Wayfair Inc.

Good day and welcome to the Wayfair third quarter 2024 earnings release and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome James Lamb, head of investor relations, to begin the conference. James, over to you.

Good morning, and thank you for joining us. Today, we will review our third quarter 2024 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 fourth quarter of 2024. 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 10K for 2023, our 10Q for this quarter, 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 GAAP 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-GAAP financial measures and reconciliations of any 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 Neeraj.

Thanks, James, and good morning, everyone. I'm excited to share our third quarter results with you today. Q3 marked another proof point of resilience for Wayfair, with further market share capture in the face of sustained challenges in the category. Once again, we navigated a dynamic consumer environment while driving further discipline on costs to achieve a mid-single-digit adjusted EBITDA margin for the second quarter in a row. But that's just one piece of the picture. As I've mentioned many times before, our North Star is driving adjusted EBITDA in excess of equity-based compensation and CapEx, and we're pleased to be making noteworthy improvements across each one of these, totaling almost $100 million year-over-year in Q3. The third quarter exhibited a continuation of choppy macro trends we've seen across 2024. Consumers remain trepidatious in their spending patterns and are demonstrating more price elasticity than we saw in the early months of the year. While we were pleased with the response we saw over weigh day at the start of the quarter, which we ran as an extended event for the first time this fall, It has become clear, even as we exited September, that we were seeing a broader pullback by shoppers in the lead-up to the election. Attention is focused away from the home right now, and when customers are in the market, it is increasingly for lower investment, lower consideration purchases, versus larger ticket items that represent our traditional area of strength. We remain optimistic that pieces are coming together to support a category recovery in the quarters to come. While it will take some time to play out, this improvement is poised to provide some relief in what has become a historic slowdown in the housing market. Redfin published an analysis at the end of Q3 noting that just 25 of every 1,000 U.S. homes changed hands in the first eight months of the year, the lowest level they saw in their study running back to 2012 and more than 30% below the turnover levels back in 2019. Now, as we've said for many quarters, we're not running the business with the expectation of a recovery in any specific timeframe. For more than two years, we've done two things simultaneously, driving cost efficiency and spending discipline to run the business profitably in a recessionary environment and setting ourselves up to be a considerable beneficiary when the category does return to growth. You've seen the former quite clearly with what is now nine sequential quarters of compression in our fixed costs and a third quarter result that is the lowest SOT GNA we've had since 2021. The latter you've seen us demonstrate across several vectors. For much of 2023, our mantra focused on the core recipe, bringing the best combination of competitive pricing, fast delivery, and broad availability together into an offering that wins customer orders day in and day out. Across 2024, we went a step further. by concentrating on strategies to drive mind share and frequency, including the three major initiatives we've spoken to several times. Even if customers aren't shopping for their homes at the moment, when that time does come, we'll want to make sure Wayfair is their first destination. These efforts include many things, such as our brand refresh back in March and the launch of our first large format Wayfair branded store over Memorial Day weekend. One newer initiative is our loyalty offer. which just began rolling out last week. For $29 per year, Wayfair Rewards customers will unlock exceptional value and experiences, with benefits including 5% back on purchases, free shipping on all orders, access to exclusive shopping events, special offers, and a dedicated members-only support line. We know how much investors love math, so let me walk you through the business model of Wayfair Rewards at a high level. Our average customer typically shops on Wayfair about twice a year, spending around $300 per order. Priced at $29 per year, the 5% fact benefit would be roughly break-even for our average shopper. Our goal is to push customers out of that two orders per year bucket into the three orders per year bucket, or even higher. While we have more than 20 million active customers who have placed at least a single order over the past 12 months, About a tenth of those are shoppers that have made four or more orders in the same timeframe. We see an important opportunity to grow that figure given shoppers typically purchase in the category six to eight times per year. There's a flywheel we see from customers that grow their shopping occasions on Wayfair as they increasingly spend more time on the site, browse a broader selection of the catalog, and are more likely to shop through our app. These behaviors are self-reinforcing. And we see that the path for a shopper to move from three to four orders per year is even quicker than the path from two to three. Customers who shop four or more times on Wayfair in any 12-month period not only spend more, but are also nearly a third more likely to come to us via free traffic. So growing that cohort is highly beneficial to margins. With the benefits of Wayfair rewards, if that average customer now makes an incremental third order on Wayfair versus a competitor, We've grown our share of wallet by 50%. Those three orders at $300 a piece are worth $900 of total revenue, 45 of which goes back to the customer, thanks to the program. Accounting for the annual fee, we've now nicely grown revenue per customer per year profitably. That doesn't even include the efficiency on advertising, as wafer rewards customers are that much more likely to return on a direct basis. There's tremendous potential here to drive more frequency amongst our existing as well as new shoppers. We're excited about all the different ways customers will be able to interact with the new program, from deal hunting in our member exclusive sales to saving up rewards over time for big aspirational upgrades. One of the areas we're excited to stimulate is in the frequency portion of our catalog, like kitchenware, tabletop, decor, and bedding, where the benefit value really stands out. We plan to lean into the treat yourself angle of the program and encourage customers to use their rewards for all those upgrades and finishing touches they've been dreaming of but may not have had the budget for. We're also eager to bring the program to new movers and project shoppers like renovators or remodelers. These are customers with high category needs who can draw a lot of value from the program. We've been focusing on these audiences for some time across our marketing and sales organizations. And we're excited to incorporate the value proposition of Wayfair Rewards in those outreaches to better attract their full business. You've likely seen some of this marketing outreach since the launch of our brand refresh. As we discussed right after the debut in the spring, this was years in the making, and we've been extremely pleased at the results we've seen in the months since. Much of our work has been focused higher in the customer acquisition funnel, as we've increased our investment in television, social media, and streaming audio and video. Since Q1, we've seen nice improvements in qualified recall rating, which measures how well customers recall seeing any advertising from Wakefair across any channel. This is an important high-level view of how our advertising is resonating with consumers and to what degree they recall key details like our product message and identity. In fact, we are now ranked in the top 10 among major retailers. When we launched the Waiverhood, we talked about driving creative content that could exist across our portfolio of advertising channels and serve as a foundation for many years of marketing campaigns to come. In fact, in the past few weeks, we've rolled out our first major update to the Waiverhood with our holiday chapter and are in active development on more content for 2025. We've seen very healthy ROI on the first iteration of the campaign with strong results when it comes to brand linkage and awareness. as customers are quickly coming to recognize the waverhood as a symbol of Wayfair. This is translated to positive movement in our core metrics, direct traffic, and even more importantly, revenue per direct visit. Back in the spring, I noted how the launch of the campaign came alongside a refreshed view of our channel mix as we stepped more holistically into parts of the advertising funnel where we had been lagging behind. It should come as no surprise that influencer marketing has grown to be an incredibly important way that customers are exposed to the category. Shoppers are now routinely looking towards creators across YouTube, Instagram Reels, TikTok, and more for inspiration on their next home purchases. Our reach in influencer marketing today is quite small relative to potential, and we're excited to scale it. Based on feedback from the creator community, we've made significant investments in improving the terms and technology supporting our programs. Creators are eager to work with Wayfair because we treat them with the same mindset we treat our suppliers. We succeed when they succeed. This plan is working. We've dramatically increased our monthly pieces of content produced by the nearly 4,000 and growing creators we've partnered with. Over the summer, we've amplified our influencer content and are seeing promising return on ad spend for the dollars we've tested. In fact, we've seen payback windows that are on par with what we find on lower funnel social ads. all while attracting what we expect to be higher lifetime value customers. We have a dense product roadmap that will allow us to scale breadth and depth of activities with influencers in partnership with our suppliers across the major platforms. This will open the door to working with an even wider field of creative talent as we get into 2025. The ROI here is clear to us, but we want to make it clear to you, we're still operating within our rigorous payback thresholds that extend up to one year, but are often much quicker. As I mentioned at the outset, we remain laser focused on driving healthy profitability while setting ourselves up for success as the category rebounds. That has been the core goal across all three of our major initiatives in 2024, to foster customer loyalty and spur repeat business while driving economic value. By leaning into marketing strategies that build brand affinity and introducing programs like Wayfair Rewards to enhance the customer experience, We're not just aiming for short-term gains, but building long-lasting relationships with our customers that will be accretive on both the top and bottom lines. Thank you. We hope you all have a festive holiday season. And now let me pass it to Kate to go through our financials.