Wayfair Inc.

Good morning and welcome to Wayfair's fourth quarter 2022 earnings conference call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to James Lamb, head of investor relations. Thank you. Please go ahead, sir.

Good morning, and thank you for joining us. Today, we will review our fourth quarter 2022 results. With me are Neeraj Shah, co-founder, chief executive officer and co-chairman, Steve Conine, co-founder and co-chairman, and Kate Gulliver, chief financial officer and chief administrative officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements including, but not limited to, those regarding our future prospects, business strategies, industry trends, and our financial performance, including guidance for the first quarter of 2023. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2022 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, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with gap results. Please refer to the investor relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-gap financial measures and reconciliations of non-gap measures to the nearest comparable gap 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 Neeraj.

Thank you, James, and good morning, everyone. It's great to reconnect with you today to share the details of Wayfair's fourth quarter 2022 results. 2022 was a challenging year for our entire industry in more ways than one. As an ambitious technology-driven company, it is a challenge to manage all facets of growth in normal times, never mind unusual ones. One of the most important things we can do to be successful is to rapidly acknowledge when the facts on the ground change in real time and make the appropriate adjustments to business plans in response. You've seen us do this several times over the past year with our cost efficiency initiatives, and we feel confident that when we look back several years from now, we will view these pivots as difficult, but both necessary and wise. This morning, we published our latest shareholder letter, which I would encourage you all to read on our investor relations site. Steve and I walk through the evolution of our business over the past three years, explaining the ups and downs that the pandemic and its after effects have brought to our category and to Wayfair. We conclude with a look at the future and do so through the lens of our view around capital allocation. We hope you'll find it illuminating, especially in light of the current macro environment. Our core focus is a return to our history as a company that operates in a lean and efficient manner. We note in the letter that scarcity is actually a good thing for Wayfair. Scarcity of resources drives faster alignment, more productivity, and better execution. And we are beginning to see the payoff from those efforts in our Q4 results today. We reported $3.1 billion of net revenue and 11 million orders in the fourth quarter. While we always expect a sequential revenue increase in the holiday quarter, looking at sequential order volume tells the full story. Our more than 25% order growth compared to Q3 is a testament to the improvements we continue to make in every part of our flywheel, which facilitates our future momentum. We had a good holiday season with gross revenue over Cyber 5 matching what we did last year. Over the Thanksgiving weekend, we sold a mattress every 9.2 seconds, so many that if we stack them all end to end, it would reach nearly 12 miles high. Our success at the end of the year is a strong proof point that the three major principles behind our current strategy, one, driving cost efficiency, two, nailing the basics, and three, earning customer and supplier loyalty, are bearing fruit in the form of share capture. To start, let's dive deeper on how we are driving cost efficiency and the latest developments there. Our journey on the path to cost efficiency started last spring as we swiftly reacted to a changing macro environment and put a hiring freeze in place it became clear that 2022 was diverging from our original set of expectations. And in August, we made the difficult decision to part ways with nearly 10% of our corporate employee population. As we then looked at our company priorities, team composition, and the cost structure in aggregate, we ultimately moved fast on a comprehensive plan covering $1.4 billion of cost actions across the entire business. Our execution on this set of initiatives led to the hard but necessary decision to eliminate 1,750 additional roles, including approximately 1,200 roles, or 18% of our corporate employees across the organization last month. It's easy to get wrapped up in the financial implications of a reduction in headcount and detach from the human element. So before I discuss the savings, let me say this. Steve and I are immensely grateful to have such a talented and enthusiastic team that we work with every day. Across all of our stakeholders, our employees are the most important because without them, we cannot effectively serve any of our other partners. We want to take the opportunity once more to say to all current and former Wayfair team members, thank you. In total, our labor reductions have driven over $750 million of annualized cost savings from when we started this effort in the second quarter of 2022. On top of that, we've made considerable progress across operational cost savings initiatives which we anticipate will total more than $500 million of annualized savings once fully realized later this year. We discussed these initiatives a bit last November, where I highlighted returns monetization as one of the many areas in which we're looking to drive more efficiency. While the savings all accrue to our cost of goods sold line, these initiatives stretch across all areas of the organization. For example, we've kicked off a promising supplier transfer program where in select cases, we choose to pass on customer calls to suppliers to utilize their strong domain expertise to diagnose and resolve customer issues directly. Suppliers can usually identify the ideal resolution. For example, sending a specific replacement part rather than needing a full replacement more quickly than one of our service representatives, resulting in a more efficient and less costly resolution for the customer and for Wayfair. Yet another initiative is leveraging our enormous database of orders to understand the relative rate of damage and other incident risk for items based on delivery location and to factor that into the amount of exposure that items receive on our platform, lowering cost and also improving the customer experience. The final piece of our $1.4 billion of global cost actions comes from over $150 million of annualized savings against our previously planned spend. We put every element of our 2023 spending plans under the microscope in order to think more deliberately about the value we were modeling for each new dollar spent and what we expect will continue to be a challenging customer environment. The combined result is a significant reduction across many of our remaining large cost areas, most notably advertising, capital expenditures, and various G&A expenses. To offer an example in the advertising realm, we typically designate portions of our marketing spend that are used for testing and iterating across new channels. This is an important part of our process to find the new breakthroughs that allow us to then scale up these new ad channels and positive ROI in the ever-evolving digital advertising landscape. However, over time, some of these test budgets had grown to a level that was disproportionately large relative to the goal of being modest test budgets. This type of prudent approach applied to all cost lines and added up to large savings. One of the most important points that I want to ensure is not missed is that across everything we are doing to drive cost efficiency in the organization, We are not sacrificing our large growth opportunities, and we're doing this while we are also lowering retail prices. We remain as excited as ever for all of the major initiatives that we are working towards, including Wayfair Professional, our specialty retail brands, our luxury platform Paragold, catalog expansion efforts, physical retail stores, and international markets. And how a return to our core operating philosophy will enable us to unlock these new growth vectors going forward. As confident as we are in the steps we've taken to get back to our roots, it's important to remember that the macro environment is still very uncertain. Consumer sentiment remains under pressure given the uneven state of the economy, with multiple cross-currents impacting the directions of interest rates, housing data, and the mix of wallet share to services over goods. In spite of all the noise, we remain empowered by the elements of Wayfair that make us a unique and premier shopping destination for home. And as a result, the strength of our market share trajectory. Exiting 2022, we believe that we have now regained all of the share loss we experienced during the second half of 2021, driven by a myriad of factors related to our core recipe. The shareholder letter also explores this topic in more detail, but let me reiterate our belief that the key elements of availability, speed, and price are responsible for our improving market share position. Coming back to our three key principles, I already touched on cost efficiency, and Kate will provide additional details on the numbers a little later. Now let's revisit the concept of nailing the basics. Inventory availability is just one example of how our offering has improved, particularly year over year. Exiting 2022, availability hit the highest point since the beginning of the pandemic, setting the stage to propel the rest of the flywheel. While this was primarily due to the easing of supply chain congestion and a demand slowdown in the spring of 2022, We have also driven this improvement across multiple dimensions, including executing more efficient induction of goods directly from Asia and offering improved inventory visibility within Castlegate so suppliers can more easily track their products. To complement our in-stock position on goods, we've achieved stronger results on our speed metrics. In fact, over the course of 2022, we shaved a full day off our average delivery speed. Tighter integration with carriers has enabled this acceleration, while also helping diminish fulfillment costs. Along with other factors, the combination of better availability and faster speed helps to drive a better experience for our consumers on an everyday basis. Paragold is another area to highlight under Nail the Basics as we continue to build the brand's assortment and customer reach, with approximately 30% of Paragold customers new to Wayfair. We're also proud of our satisfaction scores for the brand, best measured by Net Promoter Score, now at all-time highs. Taking a higher-level view, the steady traction we have been building in this brand since its launch in late 2017 through today is a testament to our ability to effectively deploy capital back into our business. We test, iterate, and develop our Wayfair family of brands in ways that expand our opportunities while also making sure that we drive a healthy ROI. In fact, part of Paragold's success has been a growing presence within our Wayfair professional business. which leads to our third key principle, earning customer and supplier loyalty every day. The business-to-business opportunity is a meaningful piece of the overall TAM in our category, estimated to be nearly a couple hundred billion dollars between North America and Western Europe. The differentiators of Wayfair's business-to-consumer platform give us unique advantages in our approach to the professional business and our ability to drive value for both customers and suppliers. Wayfair serves a wide array of customers on the professional side, ranging from interior designers to contractors, restaurants to offices to hospitality. We are focused on illustrating the full value proposition we can provide, supporting the very first steps of a project through our specialized designers as we partner to concept out of space, all the way to ensuring everything ordered arrives on site at the same time through our consolidated delivery. We're also utilizing our data science models to target leads more effectively with visible traction on prospect activations and other metrics. The result of these advances is a business that saw strong year-over-year growth in 2022 as customers increasingly rely on Wayfair Professional for the right combination of product and service. While a small base of shoppers, we saw the number of customers that spend more than $20,000 per year grow by 20% in 2022 as compared to 2021. Our success within professional is a microcosm of our mission to drive customer and supplier loyalty with opportunities for further progress across the broad Wayfair ecosystem. I want to wrap up by returning to where we started. The difficulties we faced in 2022 catalyzed several meaningful changes for Wayfair, enabling us to enter this new year as a lean execution-focused organization. 2023 will be a year of rigorous execution on the key priorities for the company, where we intend to build on the recent momentum highlighted in our Cyber 5 and January press releases. Although the short-term macroeconomic picture is unpredictable, we're optimistic in our ability to navigate the challenges based on a return to form in the core recipe and the flexibility of our business model compared to peers. And regardless of what happens on the top line, we are reaffirming our commitment to reaching adjusted EBITDA profitability soon. From there, our focus is on consistently generating and ultimately scaling positive free cash flow. Importantly, we consider these goals in the context of total shares outstanding with an emphasis on maximizing profitability and minimizing dilution. Thank you, and I'll now hand it over to Kate for a review of our financials.