Wayfair Inc.

good morning my name is aaron and i will be your conference operator for today at this time i would like to welcome everyone to the wayfair q4 2024 earnings release and conference call all lines have been placed on mute to prevent any background noise and after the speaker's remarks we will have 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 And if you would like to withdraw your question, simply press star followed by the number one again. We do ask that you please limit yourself to an initial question and then a follow-up question when you are given the opportunity to speak. Thank you. With that, let's begin. It's my pleasure to turn the call over to James Lamb, Head of Investor Relations and Treasury.

Good morning, and thank you for joining us. Today, we will review our fourth 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 first quarter of 2025. 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 2024 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. 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 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. We're excited to reconnect with you this morning to discuss our fourth quarter results. The fourth quarter was a strong conclusion to the year across multiple fronts. From a top line performance perspective, we ended 2024 on a high note, with net revenue showing positive year-over-year growth. This was driven by healthy performance in our U.S. segment, which grew by more than 1% in the period. These results enabled us to drive nearly $100 million of adjusted EBITDA in the quarter and deliver on our goal of approximately 50% year-over-year dollar growth for 2024. Our strong financial performance enabled us to tap into the high-yield markets for the first time and bolster our capital structure. We're now in the strongest balance sheet position in many years, having paid down a substantial portion of our 2025 and 2026 upcoming convertible maturities at an attractive discount and have nearly $2 billion of total liquidity available to us. In our shareholder letter last year, Steve and I wrote about the three factors that have defined Wayfair at our best. These include, one, a singular focus on what's most important for both our customers and our suppliers, underpinned by category-defining technology capabilities. Two, a belief that our team is strongest when nimble, relentlessly execution-focused, and lean. And three, a long-term owner's mindset to focus on driving the best ROI over time versus optimizing for the short term. 2024 captured all three of these in many ways, even as we continue to operate in a challenging macro environment. Our relentless customer and supplier focus has resulted in another quarter of healthy share gains in the face of a category that remains under pressure. I've talked in the past about how the overhang a depressed housing cycle has had on customers' willingness to spend on their homes. The forward outlook, especially in the core of our business, big and bulky furniture, is as unpredictable as any point in the past four years, with uncertainty over the state of inflation, global trade policy, and interest rates, among other factors. What is much more predictable is our own ability to outperform the competition. For decades prior to the pandemic, and since late 2022, we have been a consistent share winner through our unmatched expertise across marketing, merchandising, supply chain, and technology. We have a wide range of competitive advantages across each one of these pillars, all aimed at building a better experience for our customers and our suppliers. In our updated investor presentation published today, we highlighted many of these competitive advantages, providing details on a few that are in earlier stages and a deeper level of data on several that we have discussed here before. There are a number of stats that will be new to investors, so I'd like to walk you through a few of the noteworthy ones now. We've invested in our proprietary logistics network for nearly a decade, which has given us one of our most potent and durable competitive advantages. Suppliers are eager to leverage the services we offer because Castlegate gives them access to a world-class logistics network, one with a degree of scale and sophistication that very few of the industry's suppliers have the ability to replicate on their own. Castlegate can provide a meaningful growth unlock for our partners by driving a better customer experience and much of that revolves around the benefits of forward positioning. Approximately 90% of the orders from Castlegate have a speed badge due to our ability to intelligently position products across the network and integrate our fulfillment centers into the last mile delivery operations. This advantage, combined with the nature of a logistics network custom built for home, is demonstrable. Compared to items fulfilled by third-party logistics providers, Castlegate fulfilled items see order to delivery dates nearly halved return rate percentage down by about a fifth, lower rates of incidence, and higher NPS. Suppliers routinely experience a considerable uplift in conversion rates as a result of the speed badge and lower retail prices. Going from no speed badging to a one-day badge can drive a conversion uplift of over 60%. Alongside logistics, curation is another one of our competitive advantages. Our work around making the catalog fun and engaging to shop is a key driver of trust for our customers, especially when they are making an investment in something for their home that they haven't been able to see or touch. There are many ways we do this, including an initiative we launched late last year called Wayfair Verified. The Wayfair Verified stamp on a product page gives customers a quick and easy way to identify products that we've specifically chosen to highlight and that have been physically audited by our merchants. This means our team handles the products themselves to ensure that they meet the highest quality and value standards. In addition to the attributes on our typical product page, like high resolution imagery, reviews, and other details, Wayfair verified items often also include a short editorial video where our merchants showcase the key features that make these products stand out and explain why this item is one of their top choices. The benefits to both the supplier and the customer are clear. Today, Wayfair verified items drive more than 15 times the number of visits per SKU than the catalog at large, and drive over 20 times the amount of revenue per SKU. Students of Wayfair will know this well, but fundamentally, our competitive advantages are derived from leveraging our scale to solve the multitude of challenges that suppliers face in the home category. This is perhaps no more evident than in our efforts around physical retail. Last spring, we opened our first Wayfair branded store just outside of Chicago, and the response has been tremendous. We combined our deep supplier relationships, the strength of our brand, and our logistics and curation capabilities into a shopping experience that is resonating with customers, more than half of which are entirely new to Wayfair. While we built the store on the basis of our expectations around four-wall economics, we've been extremely pleased at the wider halo uplift we've seen around the store. To use one basic metric for halo measurement, In 2024, we saw more than 15% spread in the growth rate of the state of Illinois versus the U.S. overall. There is still much more for us to do here, and we're already fast at work on our second Wayfair store, as well as the launch of our first pair of gold branded stores later this year. Zooming back out, we hope this new version of our presentation is a helpful tool for investors, both new and old, as they think about our competitive advantages. and how those apply across the set of growth initiatives we have in flight. If you look back over the past couple of years, I would describe 2023 as a year of driving meaningful cost efficiency. Our focus was on returning the business to a place of positive adjusted EBITDA and free cash flow. The theme for 24 was in many ways about laying the foundations for a return to growth, which we saw in the tail end of the year. Looking ahead, we intend 2025 to be a year where our investments in competitive differentiation return the business back to a state of expanding growth, even as the market remains challenged. Our enthusiasm is further enhanced now that our tech re-platforming is far along, which means that over the year, we can focus an increasing amount of our technology resources on driving growth. We spent much of last year talking about some of the new investments we made into marketing. Early in 2024, we rolled out a significant brand refresh with our waiverhood campaign, which brought fresh creative in top of funnel. The waiverhood was designed to be a platform on which we could build out future marketing campaigns, and the results we've seen so far from these efforts have been encouraging. In the fourth quarter, we launched our first holiday installment of the waiverhood and continue to see powerful positive impacts across awareness, brand linkage, and recall rates. This is resonating across the business in multiple ways. We saw healthy double-digit growth in app installs during the fourth quarter, and we saw new customer order growth in the U.S. outpace repeat for the first time since 2020. Pinterest continues to be one of our most powerful channels to speak with home shoppers, and we saw very robust double-digit growth in visits during the fourth quarter. We're very excited about our plans ahead for 2025. We've got new campaigns, new influencer partnerships, and continue to test it in newer channels for us, such as YouTube and AppLovin'. This testing stage has been a core part of our expertise in digital marketing for years. We take a thoughtful and considered approach as we look to develop new channels, testing customer response aggressively, and only choosing to scale where we see clear evidence of payback. These investments are table setting for substantial returns, not just in the quarters ahead, but also for years down the road. We're able to make these investments because of the considerable financial discipline we've exhibited over the past three years as we continually improve multiple areas of the P&L. Financial discipline is a key driver of how we think about return on investment, especially the return of our longer-term investments, which are the initiatives we expect to have the highest payoffs. We hold a high bar and strive to bring intellectual honesty as we evaluate efforts where our investment thesis came to fruition and times that it did not. Last month, we announced our decision to exit the German market, largely due to the opportunity to pursue higher ROI initiatives elsewhere. Scaling our market share and improving our unit economics in the German market had proven difficult due to the challenging macro in Germany, our limited scale there, and our current brand awareness in the country. If you didn't get a chance, I'd encourage you to read the letter we published at the time of the announcement for more details. One key takeaway I would reiterate here is this. Like every company, we operate with a set of constraints dictated by the budget we have to deploy against our goals. We've always been proud of the rigor and analysis we put behind each dollar of spend to ensure we are maximizing return. We scale investments that are at a point of proven success, but every effort has to start somewhere. In the lead up to that, we have small teams that are focused on low cost and high potential ideas. In that spirit, I want to call out one of the projects our team focused on far future R&D just launched, Muse, our latest innovation in personalized home shopping. Nearly two years ago, we launched Decorify, our first foray into leveraging generative AI to drive inspiration in the shopping journey of our customers. Muse is our evolution in how customers discover, personalize, and shop for their dream spaces. Users can explore an infinite possibility of room ideas populated with items to inspire purchases on Wayfair. Muse elevates our best-in-class search experience by utilizing generative AI to blend inspiration and shopping, and we can't wait to see what our customers are able to come up with. You can start right now at wayfairnext.com slash muse. I opened today with a reference to our 2023 shareholder letter and the core tenets of how we have run Wayfair for more than two decades. As I wrap up, I'd like to now close with an excerpt from the letter we published just this morning, which I would encourage you to read. Under the umbrella of those core tenants, we enter this year excited about the opportunity to continue to, one, focus on tight execution to drive profitable growth through taking market share. Two, continue improving the financial position and strength of the business. And three, further build out our five long-term moats. We're making smart, high-return investments across the business, and at the same time, remain committed to growing adjusted EBITDA dollars year over year. We are confident this approach sets us up well for a compelling payoff over 2025, and we are excited to bring all of our stakeholders with us on this next leg of the Wayfair journey. Thank you, and now let me pass it over to Kate to go through our financials.