Wayfair Inc.

Thank you for standing by and welcome to the Wayfair fourth quarter 2020 earnings release and conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a Question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone keypad. To withdraw a question, press the pound key. As a reminder, today's conference call is being recorded. For operator assistance, please press star 0. It's now my pleasure to hand the conference over to Head of Investor Relations and Special Projects, Jane Gelson.

Good morning and thank you for joining us. Today, we will review our fourth quarter 2020 results. With me are Niraj Shah, co-founder, chief executive officer, and co-chairman, Steven Conine, co-founder and co-chairman, and Michael Fleischer, chief financial officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that we will make forward looking statements during this call regarding future events and financial performance, including guidance for the first quarter of 2021. We cannot guarantee that any forward looking statements will be accurate, although we believe we have been reasonable in our expectations and assumptions. Our 10K for 2020 and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events, or otherwise. Also, Please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance. These include measures such as adjusted EBITDA and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the investor relations section of our website to obtain a copy of our earnings release. which contains descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded and a webcast will be available for replay on our IR website. I would now like to turn the call over to Niraj.

Thanks, Jane, and good morning, everyone. We are pleased to report that Q4 marked another solid quarter of growth, profitability, and free cash flow. and that 2021 is off to a strong start. As the pandemic drags on, online shopping behavior is becoming increasingly entrenched and consumer demands for the home category remains elevated. Wayfair is capitalizing on these tailwinds by delivering a truly differentiated experience for both customers and suppliers. In the process, we are cementing our position as a leading platform in the space and reinforcing our brand to tens of millions of customers. This is we do every year with the Q4 earnings. We published our annual letter to shareholders today, and we hope you find the time to read it. These letters afford us the opportunity to look back and think forward in a longer-term way. In this environment, it is so tempting to fixate on the latest news headline, web traffic update, credit card data refresh, or the year-ago quarterly comp. But there are bigger things happening at Wayfair. Perhaps the pandemic has accentuated some of them, but the opportunity in what we are building is so much greater than any single period. It seems more important than ever to think in years rather than quarters, and that is exactly what we do in the letter and how I want to frame my remarks for you today. In 2020, our revenue grew 55% year over year to $14 billion. To be sure, we are fortunate to have been well positioned during COVID but the growth is not totally unprecedented. Since our IPO in 2014 and through 2019 pre-COVID, we experienced a nearly 50% revenue cagger. We believe the runway for future growth is just as impressive. Let us first put the market in context. Across B2C and B2B, the North American and European home markets are about $840 billion in size today. They're also growing. By 2030, we estimate there will be well over $1 trillion. Like virtually all categories, shopping for the home is quickly and structurally moving online. We believe online penetration for US B2C is likely hovering just north of 20% these days, with B2B and European B2C likely lagging. E-commerce for our category should easily come to represent more than 50% of all shopping. This means growth in the online channel should average in the double digits for many years to come. This is exciting because we are and should continue to take outsized share as category dollars move online. Waker's platform model is truly unique. We are neither a retailer nor a marketplace. Instead, we take the positives of both while minimizing the drawbacks associated with each. The clear advantage traditional retailers enjoy is holding the key to the customer relationship. If they deliver an exceptional experience, they build customer loyalty and, in the process, a strong brand. We embrace much of this first-party model, or 1P, and our results show it. We have more than 31 million active customers today and are welcoming more new customers to Wayfair at a rapid clip. Repeat purchases represent more than 70% of our business, and customers are highly engaged with our platform, even in between orders. In the US, Wayfair is very clearly a household name. were the number one place consumers think to shop for their home online. We're well on our way to the same status in Europe, following a similar trajectory and timeline as we did in the US. Today, the Wayfair platform connects our tens of millions of customers with more than 16,000 suppliers. Given the nature of the categories, most of these suppliers are small and unbranded. No supplier represents more than 2% of revenue on Wayfair, Each supplier wants to control their own destiny, and so we embrace the best aspects of an enhanced marketplace model to give them as much transparency as possible. We also develop the tools our suppliers need to succeed, value-added solutions like end-to-end logistics, media, and merchandising. We enhance this third-party, or 3P, approach with higher-touch supplier partnerships that arm them with data, insights, and assistance to help them make the best decisions to grow their business. with Wayfair. Putting together the best elements of retailers and marketplaces allows us to unlock unlimited selection for our customers in an inventory-light way and deliver a top-notch, reliable Wayfair-branded shopping experience to them in every instance. This accelerates supplier participation on the platform and encourages them to use the applicable tools and services that we are continually creating to support them in growing their business on our platform. It's a virtuous cycle that enables the strong share capture we have experienced since our start in 2002 and also expect to see going forward. None of what I just said is new, though it is perhaps a clearer articulation of the ecosystem we have built. What is evolving, however, is how effectively we can compete across the four verticals, two continents, and the hundreds and hundreds of classes of home goods on which we focus. We're no longer small in any of these. You know the U.S. B2C business well, but our North American professional, or B2B business, is approaching $1.5 billion in net revenue. And the U.K. and Germany combined are north of $1 billion in net revenue. With the benefit of this scale, we are creating an ever-improving shopping experience for each type of customer, while unlocking cost efficiencies that benefit customers, suppliers, and waiters. The market is vast and underserved. It is going through a period of structural change and consolidation into fewer hands as it moves online. COVID accelerated some of this, and we believe these forces will not reverse. Wayfair already has a strong foundation in each area that is critical to delivering a great customer experience. And we have the drive, resources, and ingenuity to reinforce and compound our share gains. In 2020, we proved out our path to profitability and we have now firmly demonstrated our ability to grow strongly and profitably. In Q4, adjusted EBITDA totaled $263 million and a 7% margin. In 2020 as a whole, we generated about $950 million in adjusted EBITDA. Though the magnitude of margins will move some quarter to quarter, we are confident that our strong profitability will continue and will expand over time. Many of you have asked whether it makes sense to refresh our long-term financial targets in light of the fact that we surpassed some of the original ones first established at our IPO. Frankly, we think it's much more interesting to think about the compounding potential of profitable growth while paying attention to the initiatives in place that should over time add to margins. Each of the lines of the P&L interacts with the others, so we've tried to take a different tack in our latest investor presentation to give you a sense of the long-term direction of travel from our original targets six years ago. What you will see upon closer review is that we have confidence Wayfair's adjusted EBITDA margins will grow significantly over time versus our original targets. Because we operate with a truly long-term view, we're not putting a timestamp on this, as there's always volatility from period to period. Still, we see significant scope to drive gross margins and customer lifetime value higher over time. The drivers remain the same. One, the benefits of scale and unlocking better wholesale costs. Two, logistics efficiencies. Three, the growth of value-added supplier services. And four, merchandising and associated pricing gains. We will back these gains up with exceptional customer service where we will continue to invest in line with sales growth. Advertising remains ROI and payback driven and is a functional variable contribution margin. Variable contribution margins are now higher than our original model contemplated and should trend higher still, which means that we are comfortable should advertising remain near current levels as a percentage of net revenue in the near term. Longer term, we expect to extract further efficiencies and leverage on the advertising line. This leaves us with SOTGNN, or OPEX, which we expect to naturally lever over time as technology and productivity gains allow us to temper our hiring of OpEx people relative to the rate of revenue growth. These are just mechanics. The outcome of our platform positioning, our strategy, and the sharp execution we expect of ourselves. We will remain ambitious and aggressive while investing with a long-term view. And we believe we will do so while growing increasingly profitable over time. Put another way, growth via happy customers begets more growth. I've deliberately taken this step back today to zoom out from the noise that surrounds the pandemic and its effects on Wayfair. Though 2020 was a volatile year, every year brings its own opportunities and challenges, and 2021 will be no exception. We think 2021 will be solid, but are focused on the much larger opportunity. This is what I've laid out for you today, and this is what the entire Wayfair organization is rightly focused on. We hope you agree. I'll now pass it over to Steve to dive deeper.