Wayfair Inc.
Q3 2020 Earnings Call Transcript

Published: 3 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to today’s Wayfair Q3 2020 Earnings Release and Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to turn the call over to Jane Gelfand, Head of Investor Relations & Special Projects. Please go ahead.

[Jane Gelfand:]

Good morning and thank you for joining us. Today, we will review our third quarter 2020 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer, and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; and Michael Fleisher, Chief Financial Officer; and Martin Reiter, Vice President and Head of Europe. We will all be available for Q&A following today’s prepared remarks.

[Niraj Shah:]

Thanks, Jane, and hello, everyone. We appreciate all of you joining us as we know there’s a lot happening on this Election Day morning. We are pleased to report the Q3 marked another quarter characterized by strong growth and continued profitability for Wayfair. Though the initial shock of the arrival of COVID-19 is arguably behind us, consumer behavior in both, North America and in Europe is undeniably changed as a result of the pandemic. From a macro perspective, we’re encouraged by continued consumer resilience, though clearly much is still in flux. The home category is seeing broad-based demand as our customers reprioritize their spending on where and how they live, and away from other experiences like travel, entertainment and dining. To the extent that de-urbanization trends continue to gain traction, these should in the near to intermediate term prove an additional tailwind for the category. As the e-commerce business focused purely on the home, Wayfair continues to benefit from both increased online penetration and heightened spend on the category. In Q3, this was reflected in continued elevated rates of new customer acquisition, and strong repeat order growth, which together translated to an incremental $1.5 billion in net revenue, or 67% growth year-over-year. The exceptional top-line momentum combined with our internal efficiency initiatives led to a second consecutive quarter of strong profitability. Our Q3 consolidated adjusted EBITDA came in at $371 million or 9.7% margin.

[Martin Reiter:]

Thanks, Niraj, and hello, everyone. I’m glad to be joining you today to discuss our exciting business in Europe. To share a bit of background, I joined Wayfair seven years ago and has held a variety of leadership roles inside the Company. For the last five years, I’ve overseen the European business. Prior to Wayfair, I built out Airbnb’s global presence across four continents, as Head of International, having worked with Groupon and McKinsey before that.

[Michael Fleisher:]

Thank you, Martin, and good morning, everyone. As usual, I will first cover the financial details of the third quarter to complement what Niraj has already said, and then will turn to our Q4 outlook. As you saw in our press release and IR presentation, our Q3 total net revenue grew approximately 67% or $1.5 billion year-over-year. Growth rates were similar across the U.S. and international segments, reflecting a somewhat faster normalization, post the initial COVID shock in our international markets as compared to the U.S. Excluding the boost from Way Day, which occurred in Q3 this year, but not in the year-ago period, we saw net revenue growth rates sequentially moderate towards the back half of the quarter. Even so, the absolute growth rates remained very-robust and well above pre-COVID levels. This moderation ex Way Day was consistent with our expectations and makes sense as customers strive to return to some kind of new normal. Way Day ended up benefiting Q3 net revenue slightly more than we had estimated, thanks to some of the things we are doing to mitigate shipping congestion, though more than half of the net revenue will still fall in Q4. This is to say that the gap between gross and net revenue growth rates we mentioned last quarter, persisted in Q3, though the magnitude did narrow. We do not expect it to fully close in Q4 as delivery speeds will still likely prove slower than usual through the holidays. Because Niraj discussed many of the KPIs we track earlier, I’ll now jump to gross margin. As I move down the P&L, please note that I’ll be referencing the remaining financials on a non-GAAP basis, which includes depreciation and amortization but excludes stock-based compensation. Gross margin came in at 30%, showing about 650 basis points of leverage year-over-year but about 70 basis points lower than Q2. The sequential move reflects less volume throughput through our logistics network relative to last quarter, though there are still significant efficiencies accruing to us as volume remains robust. More importantly, the year-on-year expansion is also supported by internal gains made through all of our other initiatives, like merchandising and margin-accretive supplier services. We will speak more about this in a bit, but it’s fair to say that we expect gross margin to settle out substantially higher than where we entered pre-COVID, regardless of the net revenue growth rate. The customer service and merchant fee line item normalized sequentially too and came in at 3.5% of net revenue. This reflected more appropriate staffing within the customer service organization to calibrate against elevated order levels, and therefore, increased call volume. Moving on to advertising, we saw 325 basis points of leverage year-over-year and another 70 basis points of leverage sequentially. Though media costs increased relative to Q2, they are still favorable year-over-year, and online traffic remains elevated. This combination helped us run our various marketing channels at good scale, while of course sticking to our efficiency goals. We also saw a greater share of repeat orders this period, and these ran at a lower advertising cost as a percent of net revenue. To be clear, though we’re pleased with the exceptional results, we wouldn’t extrapolate Q3 as being indicative of a new run rate for advertising as a percent of net revenue, given some of the still existing irregularities in the market. Consistent with what we said last quarter, we believe that a very low double digit, 10% to 11% type range, for this line is a more prudent assumption going forward. Our selling operations technology and G&A or OpEx expenses came in at $373 million and in line with our expectations. Recall that compensation represents a significant portion of this line item, and our OpEx headcount will be down for the year. Because as many of you have asked about our headcount plans for 2021, I will just offer that we remain disciplined and expect net hiring and OpEx to grow somewhat but remain at a relatively low level. As always, we will flex variable hiring commensurate with growth, but these employees’ compensation runs elsewhere through the P&L, namely through COGS and customer service. To wrap up on Q3, adjusted EBITDA for the quarter was $371 million or 9.7% of net revenue. In the U.S., adjusted EBITDA margin equaled 11.5%, while the international segment posted modestly negative adjusted EBITDA at negative $6 million. As we’ve said before and as Martin just described, Wayfair is at an earlier stage in international, and therefore, we are comfortable with the different margin profiles across our segments for now and see no reason why they could not be similarly positive over the long term. In general, we are pleased to report a second consecutive quarter of positive adjusted EBITDA performance for the Company in Q3 and to have moved into positive EPS territory on a year-to-date basis. We ended Q3 with $2.6 billion of cash and highly liquid investments on our balance sheet, and free cash flow for the quarter was $255 million. While this too represents the second consecutive quarter of positive free cash flow, I’d like to remind you that working capital swings will affect our free cash flow results quarter-to-quarter. We operate with a negative cash conversion cycle, which is, on the whole, a significant advantage. However, this also means that the sequential change in our revenue and order growth can cause swings in our cash flow generation period to period. Now, turning to the Q4 outlook. Recognizing that we remain in a highly fluid environment, it’s too early to provide official guidance from top to bottom line. Instead, I will continue to offer transparency on gross revenue growth thus far into the quarter with some additional qualitative thoughts about what’s to come. I will also share some perspective on the progression of the various expense lines in the P&L. Quarter-to-date, our gross revenue growth is trending at roughly 50% year-over-year. As I mentioned earlier, we did see moderation in growth in the latter half of Q3, excluding Way Day. And we still expect strong growth for the whole of Q4 and obviously well above pre-COVID levels. Though we’re optimistic that holiday demand for the category will prove healthy and expect that many will prefer to shop online, there are still tremendous unknowns, a statement which is probably more poignant than usual when made on Election Day. We are a mass-oriented business where the customer has to show up every day. Between ongoing economic and individual uncertainty, and a serious health crisis still underway, there is plenty of room for volatility and distraction, and we need to appropriately calibrate in the way we plan and model, and we would urge you to do the same. One side note before we move on to the rest of the P&L. Because our plans this year call for an extended period of holiday programming and less concentration on Cyber Five specifically, we will not be publishing our typical post-Cyber Five press release in Q4. Comparability issues would simply make it meaningless. Moving on to gross margins. Even as volume growth normalizes from Q2 peaks, we are continuing to unlock structural gains along several key dimensions. These include logistics efficiencies, pricing leverage on the back of merchandising and house and flagship brand investments, positive mix as supplier services grow and scale benefits across the entire wholesale and supply chain cost structure. After multiple years of investments behind these initiatives, 2019 marked a turning point as we started to see associated returns start to more meaningfully flow through. And this is continuing through 2020. As a result, for Q4, we would point you to a gross margin range somewhere between 26% and 28%. When you think about the other P&L line items, please refer back to some of my earlier remarks and consider the following. Customer service and merchant fees should continue to move towards the 4% of net revenue that we typically target for this expense item. Advertising as a percentage of net revenue should normalize further from Q2 and Q3 levels. We continue to view 10% to 11% as a more appropriate range to target here. And finally, our SOTG&A dollars, excluding stock-based compensation, are estimated to be approximately $400 million in Q4, which is down modestly year-over-year, reflecting our higher trajectory this year. To help you with a few more housekeeping items, please assume equity-based compensation and related tax expenses of approximately $86 million to $88 million, and depreciation and amortization of approximately $73 million to $78 million. We expect basic weighted average shares outstanding to equal approximately 99 million, though our diluted weighted average shares outstanding will ultimately be driven by the net income results in Q4. You will recall that we discussed the accounting mechanics of this in detail when we reported last quarter. Finally, we expect CapEx in a $75 million to $85 million range, subject to expected timing. These various moving parts should produce another quarter of strong and profitable growth to round out 2020. As I wrap up, I want to acknowledge that Wayfair has been fortunate to be well positioned thus far during this extraordinary, and at times, difficult year. But it is not by accident a business can add literally billions of dollars in revenue over a short period and can do this relatively smoothly while navigating enormous complexity. Thanks to our long-term oriented philosophy, Wayfair has been built to scale while remaining ambitious and agile. We saw the benefits of this approach in 2020, and this flexibility will prove crucial as there are still many uncertainties ahead over the coming months and quarters, with still high potential for disruption and opportunity. We are staying prudent as we plan for 2021 and are prepared to adjust as necessary. That said, the long-term orientation that got us here remains firmly intact. We are laser-focused on the huge home category TAM, reinforcing our winning platform for both customers and suppliers and on effectively balancing growth, profitability, and high ROI investments for many years to come. Now, I’ll turn the call back to Niraj for some closing remarks before we take your question.

[Niraj Shah:]

Thanks, Michael. I just want to express a quick but very sincere thank you to our nearly 17,000 employees. Whether on the front lines or working from home, we are prioritizing our customers and our suppliers in ways that will drive value well beyond the COVID period. We’re demonstrating resilience in the midst of difficult circumstances. And together, we are looking forward to making this upcoming holiday season a strong success as the home becomes even more important to get just right. Michael, Martin, Steve and I will now turn to your questions. We’ll have a hard stop at 9

[Operator:]

Your first question goes to Peter Keith from Piper Sandler.

[Peter Keith:]

Hi. Thank you. Good morning. Congrats, everyone, for the continued success. And Michael, thanks for the early peak on headcount for 2021. We do get questions on if 2021 is going to be an investment year. And so, maybe I’ll focus specifically on your supply chain and logistics network. How do you feel about the current capacity within the network, given the buildout that’s occurred in recent years? I know, you’ve done some reracking to ad space. But, with 60% sales growth year-to-date, are you starting to reach full capacity where you’re going to have to jump start the buildout as we look out to 2021, either domestic or international?

[Niraj Shah:]

Peter, this is Niraj. Thanks for the question. Let me jump in and answer part of it, and then Michael can chime in as well. In terms of how you should think about 2021 and forward on logistics, I think, the way to think about it is, the 18 million square feet of logistics we have built has still a tremendous amount of capacity we can add. And some of that, as you mentioned, is adding additional racking, which we’ve been doing. Some of it is what we’ve been able to do with sortation and methods to increase throughput through the buildings. But as a result, we still have capacity that we can ramp to for actually some time to come. The fulfillment centers, the way to think about them is they typically have a lead time that’s kind of in the -- roundabout, call it, two to three-year timeframe between doing the deal, getting the permitting done, building the building, getting it up and running, and so the relatively long lead times. Because of the capacity we have, we don’t foresee having any constraints despite what we expect to be a tremendous amount of growth in the volumes through them over the next couple of years. And so, right now, the only things we have in the plans for the next couple of years, we have a building opening in Germany next year, and then there is one potential additional building that would open in the next two-year time frame. And then, really, what we’re working on now are the buildings that would come on line in sort of years three, four, five from now. And at that point, we do envision needing more buildings, but it will really be for capacity reasons due to aggressive scaling. But, we think the kind of near-term, the next couple of years worth of scaling, we actually can do with the buildings we already have, due to the large investments we’ve already previously made. Michael, do you want to add any color on that?

[Michael Fleisher:]

No. I guess, the only thing I would add, Peter, and we talked about this over the last couple of quarters is, we just feel like we’re in a really strong position at this point to both be making the continued investments we need to make to grow the business for the long term and delivering really good positive financial results. And so, I think, the balance between those should continue, and we feel really good about that going forward.

[Peter Keith:]

Okay, great. Maybe even a separate topic, I want to also just ask about the competitive backdrop. How do you feel about the competitive nature of the environment right now? And on a related note, there are rumors out there that your biggest U.S. competitor is diminishing the home furnishings inventory at its own DC network. Are you seeing more suppliers reach out to you to take advantage of the CastleGate network?

[Niraj Shah:]

So, on the competitive front -- this is Niraj. What I would say, kind of two-part. So one, we’ve seen more and more suppliers adopting CastleGate. And as we’ve added capability, functionality, we have Asian induction operations, like we talked about our ocean freight forwarding business. These things make it easier and easier for suppliers to access CastleGate in a cost-effective manner. And there is clear benefits to being in CastleGate pass costs around delivery speed and how that drives conversion. So, we’re seeing suppliers adopt CastleGate more and more. In terms of competitors, I just -- we had quite a few competitors. And obviously, the largest are the ones you know, Amazon, Walmart, Target, Home Depot, Lowe’s. Depending on the category, it’s going to be a subset of those folks who are our biggest competitors. But then, when you get into all the subcategories we’re in, there’s literally dozens and dozens of competitors. And so, it’s a really fragmented market. And so, what we don’t see is -- A, we’re seeing the competitive field be very similar to what we’ve seen in the past; and B, no one competitor actually has a particular ability to impact our business either on the customer side or on the supplier side. So, we tend not to see acute swings based on what a given competitor would do. And so, it’s rather this kind of sustained momentum we’re seeing over time as we launch more and more self-service functionality on our extranet, which we call Partner Home, as we make things easier for suppliers to access. So for example, CastleGate moved to a standard rate card in North America earlier this year. And what that did is it made it easier for suppliers instead of having to negotiate the CastleGate deal and contract, it made it easier and is quite a granular and made it easier for them to adopt it. So, there’s just things like that, but we’ve continued to do that to allow suppliers to adopt our programs in a easier way. I don’t know, Steve or Michael, if you have anything.

[Michael Fleisher:]

No, I think you covered that.

[Operator:]

Your next question will come from Steven Forbes from Guggenheim Securities.

[Steven Forbes:]

Good morning. Niraj, I was hoping you could expand on your comments around demand moving online at an accelerated path, right, and sort of appreciating the difficulty around determining overall demand growth this year. But, I was wondering if you could provide some thoughts on how you think COVID has impacted Wayfair’s online sales capture rate this year compared to that 35% to 38% run rate the Company has experienced over the past couple of years. And any thoughts on like the sustainability of that -- of a new elevated capture rate going forward?

[Niraj Shah:]

So, one, I would say, at a very base fundamental level, one of the things COVID has done is it’s certainly driven e-commerce adoption broadly. And then, either kind of seeing that not just in home, but you see it in categories like grocery, et cetera. I think that is a little bit of a one-way door. So, as customers come online, if they never bought online in the category, like home, for example, they’re not going to go back to not buying at all in home in a future state. And so, we kind of see that a little bit in our numbers. Last quarter, new customer order growth was 109%. That’s the only quarter with huge repeat. And so, if you think about the 109%, that’s just a crazy amount of new customer growth to get those customers within payback and simply that they’re kind of coming online for the first time. This quarter, it was like 48.7%. So, it dropped back some, but there’s like a big bolus of millions of new customers we’ve now gotten. And as they go through repeating, what happens is the share of wallet we get from them, it keeps ticking up each year. And so, if you look at this quarter, it’s gone back to our more normal pattern where repeat each year and repeat each quarter -- repeat order growth was up 84.5%. And so, if you think about kind of how that share transfer works, it’s that we market heavily to get a customer to check us out. But, once they’ve made an order, really they’ve really experienced what we offer from a selection, from product discovery, from a customer service, from a delivery and logistics standpoint. And it’s that experience that causing them to come back. And so, I think what we’re going to see is we’re going to see kind of -- kind of to your point about share taking, we’re going to continue to take share quite nicely over time because all we’re doing is we’re simply onboarding more and more customers to an experience. And in this period, we just have an opportunity to onboard far more. And so, we’re up to 29 million active customers. And you can kind of think of them as -- you can’t take it for granted. It’s not an annuity that’s guaranteed. But effectively, the way it works, if you look at kind of how the cohort’s build, it’s a bit of an annuity because if we keep making the experience better and better, these cohorts then just keep stacking on each other. And each year, they can actually spend a little more than they spent the previous year. Because at the $500-odd dollars, we’re getting proactive customers, still a small amount, and we can get share o wallet relative to the few thousand dollars we’re spending per year in home. And so, we would expect this to continue to compound. If you also think about all the things we’ve invested into, these are things that are bespoke for home. So, whether it’s around what we’ve done with 3D models and imagery or what we’ve done to access exclusive selection and what we’re doing on delivering and logistics. Remember logistics network is not the same, we’re focusing on these home goods are big and bulky items of prone to damage. Generally, these experiences are hassle-filled. We’re making them easy and convenient, what we’ve done with customer service, these are all -- we’re building them out in a very bespoke way for home. And that is the experience that a customer has with us. And they’re not commodity items. It’s not like we have body, paper towels and the other guy doesn’t. So, if you want, you buy it from us, and the guy is out of stock or maybe all paper towels or whatever, you can just buy them anywhere the same thing. Home is different. And so, I think the advantages we’re building, it doesn’t manifest in the numbers you’re talking about.

[Steven Forbes:]

And then, as a follow-up, maybe for Martin. As we look at the international segment performance and think about the investment ramp over the past couple of years and the needs going forward, any comment on how we should think about the time line behind that margin unlock? Should it be more accelerated than what we saw here in the U.S. or should we expect it to be flattish for a time period? Any color would be appreciated.

[Martin Reiter:]

Thank you. So, we believe that we have reached kind of critical mass with our offering in Europe. As I elaborated before, we have a few thousand suppliers across Europe. We have a few million products that we offer to customers, we have a pan-European supply chain, and we have digested these investments. So we think that we have quite some runway in terms of scaling on that. In terms of the margin ramp, we’re happy with our unit economics. They have improved nicely every year, in line with our internal predictions and more or less tracking the U.S. time shifted by a few years very closely.

[Operator:]

And your next question will come from Brian Nagel from Oppenheimer.

[Brian Nagel:]

Good morning. Great quarter. Congratulations. The first question I have, and I know, Niraj and Michael, you both discussed gross margin. Clearly, there’s been a step function higher now. And given the guidance you gave in fourth quarter, it’s likely to persist. I just want to be a little clear. What’s really changed here from just several quarters ago when the gross margin was running significantly lower? And then, a follow-up question, I just wanted more quite of clarity. With regard to the run rate, the sales run rate you talked about here so far in the fourth quarter, 50%, Way Day late in the third quarter. So, as Way Day -- does the spillover of Way Day contribute to that 50%, or is it now a non-event?

[Niraj Shah:]

Sure. Brian, let me -- I’ll answer the second part first. Think of Way Day as a Q3 event, but from an accounting standpoint, some of that revenue doesn’t get delivered till Q4. So, that revenue shows up in Q4. But from a demand standpoint, think of it as a Q3 event. I think, for Q4 revenue, the 50% quarter-to-date, we’re just trying to be transparent on where demand has been. Obviously, the holiday season is -- the best quarter is back-weighted because obviously the holiday period is a key period. And despite the fact that demand has remained high, what we’ve seen with Way Day is that there’s still a lot of volume, even above this kind of general peak demand we’ve been seeing. We would expect holiday to be significant, but it’s hard to know exactly how significant because the concept is that people are staying at home. If they’re likely to stay at home a lot through the winter and into next year, if they’re entertaining just their own close family and they’re not traveling, all of these things bode well for investment into the home -- for their investment into the home. And so, we sort of would expect that. And we’ve seen demand -- remember, it’s not acute in any particular class of goods. It’s been very broad-based. And so, this is just people improving their home, improving experience of their home. And when you think about holiday, there’s just a lot of categories that fit in there, whether it’s seasonal décor, whether it’s core furniture, whether it’s just buying things that allow you to entertain at home a better way, a ping pong table or just getting ready for the outdoor season, which in the middle of winter you wouldn’t think about. But to be honest, the outdoor season really picks up starting in March, depending on where in the country you are. So, there’s a lot we think that could happen there. On this margin, just to go back to the first question you had, I guess, what I would just highlight there is, remember, we’ve outlined a roadmap for 1,000 basis points of gross margin. And we started to outline that going back multiple years ago. And we also said that that’s a many year roadmap. And some of it will show up in gross margin and some of it we’ll choose to give back to the customer in benefits for them. So, you won’t see it in gross margin, but it will just be another -- yet another driver that drives up repeat. And so, that’s just another benefit for customers. And we still have the bulk of that roadmap. I would say -- but we have so much of it ahead of us basically. And it’s tricky to say where we are in that. Because frankly, over time, I think, we’ll keep unlocking additional things that we will add to that roadmap, which will just make that roadmap even more beneficial. That said, we’re also in a period of time where COVID has created some acute dynamics in the business. And one of them is this increase in volume has created some efficiency gains that show up in gross margin that we wouldn’t expect to persist if demand drop back to some sort of more normalized level, which it could happen. Right? And so, what Michael is trying to do with the guidance, I think, is key, probably these two things for you, give you an expectation around gross margin that reflects the fact that we are unlocking gain but also points to the fact that some of these gains that are COVID-related will abate. But, I think, the expectation you can have is that there is still a lot of opportunity in front of us. And so, let me just ask if Michael has anything here.

[Michael Fleisher:]

Niraj, I think you covered it. The only thing just to clarify is when we say 50% quarter-to-date, that’s gross revenue. So, that would not -- or effectively, booking, that would not include Way Day. Way Day would have been in the last quarters. Some Way Day revenue -- net revenue will show up in Q4. But, we have that every quarter. Right? There’s always some revenue from the previous quarter showing up as delivered in the following quarter. And so, I think that that’s sort of a normal course.

[Operator:]

Your next question will come from John Blackledge from Cowen.

[John Blackledge:]

Two questions. So, Niraj and Michael, you both indicated a more drawn-out marketing message in 4Q. So, kind of expecting perhaps a longer holiday season. Are you doing anything different during the holidays, either on the promotional side and/or kind of focusing on any key categories? And then, secondly, for ad expense, as we look into next year, just given the influx of new customers this year, should there be natural kind of leverage? Understand big opportunity to add more customers, but just given the influx and the repeat is cheaper on the ad side, how should we kind of think about that? Thank you.

[Niraj Shah:]

Yes. So, in terms of the holidays, what I’d just say there is what are we doing differently, we introduced our Black Friday deals earlier than we did in past years to give a preview of Black Friday, if you go back a couple of weeks ago. We’re talking -- I think that just think of the messaging for the whole season being drawn out. And it’s not just us, we’re seeing all the major retailers do it too. So we just think from a consumer standpoint, they’re just going to be introduced to the holiday season at an earlier date. And we think we’re going to be able to kind of expand the holiday season. Now how big is the holiday season is still a question to be seen. I actually personally think it could be quite big, but it’s a little hard to get with that. And so, that’s kind of a tricky. Now, let me go to your second question on ad spend. If you look at our ad spend, there’s two things that are in it. One is that repeat keeps growing and taking share as a percentage of the total. And that basically gives us leverage because the repeat volume is very inexpensive. You can actually see repeat as a share of total orders hitting all-time high this past quarter, just under 72%, 71.9%. And I know some of you last quarter, when new took off -- it kind of dipped down from 69.28% to 67.45% million, I was like, geez, repeat didn’t grow as fast. So, repeat last quarter grew -- it grew 105%. It’s just that new took off, grew 109%. Well, this quarter, you’re seeing repeat grew 84.5%, again, it’s up to 72%. So, that did add leverage. We’re constantly trying to get new customers. We’re willing to extend -- we run on a payback model, but that’s a few hundred days. So, you’re basically looking to your payback needs, when you could unlock tons of new customers, you actually -- you’re spending a bunch more in advertising. That’s an effect of pulling up the number. And the newer businesses of ours, like Germany and Perigold, are earlier in their life stage. So, they have a smaller repeat base than they do to drive the numbers. So, when you get in the total, it’s kind of a mix effect of the two. And those are really fundamentally what drive it, because I think the media cost in media markets have really normalized. There’s a lot of demand there. So, I don’t think it’s -- that there’s inexpensive inventory out there, something like that that can affect it. I actually think, it’s more of the fact the economics we have in our business that allow us to go access new customers and took them in, like really the driver of it. I don’t know, Michael, if you have anything?

[Michael Fleisher:]

No. I think you covered it.

[Operator:]

And your next question will come from Oliver Wintermantel from Evercore.

[Oliver Wintermantel:]

Hi. Thanks, guys. I had a question regarding the buybacks this quarter. Was that just an anomaly to offset some of the options, or should we expect to get some of buybacks in the future? Just from a capital structure, shareholder returns, what your guidance is there for the next couple of quarters?

[Michael Fleisher:]

Yes. Thanks, Oliver. It’s Michael. I think, on buybacks this quarter, it was really sort of cleaning up the remaining 2022 notes and sort of offsetting the dilution from the remaining notes that did not convert as part of the new convert deal we did in August. And then, on a going-forward basis, we’ve obviously left ourselves the room to sort of do buybacks on a go-forward basis. And I think what you should expect is, we’ll continue to be smart and thoughtful and pragmatic as we look out at our future convert maturities and make sure, as you’ve heard me say multiple times before, we want to sort of minimize the dilution impact from that borrowing. And so, I think, we’ll be thoughtful about that going forward.

[Operator:]

That brings us to the end of today’s Q&A session. I turn the call back over to our presenters for closing remarks.

[Niraj Shah:]

Thanks everybody for calling in. We certainly appreciate your time. Have a great holiday season.

[Operator:]

Thank you, everyone. This will conclude today’s conference call. You may now disconnect.