Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair Q4 Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Michael Fleisher, Chief Financial Officer of Wayfair. You may begin your conference.

Good morning and thank you for joining us. Today we will review our fourth quarter 2014 and fiscal year 2014 results. With me our Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; and Steve Conine, Co-Founder, Chief Technology Officer and Co-Chairman. We will, of course, be available for Q&A following today's prepared remarks. Kate Gulliver is out on maternity leave. So I am greatly looking forward to reminding you of the legal language around forward-looking statements. I would like to remind you that we will make forward-looking statements during this call, regarding future events and financial performance, including guidance for the first quarter of 2015. These statements are only predictions, based on assumptions that believed to be reasonable at the time they are made and they are subject to significant risks and uncertainties. You should not rely on these forward-looking statements as representing our views in the future. Except as required by law, we undertake no obligation to publicly update or revise these statements. Our actual results may differ materially and adversely from any forward-looking statements discussed on this call. For discussion of factors that could affect our future performance, results and business, please refer to our IPO perspective, our annual report on Form 10-K, which we expect to file in the near future, and other reports we have on file from time-to-time with the SEC. Also please note that during the course of this conference call, we may discuss certain non-GAAP financial measures, as we review of the company's performance. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release, which contains 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 webcast is available for replay on our IR website. Now I'd like to turn the call over to Niraj.

Thanks, Michael, and thank you everyone for joining us today. We are pleased to report strong Q4 and full year 2014 results, which we believe reflect the ongoing strength of our brand and business model. Net revenue for the quarter was $408.6 million, reflecting total growth of 38.4% over the prior year. Our Direct Retail business, consisting of sales generated primarily through the sites of our five brands grew 55.2% versus last year with 3.2 million active customers as of the quarter end. As a reminder, our five home retail brands include Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. Though we experienced growth across all our brands, I'm very proud of the continued strong growth of Wayfair.com. As we've described before, Wayfair.com is our largest brand with the broadest selection and customer reach. It truly serves the large mass market segment and we believe its growth is reflective of the overall health of the business. We are excited about the growth that Wayfair.com had continued to experience throughout 2014 and the fourth quarter in particular. As ongoing strength has been the result of continued improvement across our platform, in how we acquire customers, in the customer experience including state merchandising, customer service and logistics, and in the growing awareness and increasing strength of the Wayfair brand. For this quarter in particular, the higher than forecasted growth in Wayfair.com and more broadly in our Direct Retail business was largely a result of a very successful holiday season. Historically, we have not put as much focus and energy in the merchandising seasonal décor and promotion. I want to touch on some of the initiatives that we more aggressively executed this holiday period. On low inventory model, incredible supply chain execution and deep long-term relationship with our suppliers gives us two…

Thanks Niraj and thank you all for joining this morning. I will highlight some of the key financial information for this quarter and fiscal year 2014 with more detailed information available in our earnings release, which can be found on our IR website. Before discussing the results, I want to review some changes that we made to the way our financials are presented. Previously, we disclosed two lines of operating expense, sales and marketing and G&A. Going forward, we are breaking out sales and marketing into three different line items; customer service and merchant fees; advertising; and merchandising, marketing and sales. Customer service and merchant fees includes the cost of our call center operations as well as processing fees we pay for orders placed via credit cards. This line item has historically been variable and we expect it to continue to behave as such. Advertising is comprised of the advertising expense for our Direct Retail business as well as fees paid to our retail partners, third parties who sell Wayfair products through their sites. Merchandising, marketing and sales is primarily comprised of our category managers, buyers, site merchandisers, merchants, marketers and the team who executes our advertising strategy. Historically, customer service and merchant fees as well advertising expenses were broken out in the MD&A section of our financial results. We hope by putting them directly on the income statement, it will be easier to identify the broad spend categories of our business, the variable cost and the areas in which we anticipate seeing leverage particularly the advertising line. Operations, technology and G&A is exactly as it reads and is primarily made up of the cost of our operations groups that we lead our supply chain and logistics, our technology team building and supporting our sites and our corporate G&A. For…

Thanks, Michael. We are very pleased with the fourth quarter and full year results and the company’s continued strong growth. We believe we are making the right investments today to drive long-term growth and we remain committed to both creating the best site for the home and to delivering long-term value for investors. We are excited about 2015 and a long-term trajectory for the business. And thank you for listening to all the information we wanted to share with you. We would now be happy to take your questions so I will turn the call back over to the operator.

[Operator Instructions] And our first question comes from the line of Deb Schwartz from Goldman Sachs. Your line is open.

Thanks. Congrats on the quarter. A couple questions. First, on advertising, you’re seeing good returns on your advertising spend, but you’re spending a little bit more than probably previously stated. So when we think about 2015, can you talk about how you’re thinking about advertising for 2015 and Q1, in particular? Second question, you mentioned that you’re seeing or you’re able to source more effective discounts from your vendors. Can you talk about your philosophy about passing that through to the customer versus letting it flow through on your gross margin line, and whether or not those vendor discounts were specific to the holiday season or we should expect that on a go forward basis in 2015? And third question, I know you don’t really great got performance across the brands, but can you talk about new customer growth, repeat activity across some of the brands on a high level?

Sure. Thanks, Deb. Let me take you through the answer. So on the first question with regards to advertising spend and how we think about what amount to spend and the economic return on it, the answer there is we manage it the same way we certain always described in the past. It’s actually managed very specifically at the campaign level within the different channels and that’s where we are looking for the cohort performance and the payback on that type of customer. And that’s how we’re able to make sure we get the economic return that you’re seeing. In terms of the amount of money we are willing to spend on advertising, one of the things that’s tricky with the way that business gets modeled is we think about the P&L as sort of a living moving thing where we think about certain lines as a percentage of revenue. And so in other words, if revenue is growing more and we think about where we want advertising land as a percentage of revenue that will obviously move the nominal dollar amount. And so I think one of the things that’s tricky is, if you’re just looking at a fixed dollar amount and say, okay, you spent more, you spent less, but the revenue line is moved. In the mean time, we may think about it as actually it came in right where we want it to be because we think of it as a percentage of revenue. So I would encourage you to look at it both ways. And if you look at it as a percentage of revenue, we are really expecting to continue to see a lot of leverage. We stepped it up in Q1 of '14 and that model has served us really well. We’ve been…

Okay. Thank you.

Thanks, Deb.

And our next question comes from the line of Neely Tamminga from Piper Jaffray. Your line is open.

Thank you very much. And congratulations to the whole team over there on a job well done. Two really questions from us. First is on holiday, so you saw a great success in holiday, it was very thoughtfully executed. Easter spring, outdoor décor, I mean, all of this just seems to be writing your wheelhouse as well though, Niraj. And so we’re kind of wondering a little bit about how you’re thinking about your opportunities in those key warmer weather sort of trigger point type décor categories in '15 versus '14? We think that outdoor is actually pretty weak for the industry last year. So we’re kind of wondering like how did you perform last year and what are the opportunities this year? And then related to that financially, with Easter being earlier and the way you guys cut the quarter, does that actually reflect more of a stronger revenue number and maybe in your Q1 guidance relative to how we should be thinking about it for Q2? And then just a bigger picture landscape question from us. There definitely have been some recent concerns out there around the flash sale and daily deal type online selling formats. Could you just recap for us how you’re viewing in that format of selling across the landscape and then your portfolio brands? And do you think you’ve seen an evolution and how are you thinking about it? Thank you.

Thanks, Neely. To answer those questions. First, on sort of a summer outdoor season or Easter outdoor décor, the launch of outdoor furniture for the seasonal, Q2 and Q1, like Q1 technique. Here is the thing, we think there’s clearly all kinds of seasonal events throughout the whole year and we generally -- we plan to quit a few on these. What I would say though the holiday season is still the biggest of all of those, so in that sense there’s still more opportunity in Q4 than in Q1, than Q2, Q3. But if you start thinking about us over time, we’ve been really ramping what we’re doing from a merchandising standpoint and a product standpoint around seasonal events and seasonal décor. So I think that is something that we can continue to gain a lot of ground in. And in particular on the outdoor side, those are categories we’ve been in for sometime. And I do think there we’re doing from compelling things there. On the specifics of Easter, Easter is actually at the very beginning of April. And so I don't know if what -- kind of two different things there. One, I don’t know if it moves a lot because really our revenue is recognized when we deliver an item. And so yes, if you bought items for Easter and they deliver prior to Easter so on so forth, Easter is not super big holiday for us. And I guess the bigger point in that is when we look at our overall growth rate, I don't know that these -- if we’re growing it like a 2% or 3% or 4%, 5%, 6% year-over-year, some low comp, then these things can ship some revenue. But when you're growing at a significantly faster rate than that, these…

Really helpful. Thank you. Best of luck.

Thanks, Neely.

Our next question comes from the line of Matt Nemer from Wells Fargo Securities. Your line is open.

Thanks so much. Good morning, everyone and congrats. So my first question is around AOB. I realize that it's primarily a function of mix, but I would think that in the holiday, those incremental holiday sales would put downward pressure on that, given that there is probably more giftables in March furniture item. So can we tie the AOB strength to repeat customers that potentially are spending more?

I think, it's a mix, Matt as you point out. So AOB was up year-over-year, but it was down a little bit sequentially. So I think it does take into account that sort of the smaller more giftable side of holiday. And I think on the repeat purchase side, look it remained very strong. Obviously, in Q4 we added a huge number of new customers and even with that giant new customer add showing up in the denominator without those people having an opportunity to repeat. We really maintain very solid repeat rates, 50.3% of the orders coming from repeat customers in the quarter.

Okay. And then also the gross margin came in stronger than we expected. It's usually down sequentially for obvious reasons. You may have talk to this and I am potentially missed it, but is that primarily merch margins or other kind of freight or other considerations that drove the strength?

Look, one of things we mentioned. Hey, Matt. It’s Niraj. One of things we mentioned was we did have a very concerted effort of planning the items that we are going to feature and sourcing significant discounts on them from our supplier partners and planning for that inventory to be available and so on so forth. And obviously, that can have a benefit in terms of merch margins. On the transportation side, we’re always looking to unlock value on the transportation side. So that’s kind of an ongoing thing. In the occasional times we get a little step up and so on so forth. But I would think of gross margin, look its going to have some volatility in it. It’s going to go up and down. So I would be really careful. Now, I said, when it went down, I said that kind of, hey, I don’t think of kind of 20, 30 basis points is a big swing down. Well, here it went up, I’ll tell you those same things, right. So it’s going to have some volatility. But the general trend on gross margin overtime is going to be flat to up. It’s going to have a little bit of volatility. We are seeing the success though in unlocking discounts from suppliers, transportation savings and private label. So we have confidence that will be flat to up overtime, but I wouldn't read too much into like 10 basis points swing.

Okay. That’s fair, And then just lastly on the Birch Lane shipping charge change that you recently made. Should we read that as enough or to sort of add some more growth to the brand or either brands doing great and you are hitting the gas, is it from position…

Yeah. Yeah. Here is the thing, by the way the brand is doing great and we’re hitting the gas. It would be the short answer to your question though. Slightly longer answer is we do lot of consumer survey work qualitative and quantitative. And there is no question customers are not interested in paying for shipping. There is also no question that shipping is the real cost in the world. So is the QA guys you have in Asia who look over the product. If you don’t have a QA for product cost as a separate line item, if I want to buy something, right. And you don’t have import duty as in separate line item. You don’t have ocean freight as a separate line item. And so our philosophy is, even the customer wants it simple, they want the final item they love and message to then, hey so we offer free shipping over $49, it makes their life easy. It’s not our job to make their life harder. And so I think a lot of the retailers who try to break it all out to find if you’d get a few extra dollars is not a customer aligned as it could be. And so that’s our philosophy to try to be very customer aligned.

Excellent. Thanks so much.

Thanks Matt.

And our next question comes from the line of Michael Graham from Canaccord. Your line is open.

Well, thanks. I’m just wondering, if you could give us update on specifically winning customer acquisition, you mentioned that customer acquisition cost was not going up, which I think it’s really positive. Any comment on in the way, you’re even following, you’re seeing strength or weakness slightly coupled with funnel doing really very well or you have a really good successful redemption? Any comment that you can make specifically about the social media channel on whether the prices are going up there for you or not and how you're sort of mixing against debt? And then lastly, could you give us an update how you are thinking about customer lifecycle and a lot of investors are wondering if the peak is a long-term peak for customer acquisition is there because there is finite period of time where you’re sort of occupying a home for the first time. We are buying things forward and just wondering what your updated experience is around customer lifecycle? Thanks.

Sure Michael. It’s Niraj. Thanks for the question. Okay. So on customer acquisition cost. I think the way we think about it that is the whole strategy we shifted to starting in early ‘14 was a much bigger focus on the top of the funnel. So we’ve always been in the bottom of funnel. But you can almost think of it is we were always maxing out the bottom of funnel. We’re really additive and mix. There was a big concerted effort to become very significant at the top of funnel, which get much more brand loyal customers who then get to know the Wayfair brand users as they go to. That shift the mix to higher value customers and that's been very positive for us. That’s not the brand, that’s been going for -- it's tested in ‘13, going all through ‘14. And you're starting to see that the leverage is coming through an advertising cost because of that, right. So, if you have more of those customers, they are coming back more and more often. That means that this quarter what we spend on advertising for the customer is really normal relative to their revenue, right. So all that said, we’re getting a lot of leverage because that drags down effective ad cost as a percentage of revenue. And also things like television, which is kind of like a fixed cost amount as we get bigger and bigger, is leverage drags down the outline ad cost as a percentage of revenue. So that's working really well, in terms of the social media channel, I think lot of you talked about that. Here is the way we look at it. Any channel eventually gets inefficient or meaning the price premium gets higher than is warranted. So we build the…

Okay. That’s great. Thank you very much.

And our next question comes from the line of Justin Post from Bank of America. Your line is open.

Hey, guys. This is Paul Weaver for Justin. Congratulations on a strong quarter. Couple of questions. As you invest in advertising and acquire new customers, can you give us some color on how the new customers are performing relative to the older customers? And then secondly, you briefly touch on some private-label comments. Can you just give us an update on how your private-label initiatives are going on Wayfair.com?

Sure, Paul. On the first question, kind of performance of old versus new customers, the easiest way for me to tell you about the new customers would be to have the conversation a year from now, even though they are not quite as new. But the truth is we do measure everything from 3 days to 7 days to 14 days. We track on very daily. Here is the thing. We are seeing great results from new customers. The number one reason though is -- at $3.2 million active customers, which feels wow, that's really good and you’ve grown it a lot, that’s a very small amount relative to the addressable market because of the format of Wayfair being an everyday store and because of the size of the market in the U.S. alone. You are talking about over 40 million households in our target market and we would address even more in that when we get outside of just the core target of 60 000 to 175,000 household income. What you end up with is lots and lots of running room before you hit diminishing returns, so we know. Quantitatively, we’re seeing great performance from the new customers and also just from -- if take a step back and you look at the forces of the trees, it makes all the sense of launches that we would have a lot of running room.

And one of the thing, I’d add Paul is, we put a new slide in our Investor Presentation that’s available on our IR website, maybe a month or two ago. It shows the revenue curves of 2011, ‘12, ‘13, ‘14 customers. And so you can really see how each year's group of customers is sort of outperforming on an ongoing revenue basis in the year prior.

And I guess one last thing I’d just mention, we posted some slides on the website, which talk you through sort of, a way you could estimate looking at that CAC and CAC is like gross margins. It’s going to move around a little bit from period-to-period. But in generally, it will give you a feel of how you can look at that trend over time and that will also, I think give you a lot of comfort that we are nowhere near saturation. On the second question about private-label, to be honest, the same thing we’ve been saying, which is, it’s still early. It’s growing really well but it is still a small portion of our total. But we’re seeing really nice performance there. We are investing a lot and are scaling it up. And we -- the vast, vast, vast, vast, vast, vast majority of the gains are ahead of us, instead of behind us. This is very small portion part of the business today, albeit on a nice growth curve.

Okay. Thank you.

And our next question comes from the line of Mark Miller from William Blair. Your line is open.

All right. Good morning, everyone. The company’s guidance significantly greater scale, I guess, we have talked about many other things, but I would like to hear your summarization. What you think the largest network effects right now are for Wayfair? I mean, obviously, TV spend gets leveraged? But as we think about the growth than through 2015, we are talking a year from now? What are the new capabilities you think you are getting out there the most important with this rapid growth? Thanks.

Yeah. So the biggest way to think about that, it’s in our business that there is not like a single network effect. There is a multiple set of things that you do that, in aggregate creates the network effect. So, as you mentioned, the brand getting bigger, obviously, creates network effect. The second is, we talked about private label a second ago in terms of exclusive items. We have talked about the site merchandising effort we have and the products, although, we have what we are doing on the website, the 300 engineers and scientists. Well, there -- as we make the site better and the mobile site experience better and better for product discovery across the 7 million items, which requires to plan a lot of technology and all the imagery we take on, the two photo studios we operate and all the. Well, that’s all expensive. But we can afford it because of the revenue base we have. And if you think about that that creates, the customer experience to be highly differentiated and unique, which drives customers back competitively creates bigger load, bigger defensibility, in terms of what our competitor will need to do to try to address it so on so forth. And we do the same thing on the operation side. So the supply chain, the leverage we have with our suppliers. The amount of inventory we can move. The way in which we do the transportation network to take cost down, the way in which we did the logistics delivery to the home to make the customer experience better and better to take time out, deliver faster and faster. So this all in aggregate creates the network effect, where by far where the best place to shop for your home and for being on our brand, looks then customers then are more going to try it and then they like it, so then they come back and just raise the bar of customer expectation and what can be had out there. It’s the virtually in $49 shipping as an example, right. You could just tell the customer, hey, even lifestyle retail you shouldn’t have to pay for shipping or than the customer say, you are right, why should I pay for shipping there, I don’t pay for shipping on other e-commerce, then the customer realize it’s, well, makes no sense and so this obviously adds up. Well we can do that because of the transportation network. So it’s just all tied together.

Thanks. I mean, just kind of a tipping point, I guess, for your internal capabilities, but then from investor standpoint, where do we see that sort of fit for investors in terms of begin to see that adjusted EBITDA margin percent begin to change move aggressively towards positive as you hope? Thanks.

Yeah. So, the way I think investors should look at it. In the near-term the place you are going to see leverage is on the advertising expense as the percentage of net revenue line, right. So you are going to see that, that’s a biggest line that we had questions on and that line is going to, you are going to start to see -- you are already seeing it, but you will see year-over-year a really nice clean way and that’s where the most question are. And then overtime, as I mentioned, gross margin and the OpEx line, yeah, the two headcount, major headcount lines below gross margin will also are going to have leverage, those are planned over a longer period of time. There is less leverage to get there than there is on the add cost line. But you are going to see it in all three. But in the near-term you’ve got to see it on the biggest line and one that, frankly, had the most questions.

Excellent. Thank you very much.

And our next question comes from the line of Shawn Milne from Janney Capital Markets. Your line is open.

Thanks. A lot of questions have been answered I just wanted to touch on couple of things. First, just on the supply side, there hasn’t been, I don’t think much of a change in the last quarter, so just and the vendor count, maybe just a discussion on opportunities to continue to expand selection through ’15? And then, Michael, I know, you mentioned the couple times, how unique the holiday was and it certainly early to understand sort of repeat behavior of the customers that you got in the fourth quarter? But to get the sense there, you are being a little bit cautious thinking that that maybe this wasn’t the same type of customer or is it just too early to tell, is that behavior, these customers you acquired in the fourth quarter like so much? Thanks.

Yeah. Let me start with the second question before Niraj talks about the selection. These customers everything looks like all the rest of our customers. I didn’t mean in my comments to imply that the customers we acquired in the fourth quarter were any different. Really what I wanted to make clear to everyone was, while we acquired a lot of customers in the fourth quarter, this is the ongoing outcome of the all of the investments we have made in ad spend throughout the course of the year or change strategy and investment there. And then secondly, obviously, because it came at the -- because the revenue from customers came late in the quarter at the holiday, it flows through without adjusting our ad spend commence early to flow through the EBITDA line.

And then quick answer on your first question. I don’t think we’ve released an updated supplier count number. We can add that in for next quarter. We do add suppliers over time and we rarely lose them. At the same time, we work with quite a few folks. In terms of selection through ’15, I’d say our big focus on selection is that there are some categories where we do feel like we need to on-board a fair amount of selection, which are very specific kind of subcategories that maybe we haven’t been as long as stance of it. But in general, the focus on selections is more new ups. So in other words, when we look at upholstery, it might be a specific price range and specific styles that we are going after. And so we are really trying to be very aggressive, building out selection in certain areas and that’s where the massive selection is. And then obviously, we have a big push on exclusivity and exclusive items in private label, which is a type of selection that we do have a lot of effort on. So those are the types of things that we are really focused on right now.

Great. Thank you.

Thanks, Shawn.

Thanks, Shawn.

Our next question comes from the line of Scott Devitt from Stifel.

Hi. Thanks. Different way of asking a prior question but you’ve been public now such that you’ve been able to give guidance once at the end of 3Q as a public company and then you reported 4Q. And I know you mention the backend loaded nature of the quarter and the strength in the customers acquired late in the quarter. But I was wondering if you can just talk little bit about your approach to guidance, so that we have an understanding as well how to think about the guidance that she put out because I think you beat the midpoint by over 10 percentage points for the quarter. So understanding that in terms of future guides including 1Q, I think is important. And then secondly, free cash flow because of the inventory model that you have is highly cash generative. There were some unique items in ’14. Could you just normalize that? Is ’13 a more normal year in terms of the free cash flow dynamics of the business on a full year basis and can you walk us through those dynamics in ’14 on a full year basis? And then finally the other or indirect revenue, Niraj, you mentioned assuming that continues to fade throughout time. I guess my question is does that fade until it goes away? Is there a level that which you are comfortable with third-party distribution or do you just think that that’s not a relevant part of the model long-term and so we should fade that towards zero over several years? Thanks.

This is Niraj. I will answer the last question and let Michael answer that kind of guidance, free cash flow question you had. In terms of the other revenue, I wouldn’t necessarily fade that to zero. Here is how we think about that. We have a handful of partners in the partner business, which is part of the other and some of those may fade of their amount and some of those, I don’t think will fade away. Some of those could be good long-term sustainable partner. So the reason we say that you should try model it, sort of down or flat down is just that we are not focused there on growing that at any cost. Our primary goal is to grow our Direct Retail business. And then depending on what our partners want to do there and what makes sense for us with our partners, there is things we do to grow that business with certain partners and there are things we do that don’t. And given retailer partner there may get a new head merchant or may change their technology platform in a way that could hurt our business with them or they may change in a way that helps our business with them. So there is all these things. So, I wouldn’t fade it to zero. The other thing I would point out that was in there is also our media business. And our media business is relatively small as a portion of the revenue in there but it’s very high from a gross margin and kind of profit contribution standpoint. That today sort of does is, it’s not at a size where it’s at all significantly relative to the total amount there. But that is a shift that will also happen over time. In that piece, obviously we’re not spending on having go away, we’re actually focused on really growing it and it’s actually -- we put out a release about what we’re doing at Sherwin-Williams, there is a lot we think we can do at different partners there and we’re very excited about that.

Hey Scott. To you guidance question, look, I think our purchase -- in the end of day, we’re in a consumer business, right. And so the consumer has to show up and so as you know from our many discussions, we are highly quant oriented. We calculate systems. We sort of know exactly what’s going on our business minute by minute that’s one of the benefits at e-Commerce but at the same time, customers have to show up and sort of make purchases. And so there is a certain amount of conservatives that I think we have to build into how we think about what we’re going to put out and tell you we’re going to deliver upon on the topline. And then I think as we think about the EBITDA line, as I try to make clear my comments, we’re managing particularly on the ad spend line and Niraj reiterated this in the Q&A here. We’re managing how we put that spend into the market as we see how the revenue is coming in because we’re targeting trying to deliver a certain spend level. And so I think we intend to do that deliver the EBITDA margins that we say we’re going to deliver. And but again with some built-in conservatives around the revenue side for obvious reasons, we just don’t know exactly which consumer is going to show up and on what day. On the free cash flow question, I don’t think there were actually that many sort of particularly unique items in 2014. I think in Q4, right because we have bunch of sales to customers where we clear cash in December but we don’t actually pay the suppliers until January, there is a clear pattern between Q4 and Q1 where Q4 is a big free cash flow quarter and Q1 is a big free cash outflow quarter. And that pattern has helped. But I think generally if you look at -- the way I think about is we look at our free cash flow compared to our EBITDA whether it’s for in particular over the course of the year, what you’re going to find is free cash flow is better than EBITDA and that held through and that’s great cash flow characteristic of our business, right, which is that we’re getting paid very quickly by our customers immediately on a sale. And that cash is coming in the door right away, and that we’re paying the suppliers quickly within 30 days give or take after. But there is that sort of really nice free cash flow characteristic of our business and with no inventory or very low inventory, capital deployed and no stores, we don’t need to use that cash somewhere else.

Thank you.

And our next question comes from the line of Mark May from Citi. Your line is open.

Thanks. I think this was addressed earlier but I just want to circle back on it. Looks like a decent amount of upside on the revenue in the quarter came from AOV, just wondering if you could maybe provide a little more color -- in terms of details around product mix of how was the driver of that or any changes in your discount or promotional activity or maybe there is something else? And then another question, just you have a number of brands you are investing in, if you were to back out some of the investment in your emerging brands like Joss & Main and others, what would the operating margin profile be at the Wayfair brand? Thanks.

Sure Mark. It’s Niraj. I’ll add a couple of comments and then Michael can chime in if he has some more. I wouldn’t think of AOV as being, I think, a driver. If you look at the various quarters of the year, year-over-year, if you look at Q3, I think Q3 going to actually see potentially more AOV lift year-over-year than in same Q4. But long story short, AOV is a small portion of what’s changing. The biggest factor is actually the engagement of the base and the repeat, the activation of new customers. And you can do the math on new customer count growth and those kind of [indiscernible] ALD has an impact out there. In terms of how you think of the various brands and their contribution, we’re clearly investing across the board, right. Wayfair is by far biggest brand. So in essence, it’s obviously -- when you think about the customer count growth and things like that, it’s going to be the huge piece. But if you take a small P&L, that’s emerging like first plane, which is a little over year old, it’s doing great. But if you look at it on like a margin percentage, margin type thing, something like that, it’s going to not be performing very well, right. It’s going to be disproportionately taking investments, because it’s so early. So it’s all in how you look at it.

Right. But I think the emerging brands, also the dollar values are much smaller.

Super small, yes. I think we have time for one more question.

Our next question comes from the line of John Blackledge from Cowen and Company. Your line is open.

Great. Thanks. Just one question, Niraj. Maybe could you discuss how you think Wayfair is positioned competitively now with brand awareness rising, so customer growth, the large higher network, all the good things that are going on? Maybe relative to a year or two ago, as the company drives towards share gains, is this large adjustable market? Thank you.

Sure. I mean, look, I think the financial results are essentially a function of that, right. So if you look at our rate of growth in the Direct Retail business and if you look at the total category growth, there is no question we are growing in a multiple of that. Now you can say, okay, well, you’re investing in advertising, so you’re getting the customer through advertising. Well, that’s true. But then you look at the advertising leverage we are getting it, how advertising cost as a percent of revenue is coming down and the growth has remained very high, that’s a function of getting a customer through advertising, who is then coming back, who is very engaged. I think well why are they doing that is basically, A, the brand is getting strong, and, B, everything we are doing on the customer experience ranging from the merchandising and the product discovery and the way in which we engage from the content and inventory to the delivery and logistics and how we take care among the service end is the reason they are coming back. And so I think competitively if you talk about building kind of the breakaway brands for home online, we would like to think we are and we think the customer behavior sort of shows that and we are very excited, because we think we can continue to actually build a lot on top of what was built, which will make it even better and better for the customer.

Thanks. Thank you.

At this time, I would like to turn the call back over to the presenters for closing remarks.

Thanks everyone for joining us for the call. And we appreciate your time. And we look forward to check with you again soon.