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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission File Number: 001-36666

Wayfair Inc.

(Exact name of registrant as specified in its charter)

(617) 532-6100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes o   No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No  x

As of October 7, 2014, there were 12,650,000 shares of the registrant’s Class A common stock, par value $0.001 per share, and 70,265,213 shares of the registrant’s Class B common stock, par value $0.001 per share, outstanding.

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WAYFAIR INC.

FORM 10-Q

TABLE OF CONTENTS

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EXPLANATORY NOTE

The financial statements and other disclosures contained in this Quarterly Report on 10-Q are those of Wayfair LLC, which is a wholly-owned subsidiary of Wayfair Inc., the Corporation, which is the registrant. Prior to the effectiveness of the Corporation’s registration statement on Form S-1 related to its initial public offering in October 2014, Wayfair LLC was the principal operating entity. In connection with the initial public offering of the Corporation, Wayfair LLC completed an internal restructuring pursuant to which Wayfair LLC became a wholly-owned subsidiary of the Corporation, and the holders of equity interests in Wayfair LLC became stockholders of the Corporation. Because the internal restructuring was not completed as of September 30, 2014 and the Corporation had no substantial assets or activities (other than activities relating to its formation and initial public offering) as of such time, the Corporation believes it is informative to provide the consolidated financial statements and various other disclosures of Wayfair LLC as of September 30, 2014 and for the periods ended September 30, 2014 and 2013.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

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Wayfair LLC

Condensed Consolidated Balance Sheets

(unaudited)

See notes to condensed consolidated financial statements.

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Wayfair LLC

Condensed Consolidated Statements of Operations

(unaudited)

See notes to condensed consolidated financial statements.

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Wayfair LLC

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

See notes to condensed consolidated financial statements.

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Wayfair LLC

Condensed Consolidated Statements of Cash Flows

(unaudited)

See notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Summary of Business Operations and Basis of Presentation

Wayfair LLC is a Delaware limited liability company and a wholly-owned subsidiary of Wayfair Inc. (together with Wayfair LLC, the “Company”), which is the registrant filing this Quarterly Report on Form 10-Q. Prior to the effectiveness of Wayfair Inc.’s registration statement on Form S-1 related to its initial public offering in October 2014, Wayfair LLC was the principal operating entity. In connection with the initial public offering of the Company, Wayfair LLC completed an internal restructuring pursuant to which Wayfair LLC became a wholly-owned subsidiary of Wayfair Inc. and the holders of equity interests in Wayfair LLC became stockholders of Wayfair Inc. Because the internal restructuring was not completed as of September 30, 2014 and Wayfair Inc. had no substantial assets or activities (other than activities relating to its formation and initial public offering) as of such time, the consolidated financial statements and these accompanying notes refer primarily to Wayfair LLC, unless otherwise noted.  The Company is an e-commerce business offering visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over seven million products from over 7,000 suppliers across distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio, and Birch Lane. In addition to generating net revenue through Direct Retail sales, which includes all sales generated primarily through the Company’s websites, mobile-optimized websites, and mobile applications (“sites”), net revenue is also generated through sites operated by third parties and through third-party advertising distribution providers that pay the Company based on the number of advertisement related clicks, actions, or impressions for advertisements placed on the Company’s sites.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s prospectus dated October 1, 2014 filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on October 2, 2014.

The consolidated balance sheet data as of December 31, 2013 was derived from audited financial statements. The accompanying consolidated balance sheet as of September 30, 2014, the consolidated statements of operations, consolidated statements of comprehensive loss, and consolidated statements of cash flows for the periods ended September 30, 2014 and 2013 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2014 and results of operations and cash flows for the periods ended September 30, 2014 and 2013. The financial data and the other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014, or for any other period. The condensed consolidated results of operations and cash flows for the nine months ended September 30, 2014 are not necessarily indicative of the results of operations and cash flows that may be expected for the year ending December 31, 2014.

Unaudited Pro Forma Balance Sheet as of September 30, 2014

On October 7, 2014, the Company completed its initial public offering (the “IPO”) of 12,650,000 shares of its Class A common stock at a public offering price of $29.00  per share, of which 10,500,000 shares were sold by the Company and 2,150,000 shares were sold by selling stockholders, including 1,650,000 shares pursuant to the underwriters’ option to purchase additional shares, resulting in net proceeds to the Company of approximately $282.7 million, after deducting underwriting discounts and estimated offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

On October 1, 2014, in anticipation of the IPO, the Company completed an internal restructuring (the “corporate reorganization”). Pursuant to the corporate reorganization, Wayfair LLC became a wholly-owned subsidiary of Wayfair Inc., and the holders of equity interests in Wayfair LLC became stockholders of Wayfair Inc.  Wayfair Inc. was incorporated as a Delaware corporation on August 8, 2014. As of September 30, 2014, Wayfair Inc. had not engaged in any business or other activities except in connection with its formation and in preparation for the IPO.

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The unaudited pro forma balance sheet as of September 30, 2014, reflects the following:

(i) net proceeds from the IPO of $282.7 million after deducting the underwriting discount and estimated offering expenses, (ii) a net adjustment to deferred income tax liabilities of $0.3 million in connection with the Company’s corporate reorganization, (iii) an adjustment of $14.4 million to reduce the carrying value of the participating preferred units to reflect conversion value assuming the security was converted on the balance sheet date, (iv) a distribution of $24.5 million of cash to the Company’s Series A convertible preferred stockholders upon completion of the IPO equal to the members’ distribution payable balance, (v) an adjustment of $48.6 million to give effect to equity based compensation expense associated with common option units, deferred units and restricted common units that have satisfied the service condition and (vi) the net issuance of 1,129,095 shares of Class B common stock issuable upon the vesting of outstanding deferred units upon completion of the IPO, net of minimum tax withholding obligations and the associated payment of cash, which amount was approximately $22.6 million. All of the aforementioned adjustments have been reflected in the pro forma consolidated balance sheet as if these events all occurred on September 30, 2014 and (vii) the reclassification of $1.8 million from due to related party to accrued expenses to reflect the effect of consolidation of SK Retail, which was the majority member of Wayfair LLC prior to the corporate reorganization.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Wayfair LLC and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. On an ongoing basis, management evaluates these estimates and judgments, including those related to revenue recognition, capitalization of site and software development costs, stock-based compensation, and inventory. Actual results could differ from those estimates.

Concentrations of Credit Risk

Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, short-term investments, and accounts receivable. The risk with respect to cash and cash equivalents and short-term investments is minimized by the Company’s policy of investing in financial instruments (i.e., cash equivalents) with short-term maturities issued by highly-rated financial institutions. At times, these balances may exceed federally insured limits; however, to date, the Company has not incurred any losses on these investments. The risk with respect to accounts receivable is managed by the Company through its policy of monitoring the creditworthiness of its customers to which it grants credit terms in the normal course of business. As of September 30, 2014 and December 31, 2013, the Company had $1.4 million and $2.6 million, respectively, in banks located outside the United States.

Leases

The Company leases office space in several countries around the world under non-cancelable lease agreements. The Company generally leases its office facilities under operating lease agreements. Office facilities subject to an operating lease and the related lease payments are not recorded on the balance sheet. The terms of certain lease agreements provide for rental payments on a graduated basis, however, the Company recognizes rent expense on a straight-line basis over the lease period in accordance with authoritative accounting guidance. Any lease incentives are recognized as reductions of rental expense on a straight-line basis over the term of the lease. The lease term begins on the date the Company becomes legally obligated for the rent payments or when it takes possession of the office space, whichever is earlier.

The Company establishes assets and liabilities for the estimated construction costs incurred under lease arrangements where the Company is considered the owner for accounting purposes only, or build-to-suit leases, to the extent the Company is involved in the construction of structural improvements or take construction risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales

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recognition under the sale-leaseback accounting guidance. If the Company continues to be the deemed owner, the facilities are accounted for as financing leases.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update that requires the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the consolidated balance sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The Company adopted this new standard on a prospective basis in the first quarter of fiscal 2014, and the adoption of this accounting standard update did not have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued new accounting guidance regarding revenue recognition under GAAP. This new guidance will supersede nearly all existing revenue recognition guidance, and is effective for public entities for annual and interim periods beginning after December 31, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of this new guidance on the Company’s condensed consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Presentation of Financial Statements - Going Concern”, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures.  ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter.  Early application is permitted.  The adoption of ASU 2014-15 is not expected to have a material effect on the condensed consolidated financial statements.

2. Fair Value Measurements

The Company’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

The following tables set forth the fair value of the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 based on the three-tier value hierarchy:

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3. Acquisition, Intangible assets and Goodwill

Intangible assets consisted of the following as of September 30, 2014 and December 31, 2013 (in thousands):

4. Property and Equipment, net

Property and equipment, net consists of the following:

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5. Accrued Expenses

Accrued expenses consist of the following:

6. Commitments and Contingencies

Operating Leases

The Company leases office space under non-cancelable operating leases. These leases expire at various dates through 2024 and include discounted rental periods and fixed escalation clauses, which are amortized straight-line over the terms of the lease.

In March 2014, the Company expanded the lease of office space in Boston, MA to a total of approximately 275,000 square feet in order to accommodate the expansion of the Company’s headquarters.  The Company began occupying this space in June 2014 and expects to begin occupying additional space with the expansion occurring in June 2015.  This space will result in additional operating lease obligations of $52.1 million payable through 2024. The Company has an option to extend the lease for two successive 5 year periods.

In September 2014, the Company signed a lease to expand its warehouse space in Ogden, UT by an additional 180,000 square feet which it plans to occupy in 2015. This space will result in additional operating lease obligations of $9.1 million payable through 2022.

Collection of Sales or Other Similar Taxes

Based on the location of the Company’s current operations, it collects and remits sales tax in Kentucky, Massachusetts, New York and Utah. The Company does not currently collect sales or other similar taxes for the sale of goods in states where no obligation to collect these taxes is required under applicable law. Several states have presented the Company with assessments, alleging that it is required to collect and remit sales or other similar taxes. The aggregate amount of claims from these states is approximately $11.7 million. The Company does not believe that it was obligated to collect and remit such taxes, and intends to vigorously defend its position. At this time, the Company believes a loss is not probable hence a liability has not been recorded, however, no assurance can be given as to the outcome of this situation.

Legal Matters

The Company is subject to legal proceedings and claims in the ordinary course of business. However, the Company is not currently aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

7. Equity-Based Compensation

In July 2010, the Company established the CSN Stores LLC 2010 Common Unit Plan (the “CSN Plan”). Effective July 1, 2011, the CSN Plan was amended and restated as the Wayfair LLC Amended and Restated 2010 Common Unit Plan (the “2010 Plan”). The 2010 Plan was administered by the board of directors of Wayfair LLC and provided for the issuance of option units, deferred units, and restricted units (all common units), which currently represent Class B common stock of the Company. As of September 30, 2014, the 2010 Plan authorized up to 12,405,879 units to be issued, of which 603,769 units and 1,206,547 units were available for issuance at September 30, 2014 and December 31, 2013, respectively.

Under the 2010 Plan, the deferred units, common unit options, and restricted common units are subject to two vesting triggers: a service period (typically five years) and the occurrence of a liquidity event, which is defined in the 2010 Plan as

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either a change of control or an initial public offering. Employees are able to retain provisionally vested units (defined as service period completed) upon departure. The Company made a policy election to consider the liquidity event a performance condition. The Company has determined that the liquidity event performance condition was met upon the Company’s IPO in October 2014 and the Company will recognize approximately $48.6 million related to the provisionally vested units in the fourth quarter of 2014. The common unit options have a contractual life of ten years from the date of issuance, and deferred units have a seven-year life. The restricted common units have no contractual life. All outstanding equity incentive units of Wayfair LLC outstanding immediately prior to the reorganization automatically converted into (i) options to purchase Class B common stock, (ii) shares of our Class B common stock subject to vesting and repurchase provisions or (iii) restricted stock units for our Class B common stock.

In connection with the reorganization and the IPO in October 2014, the board of directors of Wayfair Inc. took over administration of the 2010 Plan and adopted the 2014 Incentive Award Plan (“2014 Plan”) to grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which the Company competes. The 2014 Plan is administered by the board of directors of Wayfair Inc. with respect to awards to non-employee directors and by the compensation committee with respect to other participants and provides for the issuance of stock options, SARs, restricted stock, RSUs, performance shares, stock payments, cash payments, dividend awards and other incentives.  The 2014 Plan authorizes up to 8,603,066 shares of Class A common stock to be issued, of which no shares had been issued as of September 30, 2014.

A summary of the status and activity for awards of common option units under the 2010 Plan for the nine months ended September 30, 2014, is as follows:

A summary of the status and activity for awards of restricted common units under the 2010 Plan for the nine months ended September 30, 2014, is as follows:

A summary of the status and activity for awards of deferred units under the 2010 Plan for the nine months ended September 30, 2014, is as follows:

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8. Segment and Geographic Information

The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by our chief operating decision maker (“CODM”) in managing and accessing the business. The CODM for the Company is the Chief Executive Officer. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has one operating and reportable segment. No country outside of the United States provided greater than 10% of total revenue.

The Company generates net revenue from Direct Retail sales derived through the Company’s sites and Other sales derived through sites operated by third parties and fees from third-party advertising distribution providers as set forth below:

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.

The following table sets forth revenue and long-lived assets by geographic area:

9. Income Taxes

Wayfair LLC is organized as a limited liability company and taxed as a partnership under the Internal Revenue Code, and accordingly, no provision for federal or state and local income taxes is made on income since the members are individually liable for federal and state and local income taxes on their share of the Company’s earnings. However, the Company is responsible for distributing monies to pay tax liabilities to its members if due, including SK Retail, which was its majority member prior to the corporate reorganization. In addition, the Company is responsible for making distributions to SK Retail for

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corporate taxes imposed by the Commonwealth of Massachusetts. Due to the Company incurring a taxable loss during the periods ended September 30, 2014 and 2013, the Company would not have been subject to additional income tax had it paid federal income taxes at the corporate level.

The Company’s foreign subsidiaries are subject to income tax in those jurisdictions.  The (provision) benefit amounted to $(49,000), $(1,000), $(66,000) and $4,000 in the three and nine months ended September 30, 2014 and 2013 respectively and related to various minimum foreign income tax assessments.

Upon the completion of the corporate reorganization described in note 1, the Company, will be subject to corporate tax on income.  The Company prepared and provided the unaudited pro forma consolidated balance sheet as if the reorganization from a limited liability company to a corporation in connection with this offering occurred on September 30, 2014. Pro forma deferred income taxes reflect the net tax effects of temporary differences between the pro forma carrying amounts of our tax assets and liabilities calculated for financial reporting purposes and the amounts that would have been calculated for our income tax returns in accordance with tax regulations and the net pro forma tax effects of operating loss and tax credit carryforwards if we had been a taxable entity.

The ultimate realization of deferred tax assets depends on the generation of sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions during the future periods in which the related temporary differences become deductible. The Company determined the valuation allowance on pro forma deferred tax assets is in accordance with the accounting standard for income taxes, which require weight of both positive and negative evidence in order to ascertain whether it is more likely than not that the pro forma deferred tax assets would be realized. The Company evaluated all significant available positive and negative evidence, including the existence of cumulative net income, benefits that could be realized from available tax strategies and forecasts of future taxable income, in determining the need for a valuation allowance on pro forma deferred tax assets. After applying the evaluation guidance of the accounting standard for income taxes the Company determined that it was more likely than not that $28.8 million of the pro forma deferred tax assets will not be realized, and as such, a valuation allowance of $28.8 million was required.

As of September 30, 2014, pro forma tax effected deferred tax assets, net of valuation allowance, and deferred tax liabilities were $7.0 million and $7.3 million respectively. Accordingly the pro forma net deferred tax liability as of September 30, 2014 was determined to be $0.3 million.

10. Members’ Deficit

Corporate Reorganization

On October 1, 2014, in anticipation of the IPO, the Company completed a corporate reorganization. Pursuant to the reorganization, Wayfair LLC became a wholly-owned subsidiary of Wayfair Inc., and the holders of equity interests in Wayfair LLC became stockholders of Wayfair Inc.  Wayfair Inc. was incorporated as a Delaware corporation on August 8, 2014. As of September 30, 2014, Wayfair Inc. had not engaged in any business or other activities except in connection with its formation and in preparation for this IPO.

Preferred Units

As of September 30, 2014, Wayfair LLC had 21,551,801 Series A convertible redeemable preferred units (“Series A units”) and 5,995,133 million Series B convertible redeemable preferred units (“Series B units”) issued and outstanding. Each holder of Series A and Series B units was entitled to certain rights and privileges. Upon the reorganization and in connection with the IPO in October 2014, all of the outstanding shares of Series A units and Series B units were ultimately converted into 27,546,934 shares of Class B common stock in Wayfair Inc.

Preferred Stock

As of September 30, 2014, Wayfair Inc. had no shares of undesignated preferred stock issued or outstanding.  Upon the closing of the IPO in October 2014, Wayfair Inc. authorized 10,000,000 shares of preferred stock, $0.001 par value per share, for future issuance.

Common Units

As of September 30, 2014 the Company had 43,784,060 shares of common units outstanding. Upon the corporate reorganization, and in connection with the IPO, all of the outstanding common units were exchanged for shares of common

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stock and further reclassified into 43,784,060 shares of Class B common stock.  In addition, upon the closing of the IPO in October 2014, Wayfair Inc. issued 1,129,095 shares of Class B common stock upon the vesting of outstanding restricted stock units, net of minimum tax withholding obligations.

Common Stock

As of September 30, 2014, Wayfair Inc. had authorized 1,000 shares of common stock all of which were outstanding. Upon the closing of the IPO in October, 2014, Wayfair Inc. 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 12,650,000 shares of Class A common stock and 70,265,404 shares of Class B common stock were outstanding.  The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock.  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 662/3% 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, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Board may determine.

11. Net Loss per Common Unit/Share

Basic and diluted net (loss) income per common unit is presented using the two class method required for participating securities. Holders of the Series A and Series B units are entitled to receive cumulative dividends payable prior and in preference to any dividends on any of the common units of Wayfair LLC. The Company considers its Series A and Series B units to be participating securities and, in accordance with the two class method, earnings allocated to Series A and Series B units and the related number of outstanding participating securities would be excluded from the computation of basic and diluted net income (loss) per common unit.

Under the two class method, net (loss) income attributable to common unit holders is determined by allocating undistributed earnings between common units and participating securities. Undistributed earnings are calculated as net income (loss) less distributed earnings and accretion of Series A and Series B units. As holders of Series A and Series B units do not have a contractual obligation to share in the losses of Wayfair LLC, the net loss attributable to common unit holders for each period is not allocated between common units and participating securities. Accordingly, Series A and Series B units are excluded from the calculation of basic and diluted net loss per common unit. The Company’s basic and diluted net loss per common unit are the same because the Company has generated net loss to common unit holders and common unit equivalents are excluded from diluted net loss per share because they have an antidilutive impact.

The following table presents the calculation of basic and diluted net loss per common unit:

The following have been excluded from the computation of basic and diluted net loss per share attributable to common stockholders as their effect would have been antidilutive:

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