.) year-over-year comparison
Provision for income taxes, net
During the three months ended June 30, 2023, our provision for income taxes, net increased by $1 million or 100.0% compared to the same period in 2022, primarily related to the level and mix of income earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes. Refer to Note 8, Income Taxes, included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q for additional information.

 Three Months Ended June 30,
 20232022% Change
(in millions)
Provision for income taxes, net$2 $1 100.0 %
Comparison of the six months ended June 30, 2023 and 2022
Net revenue
During the six months ended June 30, 2023, net revenue decreased by $332 million, or 5.3%, compared to the same period in 2016. Of the increase2022, which reflects recent macroeconomic pressures felt by consumers. The decrease in cost of goods sold, $527.0 millionnet revenue was due to the increaselower average order value due, in products soldpart, to our larger customer base. In addition, shipping and fulfillment costs increased $141.7 million as a resultnormalization of the increase in products sold during the period. Cost of goods sold as a percentage of net revenue decreasedinflationary pressures in the nine months ended September 30, 2017supply chain compared to the same period in 2016 as a result2022.
During the six months ended June 30, 2023, our U.S net revenue decreased by 2.6% and International net revenue decreased by 20.7% compared to the same period in 2022. During the six months ended June 30, 2023, International Net Revenue Constant Currency Growth was (16.4)% (see “Non-GAAP Financial Measures” below).
 Six Months Ended June 30,
 20232022% Change
(in millions)
U.S. net revenue$5,200 $5,338 (2.6)%
International net revenue745 939 (20.7)%
Net revenue$5,945 $6,277 (5.3)%
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For more information on our segments, see Note 10 Segment and Geographic Information, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q.
Cost of goods sold
Cost of goods sold is sensitive to many factors, including quarter-to-quarter variability in product mix, pricing strategies, changes in wholesale, shipping and fulfillment costs and fees earned for supplier services rendered. During the six months ended June 30, 2023, cost of goods sold decreased by $439 million, or 9.6%, compared to the same period in 2022. The decrease in cost of goods sold is primarily driven by operational cost savings initiatives.
As a percentage of net revenue, cost of goods sold decreased to 69.6% for the six months ended June 30, 2023 compared to 72.9% in the same period in 2022 due to mix of the products sold.shifts, operational efficiencies and decreased logistics costs.

 Six Months Ended June 30,
 20232022% Change
(in millions)
Cost of goods sold$4,139 $4,578 (9.6)%
As a percentage of net revenue69.6 %72.9 % 
Operating expenses
Operating expenses are comprised of customer service and merchant fees, advertising, selling, operations, technology, general and administrative expenses, impairment and other related net charges and restructuring charges. We disclose separately the equity-based compensation and related taxes that are included in customer service and merchant fees and selling, operations, technology and general and administrative expenses.
 Six Months Ended June 30,
 20232022% Change
(in millions)
Customer service and merchant fees (2)
$283 $313 (9.6)%
Advertising679 714 (4.9)%
Selling, operations, technology, general and administrative (2)
1,254 1,314 (4.6)%
Impairment and other related net charges14 40 (65.0)%
Restructuring charges65 — 
n.m. (1)
Total operating expenses$2,295 $2,381 (3.6)%
As a percentage of net revenue:   
Customer service and merchant fees (2)
4.8 %5.0 % 
Advertising11.4 %11.4 % 
Selling, operations, technology, general and administrative (2)
21.1 %20.9 % 
Impairment and other related net charges0.2 %0.6 %
Restructuring charges1.1 %— %
38.6 %37.9 % 
  Nine months ended September 30,  
  2017 2016 % Change
Customer service and merchant fees (1) $117,132
 $91,286
 28.3%
Advertising 384,220
 293,436
 30.9%
Merchandising, marketing and sales (1) 160,033
 129,679
 23.4%
Operations, technology, general and administrative (1) 292,988
 207,289
 41.3%
Total operating expenses $954,373
 $721,690
 32.2%
As a percentage of net revenue  
  
  
Customer service and merchant fees (1) 3.6% 3.8%  
Advertising 11.7% 12.2%  
Merchandising, marketing and sales (1) 4.9% 5.4%  
Operations, technology, general and administrative (1) 8.9% 8.7%  
  29.1% 30.1%  
(1) Not meaningful (n.m.) year-over-year comparison
(1)(2) Includes equity-based compensation and related taxes as follows:
Six Months Ended June 30,
20232022
(in millions)
Customer service and merchant fees$16 $17 
Selling, operations, technology, general and administrative$297 $222 
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  Nine months ended September 30,  
  2017 2016  
Customer service and merchant fees $1,866
 $1,488
  
Merchandising, marketing and sales $24,014
 $16,910
  
Operations, technology, general and administrative $24,027
 $18,510
  
During the six months ended June 30, 2023, our equity-based compensation and related taxes included in customer service and merchant fees and selling, operations, technology, general and administrative increased by $74 million, or 31.0% compared to the same period in 2022, driven by increased vested restricted stock units in 2023 compared to the same period in 2022.
The following table summarizes operating expenses as a percentage of net revenue, excluding equity-based compensation and related taxes:
Six Months Ended June 30,
20232022
Customer service and merchant fees4.5 %4.7 %
Selling, operations, technology, general and administrative16.1 %17.4 %
Customer Service and Merchant Fees
  Nine months ended September 30,  
  2017 2016  
As a percentage of net revenue  
  
  
Customer service and merchant fees 3.5% 3.7%  
Merchandising, marketing and sales 4.1% 4.7%  
Operations, technology, general and administrative 8.2% 7.9%  
ExcludingDuring the six months ended June 30, 2023, excluding the impact of equity basedequity-based compensation, and related taxes,our expenses for customer service costs and merchant processing fees increaseddecreased by $25.5$29 million, in the nine months ended September 30, 2017or 9.8% compared to the same period in 2016, primarily2022. The decrease in customer service and merchant fees is due to decreased compensation costs.
As a percentage of net revenue, total customer service and merchant fees decreased to 4.8% for the increasesix months ended June 30, 2023 compared to 5.0% in the same period in 2022 due to a decrease in net revenue duringrevenue.
Advertising
During the ninesix months ended SeptemberJune 30, 2017.
Our2023, our advertising expenses increaseddecreased by $90.8$35 million in the nine months ended September 30, 2017or 4.9% as compared to the same period in 2016, primarily2022. The decrease reflects our response to changing market conditions as a result of an increase in online and television advertising. Advertising decreased aswe sought to maintain our return targets across various channels.
As a percentage of net revenue, inadvertising expenses remained constant at 11.4% for the ninesix months ended SeptemberJune 30, 20172023 and 2022 due in part to maintaining efficiencies in our advertising channel mix.
Selling, operations, technology, general and administrative
During the six months ended June 30, 2023, excluding the impact of equity-based compensation and related taxes, our expenses for selling, operations, technology, general and administrative activities decreased by $135 million, or 12.4% compared to the same period in 20162022. The decrease is primarily due to increased leverage from our growing base of repeat customers,lower personnel and television advertising expense not increasing at the same rate as revenue growth in the U.S.,information technology costs, partially offset by advertising investmentsincreases in Europedepreciation and Canada.amortization.
Excluding the impactAs a percentage of equity based compensationnet revenue, total selling, operations, technology, general and related taxes, merchandising, marketing and salesadministrative expenses increased by $23.2 millionto 21.1% for the six months ended June 30, 2023 compared to 20.9% in the ninesame period in 2022, primarily due to the decrease in net revenue.
Impairment and other related net charges
During the six months ended SeptemberJune 30, 20172023, impairment and other related charges decreased by $26 million or 65.0% as compared to the same period in 2016, primarily due2022. As a percentage of net revenue, impairment and other related net charges decreased to an increase in headcount to grow and retain our customer base.
Excluding the impact of equity based compensation and related taxes, operations, technology, general and administrative expense increased by $80.2 million0.2% from 0.6% in the ninesame period in 2022.
During the six months ended SeptemberJune 30, 20172023, we recorded charges of $14 million, inclusive of $5 million related to consolidation of certain customer service centers and $9 million related to construction in progress assets at identified U.S. locations.
Restructuring charges
On January 20, 2023, we announced an update to our cost efficiency plan, including a workforce reduction involving approximately 1,750 employees. As a result of this workforce reduction, during the six months ended June 30, 2023, we incurred $65 million of charges, consisting primarily of one-time employee severance and benefit costs.
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Interest expense, net
During the six months ended June 30, 2023, our interest expense, net decreased by $4 million, or 28.6%, compared to the same period in 2016. As2022, primarily driven by higher interest income.
 Six Months Ended June 30,
 20232022% Change
(in millions)
Interest expense, net$(10)$(14)(28.6)%
Other income, net
During the six months ended June 30, 2023, other income, net increased by $1 million, or 100.0% compared to the same period in 2022. Included in our revenue continuesother income, net are changes in foreign currency transaction gains and losses and long-term investment income or losses.
 Six Months Ended June 30,
 20232022% Change
(in millions)
Other income, net$2 $1 100.0 %
Gain on debt extinguishment
During the six months ended June 30, 2023, we used $514 million of the net transaction amount from the issuance of the 2028 Notes to grow,repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions. In accounting for the repurchases of the 2024 Notes and 2025 Notes, we have investedrecorded a $100 million gain on debt extinguishment, representing the difference between the cash paid for principal of $514 million and the combined net carrying value of the 2024 Notes and 2025 Notes of $614 million. Refer to Note 4, Debt and Other Financing, included in headcountPart I, Item 1, Financial Statements and Supplementary Data, of this Quarterly Report on Form 10-Q for additional information.
 Six Months Ended June 30,
 20232022% Change
(in millions)
Gain on debt extinguishment$100 $— 
n.m. (1)
(1) Not meaningful (n.m.) year-over-year comparison
Provision for income taxes, net
During the six months ended June 30, 2023, our provision for income taxes, net increased by $2 million or 100.0% compared to the same period in both operations2022, primarily related to the level and technologymix of income earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes. Refer to continue to deliver a great experienceNote 8, Income Taxes, included in Part I, Item 1, Financial Statements in this Quarterly Report on Form 10-Q for our customers. The increase in operations, technology, general and administrative expense was primarily attributable to personnel costs, rent, information technology, and depreciation and amortization.additional information.
 Six Months Ended June 30,
 20232022% Change
(in millions)
Provision for income taxes, net$4 $2 100.0 %

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Liquidity and Capital Resources
Sources of Liquidity
  September 30,
2017		 December 31,
2016
  (in thousands)
Cash and cash equivalents $553,721
 $279,840
Short-term investments $56,699
 $68,743
Accounts receivable, net $27,521
 $19,113
Long-term investments $29,809
 $30,967
Working capital $126,346
 $(80,129)
Historical Cash Flows
  Nine months ended September 30,
  2017 2016
  (in thousands)
Net loss $(171,843) $(150,419)
Net cash used in operating activities $(3,245) $(10,680)
Net cash used in investing activities $(98,512) $(97,178)
Net cash provided by (used in) financing activities $375,225
 $(18,260)
At SeptemberJune 30, 2017,2023, our principal source of liquidity was cash and cash equivalents and short- and long-termshort-term investments totaling $640.2$1.3 billion. Additionally, we have a $600 million senior secured revolving credit facility that matures on March 24, 2026 (the “Revolver”). As of June 30, 2023, there were no revolving loans outstanding under the Revolver. We had outstanding letters of credit, primarily as security for certain lease agreements, for $77 million as of June 30, 2023, which includes $420.4 million net proceeds fromreduced the issuanceavailability of credit under the Revolver. Excluding liquidity available through our convertible notes in September 2017, partially offset by $44.2 million in premiums paid atRevolver, the same timefollowing table shows sources of liquidity for separate capped call transactions. the periods presented:
 June 30,December 31,
 20232022
 (in millions)
Cash and cash equivalents$1,249 $1,050 
Short-term investments4 228 
Total liquidity$1,253 $1,278 
We believe that our existing cash and cash equivalents and investments, together with cash generated from operations and the cash availableborrowing availability under our revolving credit facility,Revolver will be sufficient to meet our anticipated cash needs for at least the foreseeable future.future including planned capital expenditures, contractual obligations and other such requirements. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. In addition, we may elect to raise additional funds at any time through equity, equity linkedequity-linked or debt financing arrangements.
Capital expenditures were 3.8% of net revenue forFurther, we may from time to time seek to retire, restructure, repurchase or redeem, or otherwise mitigate the year ended December 31, 2016, and related primarily to putting a new data center online, our ongoing investments in our technology infrastructure, and equipment purchases and improvements for leased warehouses within our expanding supply chain network. Capital expenditures were 3.6% of net revenue for the quarter ended September 30, 2017, consistentequity dilution associated with our forecastoutstanding convertible debt through cash purchases, stock buybacks of above 3.0%, primarily due tosome or all of the planned build out ofshares underlying convertible notes and/or exchanges for equity or debt in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, exchanges or liability management exercises, if any, will be upon such terms and at such prices and sizes as we may determine, and will depend on prevailing market conditions, our logistics network. For the full year 2017, we expect capital expenditures toliquidity requirements, contractual restrictions and other factors. The amounts involved may be approximately 3.0% of net revenue. material.
Our future capital requirements and the adequacy of available funds will depend on many factors, including those described hereinin this Quarterly Report on Form 10-Q and in our other filings with the SEC, including those set forth under in Part II,I, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016. We2022. In addition, macroeconomic events have caused disruption in the capital markets, including increased inflation and interest rates, which could make obtaining financing more difficult and/or expensive. As a consequence, we may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt financing arrangements, those securities and instruments may have rights, preferences or privileges senior to the rights of our common stock, and the holders of our equity securities may experience dilution. We will continue to monitor our liquidity during this time of historic disruption and volatility in the global capital markets.
Credit Agreement and Convertible Debt
As of June 30, 2023, we had $3.2 billion principal amount of indebtedness outstanding.
Under the terms of our Revolver, we may use proceeds to finance working capital, to refinance existing indebtedness and to provide funds for permitted acquisitions, repurchases of equity interests and other general corporate purposes. Any amounts outstanding under the Revolver are due at maturity.
During the second quarter of 2023, we used $514 million of the net transaction amount from the issuance of the 2028 Notes to repurchase for cash $83 million aggregate principal amount of the 2024 Notes and $535 million aggregate principal amount of the 2025 Notes in privately negotiated repurchase transactions. See Note 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q.

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The conditional conversion features of the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”) were not triggered during the second quarter of 2023, and therefore the 2024 Notes, 2025 Notes, 2026 Notes and 2027 Notes are not convertible in the third quarter of 2023 pursuant to the applicable last reported sales price conditions. The conditional conversion features of the 2028 Notes are not applicable until the calendar quarter ending December 31, 2023. The 2025 Accreting Notes are convertible at any time prior to the close of business on the second business day immediately preceding the maturity date. During the period ended June 30, 2023, there were no conversions of the Notes.
Whether any of the Non-Accreting Notes will be convertible in future quarters will depend on the satisfaction of the applicable last reported sales price condition or another conversion condition in the future. If one or more holders elect to convert their Non-Accreting Notes at a time when any such Non-Accreting Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
The credit agreement and indentures governing our convertible notes contain restrictions and covenants that may limit our operating flexibility. Specifically, the Revolver contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict our ability, subject to negotiated exceptions, to incur additional indebtedness and additional liens on our assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, or change the nature of our businesses. The Revolver also requires us to maintain certain levels of performance in order to maintain our access to the Revolver. For instance, we are required to maintain a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the credit agreement governing the Revolver) of 4.0 to 1.0, subject to a 0.5 step-up following certain permitted acquisitions.For information regarding our credit agreement and convertible notes, see Note 4, Debt and Other Financing, included in Part I, Item 1, Financial Statements, in this Quarterly Report on Form 10-Q and Note 6, Debt and Other Financing, included in Part II, Item 8, Financial Statements and Supplementary Data, in our Annual Report on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, we were in compliance with all the terms and conditions of our debt agreements.
Stock Repurchase Program
On August 21, 2020, the Board authorized the repurchase of up to $700 million of our Class A common stock in the open market, through privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan (the “2020 Repurchase Program”). On August 10, 2021, the Board authorized a new $1.0 billion share repurchase program on the same terms (the “2021 Repurchase Program” together with the 2020 Repurchase Program, the “Repurchase Programs”). There is no stated expiration date for the Share Repurchase Programs. We will begin repurchasing shares under the 2021 Repurchase Program upon the completion of the 2020 Repurchase Program.
The Repurchase Programs do not obligate us to purchase any shares of Class A common stock and have no expiration but may be suspended or terminated by the Board at any time. The actual timing, number and value of shares repurchased under the Repurchase Programs in the future will be determined by us in our discretion and will depend on a number of factors, including market conditions, applicable legal requirements, our capital needs and whether there is a better alternative use of capital. As of June 30, 2023, we have repurchased 2,354,491 shares of Class A common stock for approximately $612 million under the Repurchase Programs.
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Trends and Historical Cash Flows
 Six Months Ended
 20232022
(in millions)
Net loss$(401)$(697)
Net cash provided by (used in) operating activities$70 $(341)
Net cash provided by (used in) investing activities$49 $(189)
Net cash provided by (used in) financing activities$77 $(75)
Operating Activities
Cash usedflows in connection with operating activities consisted of net loss adjusted for certain non-cash items including depreciation and amortization, equity-based compensation and certain other non-cash expenses, as well as the effect of changes in working capital and other activities. Operating cash flows can be volatile and are sensitive to many factors, including changes in working capital and our net loss.
Cash used inflows provided by operating activities inincreased by $411 million during the ninesix months ended SeptemberJune 30, 2017 was $3.22023 compared to the same period in 2022, primarily due to an increase in net cash adjusted for non-cash items of $239 million and was driven primarily by net lossan increase of $171.8$172 million partially offset byfor cash provided by operating assets and liabilities of $57.5liabilities.
Investing Activities
Cash flows provided by investing activities increased by $238 million and certain non-cash items including depreciation and amortization expense of $62.6 million, equity based compensation of $46.7 million, other non-cash items of $0.9 million, and amortization of discount and issuance costs related to our convertible notes of $0.9 million.
Cash used in operating activities induring the ninesix months ended SeptemberJune 30, 2016 was $10.7 million2023 compared to the same period in 2022, primarily due to increases in sales and was driven primarily by net lossmaturities of $150.4 million and other non-cash items of $0.1 million, partially offset by cash provided by operating

assets and liabilities of $66.1 million, and certain non-cash items including depreciation and amortization expense of $38.5 million and equity based compensation of $35.2 million. Operating cash flows can be volatile and are sensitive to many factors, including changes in working capital and our net loss.
Investing Activities
Our primary investing activities consisted of purchases of property and equipment, particularly purchases of servers and networking equipment, investment in our sites and software development, purchases and disposal of short-term and long-term investments, and leasehold improvements for our facilities.
Cash used in investing activities in the nine months ended September 30, 2017 was $98.5 million and was primarily driven by purchases of property and equipment of $76.5 million, purchases of short-termshort- and long-term investments of $47.6$222 million, decreases in purchases of short- and long-term investments of $402 million and decreases in purchases property and equipment and site and software development costs of $34.9 million, partially offset by net increase in the maturity of short-term investments of $60.5$58 million.
Cash used in investing activities in the nine months ended September 30, 2016 was $97.2 million and was primarily driven by purchasesPurchases of property and equipment of $81.8 million, purchases of short-term and long-term investments of $76.5 million, site and software development costs (collectively, “Capital Expenditures”) were 3.0% of $21.5 million,net revenue for the six months ended June 30, 2023 and other net investing activities of $1.0 million, partially offset by net increaserelated primarily to equipment purchases and improvements for leased warehouses within our expanding logistics network and ongoing investments in the maturity of short-term investments of $82.1 million,our proprietary technology and cash received from the sale of a business (net of cash sold) of $1.5 million.operational platform.
Financing Activities
Cash flows provided by financing activities inincreased by $152 million during the ninesix months ended SeptemberJune 30, 2017 was $375.2 million and was2023 compared to the same period in 2022, primarily due to $420.4$678 million of proceeds from the issuance of our 0.375% Convertible Senior Notes due 2022 (the "Notes") and $0.2 millionconvertible notes, net proceeds from the exercise of stock options,issuance costs, partially offset by $44.1an aggregate payment of $514 million into extinguish convertible debt and $87 million of premiums paid for separate capped call transactions, and $1.3confirmations. The remaining increase is due to $75 million statutory minimum taxes paid related to net share settlements of equity awards. As expected,repurchases of our new sell-to-cover policy, which began inClass A common stock during the second half of 2016 and requires employees to sell a portion of the shares they receive upon vesting of RSUs in order to cover any required withholding taxes, materially reduced cash used in financing activities related to taxes paid for net share settlement of equity awards. For additional information on the Notes, see Note 12, Convertible Debt, included in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly Report on Form 10-Q.
Cash used in financing activities in the ninesix months ended SeptemberJune 30, 2016 was $18.3 million and was primarily due to $18.5 million statutory minimum taxes paid related to net share settlements of equity awards, partially offset by $0.2 million net proceeds from exercise of stock options.
Credit Agreement and Convertible Notes
For information regarding our credit agreement and convertible notes, see Note 11, Credit Agreement, and Note 12, Convertible Debt, respectively, included in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet activities. We do not have any off-balance sheet interest in variable interest entities, which include special purpose entities and other structured finance entities.2022.
Contractual Obligations
ThereDuring the six months ended June 30, 2023, we entered into contractual obligations of $124 million for certain enforceable and legally binding software license and freight commitments.Other than the foregoing additional obligations, there have been no material changes to our contractual obligations and estimates as compared to the contractual obligations described in Contractual Obligationsincluded in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s, in our Annual Reporton Form 10-K for the year ended December 31, 2016, except as2022.
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Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, we have disclosed in Note 6, Commitments and Contingencies, included in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly Report on Form 10-Q.10-Q the following non-GAAP financial measures: Adjusted EBITDA, Free Cash Flow, Adjusted Diluted Earnings or Loss per Share and Net Revenue Constant Currency Growth.

Adjusted EBITDA
We calculate Adjusted EBITDA as net income or loss before depreciation and amortization, equity-based compensation and related taxes, interest income or expense, net, other income or expense, net, provision or benefit for income taxes, net, non-recurring items and other items not indicative of our ongoing operating performance. We have provided a reconciliation below of Adjusted EBITDA to net income or loss, the most directly comparable GAAP financial measure. 
We disclose Adjusted EBITDA because it is a key measure used by our management and the Board to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis as these costs may vary independent of business performance. For instance, we exclude the impact of equity-based compensation and related taxes as we do not consider this item to be indicative of our core operating performance. Investors should, however, understand that equity-based compensation and related taxes will be a significant recurring expense in our business and an important part of the compensation provided to our employees. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: 
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•Adjusted EBITDA does not reflect equity-based compensation and related taxes;
•Adjusted EBITDA does not reflect changes in our working capital;
•Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us;
•Adjusted EBITDA does not reflect interest expenses associated with our borrowings;
•Adjusted EBITDA does not include other items not indicative of our ongoing operating performance; and
•Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income or loss and our other GAAP results.
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The following table reflects the reconciliation of net income or loss to Adjusted EBITDA for each of the periods indicated:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions)
Reconciliation of Adjusted EBITDA:
Net loss$(46)$(378)$(401)$(697)
Depreciation and amortization102 91 206 176 
Equity-based compensation and related taxes167 133 318 245 
Interest expense, net5 6 10 14 
Other income, net(3)(1)(2)(1)
Provision for income taxes, net2 1 4 2 
Other:
Impairment and other related net charges (1)
1 40 14 40 
Restructuring charges (2)
— — 65 — 
Gain on debt extinguishment (3)
(100)— (100)— 
Adjusted EBITDA$128 $(108)$114 $(221)
(1)
During the six months ended June 30, 2023, we recorded charges of $5 million related to consolidation of certain customer service centers in identified U.S. locations. During the three and six months ended June 30, 2023, we recorded charges of $1 million and $9 million, respectively, related to construction in progress assets at identified U.S. locations.
During the three and six months ended June 30, 2022, we recorded $40 million of lease impairment and other charges related to changes in market conditions around future sublease income for one of our office locations in the U.S.
(2)During the six months ended June 30, 2023, we incurred $65 million of charges consisting primarily of one-time employee severance and benefit costs associated with January 2023 workforce reductions.
(3)During the three and six months ended June 30, 2023, we recorded a $100 million gain on debt extinguishment upon repurchase of $83 million in aggregate principal amount of our 2024 Notes and $535 million in aggregate principal amount of our 2025 Notes.
Free Cash Flow
We calculate Free Cash Flow as net cash provided by or used in operating activities less Capital Expenditures. We have provided a reconciliation below of Free Cash Flow to net cash provided by or used in operating activities, the most directly comparable GAAP financial measure.
We disclose Free Cash Flow because it is an important indicator of our business performance as it measures the amount of cash we generate. Accordingly, we believe that Free Cash Flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.
Free Cash Flow has limitations as an analytical tool because it omits certain components of the cash flow statement and does not represent the residual cash flow available for discretionary expenditures. Further, other companies, including companies in our industry, may calculate Free Cash Flow differently. Accordingly, you should not consider Free Cash Flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider Free Cash Flow alongside other financial performance measures, including net cash provided by or used in operating activities, Capital Expenditures, and our other GAAP results.
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The following table presents a reconciliation of net cash provided by or used in operating activities to Free Cash Flow for each of the periods indicated:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions)
Net cash provided by (used in) operating activities$217 $(115)$70 $(341)
Purchase of property and equipment(37)(53)(71)(93)
Site and software development costs(52)(76)(105)(141)
Free Cash Flow$128 $(244)$(106)$(575)
Adjusted Diluted Earnings or Loss per Share
We calculate Adjusted Diluted Earnings or Loss per Share as net income or loss plus equity-based compensation and related taxes, provision or benefit for income taxes, net, non-recurring items, other items not indicative of our ongoing operating performance, and, if dilutive, interest expense associated with convertible debt instruments under the if-converted method divided by the weighted-average number of shares of common stock used in the computation of diluted earnings or loss per share. Accordingly, we believe that these adjustments to our adjusted diluted net income or loss before calculating per share amounts for all periods presented provide a more meaningful comparison between our operating results from period to period.
Adjusted Diluted Earnings or Loss per Share has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted Diluted Earnings or Loss per Share, by their nature, excludes equity-based compensation and related taxes, provision or benefit for income taxes, net, non-recurring items, other items not indicative of our ongoing operating performance, and, if dilutive, interest expense associated with convertible debt instruments under the if-converted method.
Because of these limitations, you should consider Adjusted Diluted Earnings or Loss per Share alongside other financial performance measures.
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A reconciliation of the numerator and denominator for diluted earnings or loss per share, the most directly comparable GAAP financial measure, to the numerator and denominator for Adjusted Diluted Earnings or Loss per Share in order to calculate Adjusted Diluted Earnings or Loss per Share, is as follows:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
(in millions, except per share data)
Numerator:
Numerator for basic and diluted loss per share - net loss$(46)$(378)$(401)$(697)
Adjustments to net loss
Equity-based compensation and related taxes167 133 318 245 
Provision for income taxes, net2 1 4 2 
Other:
Impairment and other related net charges1 40 14 40 
Restructuring charges— — 65 — 
Gain on debt extinguishment(100)— (100)— 
Numerator for Adjusted Diluted Earnings (Loss) per Share - Adjusted net income (loss)$24 $(204)$(100)$(410)
Denominator:
Denominator for basic and diluted loss per share - weighted-average number of shares of common stock outstanding112 105 111 105 
Adjustments to effect of dilutive securities:
Restricted stock units1 — — — 
Denominator for Adjusted Diluted Earnings (Loss) per Share - Adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities113105$111 105
Diluted Loss per Share$(0.41)$(3.59)$(3.60)$(6.62)
Adjusted Diluted Earnings (Loss) per Share$0.21 $(1.94)$(0.90)$(3.90)
Net Revenue Constant Currency Growth
We calculate Net Revenue Constant Currency Growth by translating the current period local currency net revenue by the currency exchange rates used to translate our financial statements in the comparable prior-year period.
We disclose Net Revenue Constant Currency Growth because it is an important indicator of our operating results. Accordingly, we believe that Net Revenue Constant Currency Growth provides useful information to investors and others in understanding and evaluating trends in our operating results in the same manner as our management.
Net Revenue Constant Currency Growth has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Net Revenue Constant Currency Growth rates, by their nature, exclude the impact of foreign exchange, which may have a material impact on net revenue.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, net revenue, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.
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There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in Note 2, Summary of Significant Accounting Policies, included insince December 31, 2022. See Part II, Item 8, 7, Management’s Discussion and Analysis of Financial StatementsCondition and Supplementary Data,Results of the Company’sOperations, in our Annual Report on Form 10-K for the year ended December 31, 2016.2022 for a description of our critical accounting policies and estimates.
Recent Accounting Pronouncements
ForThe information about recent accounting pronouncements, seecalled for by this section is incorporated herein by reference to Note 14, Recent1, Summary of Significant Accounting PronouncementsPolicies, included in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements,, ofin this Quarterly Report on Form 10-Q. We have considered recently issued accounting pronouncements and do not believe that any are applicable or expected to have a material impact on our consolidated financial statements.



ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures About Market Risk
WeThere have operations both within the U.S. and internationally, and we are exposedbeen no significant changes in our exposures to market risksrisk since December 31, 2022. See Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the ordinary course of our business, including the effects of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.
Interest Rate Sensitivity
Cash and cash equivalents and short-term and long-term investments are held primarily in cash deposits, certificates of deposit, money market funds, and corporate debt. The fair value of our cash, cash equivalents and short-term and long-term investments would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments.
We incur interest expense on borrowings outstanding under our convertible notes and revolving line of credit. The convertible notes haveyear ended December 31, 2022 for a fixed interest rate. Borrowings under our revolving line of credit accrue interest at a floating rate based on a formula tied to certain market rates at the time of incurrence; however, we do not expect that any change in prevailing interest rates will have a material impactdiscussion on our results of operations.exposures to market risk.
Foreign Currency Risk
Most of our sales are denominated in U.S. dollars, and therefore, our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located or in which net revenue is generated, and may be subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound, Euro and Canadian Dollar. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
Inflation
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.



ITEMItem 4. CONTROLS AND PROCEDURES
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure“disclosure controls and procedures,"” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control overOver Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by RuleRules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II
- OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding our legal proceedings, see Note 6, 5, Commitments and Contingencies - Legal Matters, included in Part I, Item 1,Unaudited Consolidated and Condensed Financial Statements,, of in this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.
Item 1A. Risk Factors
Other than as set forth below,As of the date of this report, there are no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors, ofin our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Our outstanding indebtedness, or additional indebtedness that we may incur, could adversely affect our financial condition.
In September 2017, we issued unsecured 0.375% Convertible Senior Notes in an aggregate principal amount of $431.25 million (the "Notes"), pursuant to which we will pay interest semiannually in arrears at a rate of 0.375% per annum commencing in 2018. The Notes will mature on September 1, 2022 unless earlier purchased, redeemed or converted, at which time, we will settle any conversions of the Notes in cash, shares of the Company’s Class A common stock or a combination thereof, at our election. Under certain circumstances, the holders of the Notes may require us to repay all or a portion of the principal and interest outstanding under the Notes in cash prior to the maturity date, which could have an adverse effect on our financial results.
In February 2017, we entered into a three-year senior secured revolving credit facility (the “Revolver”) under which we may borrow up to $100 million to fund working capital and general corporate purposes. If we draw down on this facility, our interest expense and principal repayment requirements will increase, which could have an adverse effect on our financial results and our ability to make payments on the Notes. Further, the agreements governing the Revolver contain numerous requirements, including affirmative, negative and financial covenants.
Our business may not be able to generate sufficient cash flow from operations, and we can give no assurance that future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness as such indebtedness matures, including the Notes, and to fund our other liquidity needs. If this occurs, we will need to refinance all or a portion of our indebtedness on or before maturity, and there can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, or at all. We may need to adopt one or more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling assets, restructuring debt, or obtaining additional equity or debt financing. These alternative strategies may not be affected on satisfactory terms, if at all. Our ability to refinance our indebtedness or obtain additional financing, or to do so on commercially reasonable terms, will depend on, among other things, our financial condition at the time, restrictions in agreements governing our indebtedness, and other factors, including the condition of the financial markets and the markets in which we compete.
If we do not generate sufficient cash flow from operations, and additional borrowings, refinancings or proceeds from asset sales are not available to us, we may not have sufficient cash to enable us to meet all of our obligations, including our obligations under the Notes.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales
Recent Purchases of UnregisteredEquity Securities
See Part II, Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Certain Information Regarding the Trading of Our Common Stock included in our Annual Report on Form 10-K for the year ended December 31, 2022 for information regarding our authorized share repurchase programs. As of June 30, 2023, the
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approximate dollar value of shares that may yet be purchased under the authorized share repurchase programs is $1.1 billion. There were no repurchases made during the three months ended June 30, 2023.

Item 5. Other Information

(c) Rule 10b5-1 Trading Plan
During the three months ended SeptemberJune 30, 2017, we issued 208,858 shares of Class B common stock upon the vesting of outstanding restricted stock units, net of shares withheld to satisfy statutory minimum tax withholding obligations. The issuance of these securities were pursuant to written compensatory plans2023, no director or arrangements with our employees, consultants, advisors and directors in reliance on the exemption provided by Rule 701 promulgated under the Securities Act, relative to transactions by an issuer not involving any public offering, to the extent an exemption from registration was required.
On September 15, 2017, we issued the Notes in an aggregate principal amount of $431.25 million, which amount includes the exercise in fullofficer of the $56.25 million over-allotment option, to the Initial PurchasersCompany adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of the Notes. Our offering of the Notes to the Initial Purchasers was made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. We relied on this exemption from registration based in part on representations made by the Initial Purchasers, includingRegulation S-K.

that the Initial Purchasers would only offer, sell or deliver the Notes to persons inside the United States whom they reasonably believe to be qualified institutional buyers within the meaning of Rule 144A under the Securities Act.
For more information regarding our convertible notes, see Note 12, Convertible Debt, including in Part I, Item 1, Unaudited Consolidated and Condensed Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.


Item 6. Exhibits.Exhibits
Incorporated by Reference
Exhibit
Number		Exhibit DescriptionFiled
Herewith		FormFile No.Filing DateExhibit
Number
4.18-K001-366665/12/20234.1
4.28-K001-366665/12/20234.2
10.1+10-Q001-366665/4/202310.1+
10.2+10-Q001-366665/4/202310.2+
10.38-K001-366665/12/202310.1
10.48-K001-366665/12/202310.2
10.58-K001-366665/12/202310.3
10.68-K001-366665/12/202310.4
10.78-K001-366665/12/202310.5
10.88-K001-366665/12/202310.6
10.98-K001-366665/12/202310.7
10.108-K001-366665/12/202310.8
10.118-K001-366665/12/202310.9
10.128-K001-366665/12/202310.10
10.138-K001-366665/12/202310.11
10.148-K001-366665/12/202310.12
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Exhibit   Incorporated by Reference
Number Exhibit DescriptionFiled HerewithFormFile No.Filing DateExhibit Number
4.1 
Indenture, dated as of September 15, 2017, by and between Wayfair Inc. and U.S. Bank National Association, as trustee.
 8-K001-366669/15/20174.1
        
10.1 
Purchase Agreement, dated September 11, 2017, by and among Wayfair Inc. and Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC, as representatives of the several Initial Purchasers.
 8-K001-366669/15/201710.1
        
10.2 
Letter Agreement, dated September 11, 2017, between Citibank, N.A. and Wayfair Inc. regarding the Base Capped Call Transaction.
 8-K001-366669/15/201710.2
        
10.3 
Letter Agreement, dated September 11, 2017, between Goldman Sachs & Co. LLC and Wayfair Inc. regarding the Base Capped Call Transaction.
 8-K001-366669/15/201710.3
        
10.4 
Letter Agreement, dated September 11, 2017, between Bank of America, N.A. and Wayfair Inc. regarding the Base Capped Call Transaction.
 8-K001-366669/15/201710.4
        
10.5 
Letter Agreement, dated September 14, 2017, between Citibank, N.A. and Wayfair Inc. regarding the Additional Capped Call Transaction.
 8-K001-366669/15/201710.5
        
10.6 
Letter Agreement, dated September 14, 2017, between Goldman Sachs & Co. LLC and Wayfair Inc. regarding the Additional Capped Call Transaction.
 8-K001-366669/15/201710.6
        
10.7 
Letter Agreement, dated September 14, 2017, between Bank of America, N.A. and Wayfair Inc. regarding the Additional Capped Call Transaction.
 8-K001-366669/15/201710.7
        
10.8 
Amendment No. 1 to the Credit Agreement dated February 22, 2017 among Wayfair LLC, Wayfair Inc., each Lender from time to time party thereto and Citibank, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer dated September 11, 2017.
 8-K001-366669/12/201710.1
        
10.9 
Seventh Amendment to Office Lease between Copley Place Associates, LLC and Wayfair LLC (such lease, as amended to date, the "Copley Lease"), dated as of August 14, 2017, by and between Copley Place Associates, LLC and Wayfair LLC.
X    
        
31.1 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X    
        
Incorporated by Reference
Exhibit
Number		Exhibit DescriptionFiled
Herewith		FormFile No.Filing DateExhibit
Number
10.158-K001-366665/12/202310.13
10.16X
31.1X
31.2X
32.1#X
32.2#X
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Definition Linkbase DocumentX
101.LABXBRL Taxonomy Labels Linkbase DocumentX
101.PREXBRL Taxonomy Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)X


+ Indicates a management contract or compensatory plan
# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.
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+Indicates a management contract or compensatory plan
#This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WAYFAIR INC.
Date: August 3, 2023By:
Date: November 2, 2017By:/s/ NIRAJ SHAH
Niraj Shah
President and Chief Executive Officer and President
(Principal Executive Officer)
Date: August 3, 2023By:/s/ KATE GULLIVER
Date: November 2, 2017By:/s/ MICHAEL FLEISHERKate Gulliver
Michael Fleisher
Chief Financial Officer and Chief Administrative Officer
(Principal Financial and Accounting Officer)

























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