Notes to Consolidated and Condensed Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated and condensed financial statements contained in this Quarterly Report on Form 10-Q are those of Wayfair Inc. and its wholly-owned subsidiaries. Unless the context indicates otherwise, references to “we,” “us” and “our” refer to Wayfair Inc. and its subsidiaries. In our opinion, the accompanying unaudited consolidated and condensed 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 Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. Furthermore, interim results are not necessarily indicative of the results for the full year ended December 31, 2022 or future periods.
The Company has identified the significant accounting policies that are critical to understanding its business and results of operations. Wayfair believes that there have been no significant changes during the three months ended March 31, 2022 to the items disclosed in Note 1, Summary of Significant Accounting Policies, included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2021.
In the fourth quarter of 2021, Wayfair changed its presentation from thousands to millions. As a result of the change in presentation, prior period amounts in the unaudited consolidated and condensed financial statements and notes thereto have been reclassified to conform to current period presentation and certain current and prior period amounts may not recalculate due to rounding.
2. Supplemental Financial Statement Disclosures
Accounts Receivable, Net
As of March 31, 2022, we reported accounts receivable of $270 million, net of allowance for credit losses of $13 million. As of December 31, 2021, we reported accounts receivable of $226 million, net of allowance for credit losses of $12 million. The changes in the allowance for credit losses were not material for the three months ended March 31, 2022. Management believes credit risk is mitigated since approximately 99% of the net revenue recognized for the three months ended March 31, 2022 was collected in advance of recognition.
Contract Liabilities
Contract liabilities included in other current liabilities was $312 million at March 31, 2022 and $306 million at December 31, 2021. During the three months ended March 31, 2022, Wayfair recognized $194 million of net revenue that was included in other current liabilities as of December 31, 2021.
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 detail.
Customer Service Center Impairment and Other Charges
During the first quarter of 2022, Wayfair did not record any impairment or other charges.
In the first quarter of 2021, Wayfair enacted a plan to consolidate certain customer service centers in identified U.S. locations to transition toward virtual service models. Factors that influenced our decision were our ability to utilize a greater use of remote and home office applications and our ability to provide superior customer care. As a result, we recorded a charge of $12 million during the first quarter of 2021, which included $6 million for the non-cash impairment of right-of-use (“ROU”) assets, $5 million for the non-cash accelerated depreciation of fixed assets and the remainder for other items. The impairment of ROU assets represents the excess of estimated future remaining call center lease commitments over expected future sublease income in certain affected facilities.
3. Cash and Cash Equivalents, Investments and Fair Value Measurements
Investments
As of March 31, 2022 and December 31, 2021, all of Wayfair’s marketable securities, which primarily consisted of corporate bonds and other government obligations that are priced at fair value, were classified as available-for-sale investments. Wayfair did not have any realized gains nor losses during the three months ended March 31, 2022 or 2021.
During the three months ended March 31, 2022 and 2021, Wayfair did not recognize any credit losses related to its available-for-sale debt securities. Further, as of March 31, 2022 and December 31, 2021, Wayfair did not record an allowance for credit losses related to its available-for-sale debt securities.
The following tables present details of Wayfair’s investment securities as of March 31, 2022 and December 31, 2021:
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| | March 31, 2022 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | (in millions) |
Short-term: | | | | | | | | |
Investment securities | | $ | 789 | | | $ | — | | | $ | (2) | | | $ | 787 | |
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| | December 31, 2021 |
| | Amortized Cost | | | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | (in millions) |
Short-term: | | | | | | | | | | |
Investment securities | | $ | 693 | | | | | $ | — | | | $ | — | | | $ | 693 | |
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Fair Value Measurements
Wayfair'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
This hierarchy requires Wayfair to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. We classify our cash equivalents within Level 1 because we value these investments using quoted market prices. The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security. We classify short-term investments within Level 2 because unadjusted quoted prices for identical or similar assets in markets are not active. None of our cash and cash equivalents or investments are classified as Level 3.
The following tables set forth the fair value of Wayfair’s financial assets measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in millions) |
Cash and cash equivalents: | | | | | | | | |
Cash | | $ | 574 | | | $ | — | | | $ | — | | | $ | 574 | |
Cash equivalents | | 626 | | | — | | | — | | | 626 | |
Total cash and cash equivalents | | 1,200 | | | — | | | — | | | 1,200 | |
Short-term investments: | | | | | | | | |
Investment securities | | — | | | 787 | | | — | | | 787 | |
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| | | | | | | | |
Total | | $ | 1,200 | | | $ | 787 | | | $ | — | | | $ | 1,987 | |
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| | December 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in millions) |
Cash and cash equivalents: | | | | | | | | |
Cash | | $ | 906 | | | $ | — | | | $ | — | | | $ | 906 | |
Cash equivalents | | 800 | | | — | | | — | | | 800 | |
Total cash and cash equivalents | | 1,706 | | | — | | | — | | | 1,706 | |
Short-term investments: | | | | | | | | |
Investment securities | | — | | | 693 | | | — | | | 693 | |
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Total | | $ | 1,706 | | | $ | 693 | | | $ | — | | | $ | 2,399 | |
4. Debt and Other Financing
The following table presents the outstanding principal amount and carrying value of debt and other financing as of the dates presented: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 | | | | |
Debt Instrument | | Principal Amount | | Unamortized Debt Discount | | Net Carrying Amount | | Principal Amount | | Unamortized Debt Discount | | Net Carrying Amount | | | | |
| | (in millions) | | | | |
Revolving Credit Facility | | | | | $— | $ | — | | | | | | | $ | — | | | | | |
2022 Notes | | $ | 3 | | | $ | — | | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | 3 | | | | | |
2024 Notes | | 575 | | | (6) | | | 569 | | | 575 | | | (6) | | | 569 | | | | | |
2026 Notes | | 949 | | | (9) | | | 940 | | | 949 | | | (9) | | | 940 | | | | | |
2025 Notes | | 1,518 | | | (12) | | | 1,506 | | | 1,518 | | | (13) | | | 1,505 | | | | | |
2025 Accreting Notes | | 36 | | | — | | | 36 | | | 36 | | | (1) | | | 35 | | | | | |
Total Debt | | | | | | $ | 3,054 | | | | | | | $ | 3,052 | | | | | |
Short-term debt | | | | | | $ | — | | | | | | | $ | — | | | | | |
Long-term debt | | | | | | $ | 3,054 | | | | | | | $ | 3,052 | | | | | |
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Revolving Credit Facility
On March 24, 2021, Wayfair and certain of its subsidiaries (together, the “Guarantors”) and Wayfair LLC, a wholly-owned subsidiary of Wayfair, as borrower (the “Borrower”), entered into a new credit agreement (the “Credit Agreement”) with the lending institutions from time-to-time parties thereto and Citibank, N.A., in its capacity as administrative agent, collateral agent, swingline lender and a letter of credit issuer. The Credit Agreement provides for a $600 million senior secured revolving credit facility that matures on March 24, 2026 (the “Revolver”). The Revolver replaced our previous $200 million senior secured revolving credit facility (the “Previous Revolver”), which was set to mature on February 21, 2022. Wayfair paid all amounts owed under the Previous Revolver and terminated all lending commitments thereunder. Debt issuance costs for the Revolver are included in other non-current assets and are amortized to interest expense over the Revolver’s term. As of March 31, 2022, there were no revolving loans outstanding under the Revolver.
Under the Credit Agreement, the Borrower may, from time to time, request letters of credit, which reduce the availability of credit under the Revolver. Wayfair had approximately $62 million outstanding letters of credit as of March 31, 2022, primarily as security for lease agreements, which reduced the availability of credit under the Revolver. 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 proceeds of the Revolver may be used to finance working capital, to refinance existing indebtedness and to provide funds for permitted acquisitions, repurchases of equity interests and other general corporate purposes. The Borrower’s obligations under the Revolver are guaranteed by the Guarantors. The obligations of the Borrower and the Guarantors are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including, with certain exceptions, all of the capital stock of Wayfair’s domestic subsidiaries and 65% of the capital stock of Wayfair’s first-tier foreign subsidiaries.
On October 11, 2021, the parties amended the Credit Agreement ("Amendment No. 1") to reflect technical and administrative changes related to the phaseout of LIBOR and the implementation of SONIA with respect to loans denominated in Pounds Sterling. Following Amendment No. 1, the Revolver borrowings bear interest through maturity at a variable rate based upon, at the Borrower’s option, (i) the LIBOR rate, (ii) the base rate (which is the highest of (x) the prime rate, (y) one-half of 1.00% in excess of the federal funds effective rate and (z) 1.00% in excess of the one-month LIBOR rate) or (3) with respect to loans denominated in Pounds Sterling, the RFR rate (which is the greater of (x) the SONIA rate and (y) 0.00%), plus, in each case an applicable margin. As of March 31, 2022, the applicable margin for LIBOR loans is 1.25% per annum, the applicable margin for base rate loans is 0.25% per annum and the applicable margin for RFR loans is 1.2826% per annum. The applicable margin is subject to specified changes depending on Wayfair’s Consolidated Senior Secured Debt to Consolidated EBITDA Ratio, as defined in the Credit Agreement.
The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrower and the Guarantors, 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, or change the nature of their businesses. The Revolver also contains customary events of default, subject to thresholds and grace periods, including, among others, payment default, covenant default, cross default to other material indebtedness and judgment default. In addition, the Credit Agreement requires Wayfair to maintain a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement) of 4.0 to 1.0, subject to a 0.5 step-up following certain permitted acquisitions. We do not expect any of these restrictions to affect or limit our ability to conduct business in the ordinary course. As of March 31, 2022, we were in compliance with all covenants.
Convertible Non-Accreting Notes
The following table summarizes certain terms related to our outstanding non-accreting convertible notes (collectively, the “Non-Accreting Notes” and together with the 2025 Accreting Notes, the “Notes”): | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible Non-Accreting Notes | | Maturity Date | | Annual Coupon Rate | | Annual Effective Interest Rate | | Payment Dates for Semi-Annual Interest Payments in Arrears |
2022 Notes | | September 1, 2022 | | 0.375% | | 0.9% | | March 1 and September 1 |
2024 Notes | | November 1, 2024 | | 1.125% | | 1.5% | | May 1 and November 1 |
2026 Notes | | August 15, 2026 | | 1.000% | | 1.2% | | February 15 and August 15 |
2025 Notes | | October 1, 2025 | | 0.625% | | 0.9% | | April 1 and October 1 |
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%.
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 Notes | | Maturity Date | | Free Convertibility Date | | Initial Conversion Rate per $1,000 Principal | | Initial Conversion Price | | Redemption Date |
2022 Notes | | September 1, 2022 | | June 1, 2022 | | 9.6100 | | $104.06 | | September 8, 2020 |
2024 Notes | | November 1, 2024 | | August 1, 2024 | | 8.5910 | | $116.40 | | May 8, 2022 |
2026 Notes | | August 15, 2026 | | May 15, 2026 | | 6.7349 | | $148.48 | | August 20, 2023 |
2025 Notes | | October 1, 2025 | | July 1, 2025 | | 2.3972 | | $417.15 | | October 4, 2022 |
2025 Accreting Notes | | April 1, 2025 | | - | | 13.7931 | | $72.50 | | May 9, 2023 |
The conversion rate is subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of Wayfair’s Class A common stock, but will not be adjusted for accrued and unpaid interest.
Wayfair will settle any conversions of the Non-Accreting Notes in cash, shares of Wayfair’s Class A common stock or a combination thereof, with the form of consideration determined at Wayfair’s election. The holders of the Non-Accreting Notes may convert all or a portion of the notes prior to certain conversion dates (the “Free Convertibility Date”) under the following circumstances (in each case, as applicable to each series of Non-Accreting Notes):
•during any calendar quarter (and only during such calendar quarter), if the last reported sale price of Wayfair’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;
•during the five business day period after any ten consecutive trading day period (the “measurement period") in which the trading price (as defined in the applicable indenture) per $1,000 principal amount of the notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Wayfair’s Class A common stock and the conversion rate on each such trading day;
•if Wayfair calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; and
•upon the occurrence of specified corporate events (as set forth in the applicable indenture).
On or after the 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 2022 Notes, 2024 Notes, 2025 Notes and 2026 Notes were not triggered during the calendar quarter ended March 31, 2022, the Non-Accreting Notes are not convertible during the calendar quarter ended June 30, 2022.
The holders of the 2025 Accreting Notes may convert all or a portion of their 2025 Accreting Notes at any time prior to 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 Notes may require Wayfair to repurchase all or a portion of the Notes for cash at a price equal to 100% of the principal amount (or accreted principal amount) of the 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) may be entitled to a premium in the form of an increase in the 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.
Wayfair may not redeem the Notes prior to certain dates (the “Redemption Date”). On or after the applicable Redemption Date, Wayfair may redeem for cash all or part of the applicable series of Notes if the last reported sale price of Wayfair’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 Wayfair provides notice of redemption, during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which Wayfair provides notice of the redemption. The redemption price will be either 100% of the principal amount (or accreted principal amount) of the notes to be redeemed, plus accrued and unpaid interest, if any, or the if-converted value holder elects to convert their Notes upon receiving notice of redemption.
Conversions of Notes
There were no conversions of the Notes in the three months ended March 31, 2022.
In the three months ended March 31, 2021, GHEP VII Aggregator, L.P. converted $253 million of accreted principal of the 2025 Accreting Notes and received 3,490,175 shares of Wayfair's Class A common stock. In aggregate, conversions during the three months ended March 31, 2021 increased additional paid-in capital by $251 million.
Interest Expense
Wayfair recognized contractual interest expense and debt discount amortization of $6 million and $2 million, respectively, for the three months ended March 31, 2022 and $5 million and $2 million, respectively, for the three months ended March 31, 2021.
Fair Value of Notes
The estimated fair value of the 2022 Notes, 2024 Notes, 2026 Notes, 2025 Notes and 2025 Accreting Notes was $3 million, $714 million, $1.0 billion, $1.2 billion and $55 million, respectively, as of March 31, 2022. The estimated fair value of the Non-Accreting Notes was determined through consideration of quoted market prices. The estimated fair value of the 2025 Accreting Notes was determined through an option pricing model using Level 3 inputs. 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, Cash and Cash Equivalents, Investments and Fair Value Measurements. The if-converted value of the 2022 Notes and the 2025 Accreting Notes exceeded the principal value by less than $1 million and $19 million, respectively, as of March 31, 2022. The if-converted value of the 2024 Notes, 2025 Notes and 2026 Notes did not exceed the principal value as of March 31, 2022.
Capped Calls
The 2022 Capped Calls, 2024 Capped Calls, 2026 Capped Calls and 2025 Capped Calls (collectively, the "Capped Calls") 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 correspond 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 Calls | | Maturity Date | | Initial Cap Price | | Cap Price Premium | | |
2022 Capped Calls | | September 1, 2022 | | $154.16 | | 100% | | |
2024 Capped Calls | | November 1, 2024 | | $219.63 | | 150% | | |
2026 Capped Calls | | August 15, 2026 | | $280.15 | | 150% | | |
2025 Capped Calls | | October 1, 2025 | | $787.08 | | 150% | | |
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. 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. Although the results of litigation and claims cannot be predicted with certainty, Wayfair does not currently believe that the outcome of any ongoing 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
Preferred Stock
Wayfair authorized 10,000,000 shares of undesignated preferred stock, $0.001 par value per share, for future issuance. As of March 31, 2022, Wayfair had no shares of undesignated preferred stock issued or outstanding.
Common Stock
Wayfair 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 79,214,401 and 79,150,937 shares of Class A common stock and 25,691,670 and 25,691,761 shares of Class B common stock were outstanding as of March 31, 2022 and December 31, 2021. The rights of the holders of Class A common stock and Class B common stock are identical, except for 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 of directors (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 Wayfair's initial public offering through March 31, 2022, 56,346,744 shares of Class B common stock were converted to Class A common stock.
Stock Repurchase Program
On August 21, 2020, the Board authorized the repurchase of up to $700.0 million of Wayfair’s 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 for the Repurchase Programs. Wayfair will begin repurchasing shares under the 2021 Repurchase Program upon the completion of the 2020 Repurchase Program.
During the three months ended March 31, 2022, Wayfair repurchased $75 million under the Repurchase Programs at an average price of $136.80 per share of Class A common stock. During the three months ended March 31, 2021, repurchases made by Wayfair under the authorized Repurchase Programs were not material.
7. Equity-Based Compensation
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 for awards to non-employee directors and by the compensation committee of the Board for other participants and provides for the issuance of stock options, SARs, restricted common 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 Wayfair LLC. Awards issued under the 2010 Plan that remain outstanding currently represent Class A or Class B common stock of Wayfair Inc.
The 2014 Plan initially made 8,603,066 shares of Class A common stock available for future award grants. The 2014 Plan also contains an evergreen provision whereby the shares available for future grants are increased on the first day of each calendar year from January 1, 2016 through and including January 1, 2024. As of January 1, 2022, 6,443,150 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 future grant under the 2014 Plan.
The following table presents activity relating to RSUs for the three months ended March 31, 2022: | | | | | | | | | | | | | | |
| | Shares | | Weighted- Average Grant Date Fair Value |
Unvested at December 31, 2021 | | 5,229,708 | | | $ | 208.62 | |
RSUs granted | | 805,238 | | | $ | 147.77 | |
RSUs vested | | (611,516) | | | $ | 168.42 | |
RSUs forfeited/canceled | | (241,254) | | | $ | 218.69 | |
Unvested at March 31, 2022 | | 5,182,176 | | | $ | 203.35 | |
The intrinsic value of RSUs vested was $106 million and $195 million for the three months ended March 31, 2022 and 2021. The aggregate intrinsic value of RSUs unvested is $574 million as of March 31, 2022. Unrecognized equity-based compensation expense related to RSUs expected to vest over time is $942 million with a weighted-average remaining vesting term of 1.3 years as of March 31, 2022.
8. Income Taxes
The provision (benefit) for income taxes, net recorded in the three months ended March 31, 2022 is primarily related to income earned in the U.S. and certain foreign jurisdictions and U.S. state income taxes, as well as related changes in our valuation allowance on deferred tax assets. Wayfair had no material unrecognized tax benefits as of March 31, 2022 and December 31, 2021.
9. (Loss) Earnings per Share
The following table presents the calculation of basic and diluted (loss) earnings per share: | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions, except per share data) |
Numerator: | | | | | | | | |
Numerator for basic EPS - Net (loss) income | | $ | (319) | | | $ | 18 | | | | | |
Effect of dilutive securities: | | | | | | | | |
Interest expense (income) associated with convertible debt instruments | | — | | | (1) | | | | | |
Numerator for diluted EPS - net (loss) income available to common stockholders after the effect of dilutive securities | | $ | (319) | | | $ | 17 | | | | | |
Denominator: | | | | | | | | |
Denominator for basic EPS - weighted-average number of shares of common stock outstanding | | 105 | | | 103 | | | | | |
Effect of dilutive securities: | | | | | | | | |
| | | | | | | | |
Restricted stock units | | — | | | 3 | | | | | |
Convertible debt instruments | | — | | | 1 | | | | | |
Dilutive potential common shares | | — | | | 4 | | | | | |
Denominator for diluted EPS - adjusted weighted-average number of shares of common stock outstanding after the effect of dilutive securities | | 105 | | | 107 | | | | | |
(Loss) Earnings per Share: | | | | | | | | |
Basic | | $ | (3.04) | | | $ | 0.18 | | | | | |
Diluted | | $ | (3.04) | | | $ | 0.16 | | | | | |
The potential common shares from anti-dilutive securities excluded from the weighted-average shares of common stock used to calculate diluted (loss) earnings per share were as follows: | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) | | | | |
| | | | | | | | |
Unvested restricted stock units | | 5 | | | — | | | | | |
Shares related to convertible debt instruments | | 15 | | | 15 | | | | | |
Total | | 20 | | | 15 | | | | | |
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 to the extent the market price per share of Wayfair’s Class A common stock is greater than the strike price of the Capped Calls (which corresponds to the initial conversion prices of the Non-Accreting Notes, subject to certain adjustments under the terms of the Capped Calls), with such reduction and/or offset capped at the Initial Cap Price. As of March 31, 2022, the number of shares of Wayfair's Class A common stock potentially issuable at the respective conversion prices of the 2022 Notes, 2024 Notes, 2026 Notes, 2025 Notes and 2025 Accreting Notes is 25,976 shares, 4,939,825 shares, 6,389,662 shares, 3,638,950 shares and 500,917 shares. Under the Capped Calls outstanding as of March 31, 2022, the maximum cash value obtainable of the 2022 Capped Calls, 2024 Capped Calls, 2026 Capped Calls and 2025 Capped Calls, if exercised at maturity, is $208 million, $510 million, $841 million and $1.3 billion.
For more information on the structure of the Notes and the Capped Calls, see Note 4, Debt and Other Financing.
10. 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. Wayfair’s CODM is its Chief Executive Officer.
Wayfair's operating and reportable segments are the 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 net (loss) income before depreciation and amortization, equity-based compensation and related taxes, interest expense, net, other expense, net, provision (benefit) for income taxes, net, non-recurring items, and other items not indicative of our ongoing operating performance. These charges are excluded from 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.
Wayfair allocates certain operating expenses to the operating and reportable segments, including customer service and merchant fees and selling, 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, as well as interest expense, net, other expense, net, and provision (benefit) for income taxes, net. There are no net revenue transactions between Wayfair's reportable segments.
U.S.
The U.S. segment primarily consists of amounts earned through product sales through Wayfair's family of sites in the U.S.
International
The International segment primarily consists of amounts earned through product sales through Wayfair's international sites.
Net 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 consolidated net revenue.
The following tables present net revenues and Adjusted EBITDA attributable to Wayfair's reportable segments for the periods presented: | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
U.S. net revenue | | $ | 2,542 | | | $ | 2,821 | | | | | |
International net revenue | | 451 | | | 657 | | | | | |
Total net revenue | | $ | 2,993 | | | $ | 3,478 | | | | | |
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
Adjusted EBITDA: | | | | | | | | |
U.S. | | $ | (30) | | | $ | 227 | | | | | |
International | | (83) | | | (21) | | | | | |
Total reportable segments Adjusted EBITDA | | (113) | | | 206 | | | | | |
Less: reconciling items (1) | | (206) | | | (188) | | | | | |
Net (loss) income | | $ | (319) | | | $ | 18 | | | | | |
(1) The following adjustments are made to reconcile total reportable segments Adjusted EBITDA to consolidated net (loss) income: | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
Depreciation and amortization | | $ | 85 | | | $ | 81 | | | | | |
Equity-based compensation and related taxes | | 112 | | | 87 | | | | | |
Interest expense, net | | 8 | | | 7 | | | | | |
Other expense, net | | — | | | 3 | | | | | |
Provision (benefit) for income taxes, net | | 1 | | | (2) | | | | | |
Other (a) | | — | | | 12 | | | | | |
Total reconciling items | | $ | 206 | | | $ | 188 | | | | | |
| | | | | | | | |
| | | | | | | | |
(a) In the three months ended March 31, 2021, we recorded $12 million of customer service center impairment and other charges related to our plan to consolidate customer service centers.