Market Overview

Shopify Announces Second-Quarter 2018 Financial Results

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Second-Quarter Revenue Grows 62% Year on Year

Shopify reports in U.S. dollars and in accordance with U.S. GAAP

Shopify Inc. (NYSE:SHOP) (TSX:SHOP), the leading multi-channel commerce
platform, today announced strong financial results for the quarter ended
June 30, 2018.

"The diversity of our revenue drivers and of our merchant base
contributed to our strong revenue growth this past quarter," stated Amy
Shapero, Shopify's CFO. "Our mission, our technology and our growth
model position us, and our merchants, to thrive in the face of massive
changes to retail. We built the Shopify platform to meet the many and
varied needs of all types of merchants, whether they are makers or
curators, entrepreneurs or household brands. This presents us with an
expansive opportunity set that we will continue to invest in with a view
to even greater success over the long term."

Second-Quarter Financial Highlights

  • Total revenue in the second quarter was $245.0 million, a 62% increase
    from the comparable quarter in 2017.
  • Subscription Solutions revenue grew 55% to $110.7 million. This
    increase was driven primarily by growth in Monthly Recurring Revenue1
    ("MRR"), driven primarily by an increase in the number of merchants
    joining the Shopify platform.
  • Merchant Solutions revenue grew 68% to $134.2 million, driven
    primarily by the growth of Gross Merchandise Volume2
    ("GMV"), as well as by strong growth in Shopify Capital and Shopify
    Shipping, each of which more than doubled revenue over last year's
    second quarter.
  • MRR as of June 30, 2018 was $35.3 million, up 49% compared with $23.7
    million as of June 30, 2017. Shopify Plus contributed $8.1 million, or
    23%, of MRR compared with 18% of MRR as of June 30, 2017.
  • GMV for the second quarter was $9.1 billion, an increase of $3.3
    billion, or 56% over the second quarter of 2017. Gross Payments Volume3
    ("GPV") grew to $3.6 billion, which accounted for 40% of GMV processed
    in the quarter, versus $2.2 billion, or 38%, for the second quarter of
    2017.
  • Gross profit dollars grew 58% to $137.0 million as compared with the
    $86.8 million recorded for the second quarter of 2017.
  • Operating loss for the second quarter of 2018 was $30.8 million, or
    12.6% of revenue, versus a loss of $15.9 million, or 10.5% of revenue,
    for the comparable period a year ago.
  • Adjusted operating loss4 for the second quarter of 2018 was
    1.7% of revenue, or $4.3 million; adjusted operating loss for the
    second quarter of 2017 was 1.9% of revenue, or $2.9 million.
  • Net loss for the second quarter of 2018 was $24.0 million, or $0.23
    per share, compared with $14.0 million, or $0.15 per share, for the
    second quarter of 2017.
  • Adjusted net income4 for the second quarter of 2018 was
    $2.5 million, or $0.02 per share, compared with an adjusted net loss
    of $1.1 million, or $0.01 per share, for the second quarter of 2017.
  • At June 30, 2018, Shopify had $1.57 billion in cash, cash equivalents
    and marketable securities, compared with $938 million on December 31,
    2017.

Second-Quarter Business Highlights

  • Shopify hosted partners from around the world in Toronto at our annual
    Unite conference, where our announcements centred on helping merchants
    sell more, helping them work more efficiently, and making the most of
    the Shopify partner ecosystem, including:
    • enhancements to our POS solution including a new premium Tap and
      Chip reader as well as upgrades enabling multi-channel returns and
      exchanges, in-store pickup, tipping options, a companion app for a
      customer-facing checkout experience, and a developer SDK.
    • simplifications to merchants' marketing processes, including a
      native marketing dashboard, easy-to-use BOGO and quantity
      discounts, and Dynamic Checkout, which surfaces the consumer's
      preferred payment method directly on the product page and allows
      transactions to happen with a single tap using Shopify Payments,
      Apple Pay, and other wallets.
    • back office workflow efficiencies like multi-location inventory
      management, Fraud Protect for protection from fraudulent
      chargebacks, Kit Skills app extensions, Shopify Ping to centralize
      business and marketing activities and conversations, and
      localization of the Shopify platform for native languages and
      payment methods.
  • Shopify launched Shopify Pay in Japan, bringing the total number of
    countries where Shopify Pay is available to eight.
  • Shopify Shipping adoption continued to increase with more than a third
    of eligible merchants in the United States and Canada using Shopify
    Shipping in the quarter.
  • Purchases from merchants' stores coming from mobile devices continued
    to climb in the quarter, accounting for 76% of traffic and 66% of
    orders for the three months ended June 30, 2018, versus 72% and 60%,
    respectively, for the second quarter of 2017.
  • Shopify Capital issued $68.5 million in merchant cash advances in the
    second quarter of 2018, an increase of 84% versus the $37.2 million
    issued in the second quarter of last year. Shopify Capital has grown
    to nearly $300 million in cumulative cash advanced since its launch in
    April 2016, $80 million of which was outstanding on June 30, 2018.

Subsequent to the close of the second quarter, Shopify announced a
partnership with Nest. Shopify merchants can now access camera footage
via the newly released Store Cam for Shopify app and purchase Nest Cams
and Google Wifi routers directly from the Shopify Hardware Store. Via
the integration, a live-feed of footage captured from Nest Cams will be
immediately available to access in a merchant's dashboard via the
Shopify app.

Financial Outlook

The financial outlook that follows constitutes forward-looking
information within the meaning of applicable securities laws and is
based on a number of assumptions and subject to a number of risks.
Actual results could vary materially as a result of numerous factors,
including certain risk factors, many of which are beyond Shopify's
control. Please see "Forward-looking Statements" below.

In addition to the other assumptions and factors described in this press
release, Shopify's outlook assumes the continuation of growth trends in
our industry, our ability to manage our growth effectively and the
absence of material changes in our industry or the global economy. The
following statements supersede all prior statements made by Shopify and
are based on current expectations. As these statements are
forward-looking, actual results may differ materially.

These statements do not give effect to the potential impact of mergers,
acquisitions, divestitures or business combinations that may be
announced or closed after the date hereof. All numbers provided in this
section are approximate.

For the full year 2018, Shopify currently expects:

  • Revenues in the range of $1.015 billion to $1.025 billion
  • GAAP operating loss in the range of $105 million to $110 million
  • Adjusted operating profit4 in the range of $0 to $5
    million, which excludes stock-based compensation expenses and related
    payroll taxes of $110 million

For the third quarter of 2018, Shopify currently expects:

  • Revenues in the range of $253 million to $257 million
  • GAAP operating loss in the range of $40 million to $42 million
  • Adjusted operating loss4 in the range of $9 million to $11
    million, which excludes stock-based compensation expenses and related
    payroll taxes of $31 million

Quarterly Conference Call

Shopify's management team will hold a conference call to discuss its
second-quarter results today, July 31, 2018, at 8:30 a.m. ET. The
conference call will be webcast on the investor relations section of
Shopify's website at https://investors.shopify.com/events/Events-Presentations/default.aspx.
An archived replay of the webcast will be available following the
conclusion of the call.

Shopify's Second-Quarter 2018 Interim Unaudited Condensed Consolidated
Financial Statements and Notes and its Second-Quarter 2018 Management's
Discussion and Analysis are available on Shopify's website at www.shopify.com,
and will be filed on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov.

About Shopify

Shopify is the leading cloud-based, multi-channel commerce platform.
Merchants can use the software to design, set up, and manage their
stores across multiple sales channels, including web, mobile, social
media, marketplaces, brick-and-mortar locations, and pop-up shops. The
platform also provides merchants with a powerful back-office and a
single view of their business. The Shopify platform was engineered for
reliability and scale, making enterprise-level technology available to
businesses of all sizes. Headquartered in Ottawa, Canada, Shopify
currently powers over 600,000 businesses in approximately 175 countries
and is trusted by brands such as Red Bull, Nestle, Rebecca Minkoff,
Kylie Cosmetics, and many more.

Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared
and presented in accordance with United States generally accepted
accounting principles (GAAP), Shopify uses certain non-GAAP financial
measures to provide additional information in order to assist investors
in understanding its financial and operating performance.

Adjusted operating loss/profit, non-GAAP operating expenses, adjusted
net loss/income and adjusted net loss/income per share are non-GAAP
financial measures that exclude the effect of share-based compensation
expenses and related payroll taxes.

Management uses non-GAAP financial measures internally for financial and
operational decision-making and as a means to evaluate period-to-period
comparisons. Shopify believes that these non-GAAP measures provide
useful information about operating results, enhance the overall
understanding of past financial performance and future prospects, and
allow for greater transparency with respect to key metrics used by
management in its financial and operational decision making. Non-GAAP
financial measures are not recognized measures for financial statement
presentation under U.S. GAAP and do not have standardized meanings, and
may not be comparable to similar measures presented by other public
companies. Such non-GAAP financial measures should be considered as a
supplement to, and not as a substitute for, or superior to, the
corresponding measures calculated in accordance with GAAP. See the
financial tables below for a reconciliation of the non-GAAP measures.

Forward-looking Statements

This press release contains certain forward-looking statements within
the meaning of applicable securities laws, including statements
regarding Shopify's financial outlook and future financial performance
and any future investment in the Shopify platform. Words such as
"expects", "continue", "will", "anticipates" and "intends" or similar
expressions are intended to identify forward-looking statements.

These forward-looking statements are based on Shopify's current
projections and expectations about future events and financial trends
that management believes might affect its financial condition, results
of operations, business strategy and financial needs, and on certain
assumptions and analysis made by Shopify in light of the experience and
perception of historical trends, current conditions and expected future
developments and other factors management believes are appropriate.
These projections, expectations, assumptions and analyses are subject to
known and unknown risks, uncertainties, assumptions and other factors
that could cause actual results, performance, events and achievements to
differ materially from those anticipated in these forward-looking
statements. Although Shopify believes that the assumptions underlying
these forward-looking statements are reasonable, they may prove to be
incorrect, and readers cannot be assured that actual results will be
consistent with these forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements
as a result of numerous factors, including certain risk factors, many of
which are beyond Shopify's control, including but not limited to: (i)
merchant acquisition and retention; (ii) managing our growth; (iii) our
history of losses; (iv) our limited operating history; (v) our ability
to innovate; (vi) a disruption of service or security breach; (vii)
payments processed through Shopify Payments; (viii) our reliance on a
single supplier to provide the technology we offer through Shopify
Payments; (ix) a breach involving personally identifiable information;
(x) serious software errors or defects; (xi) exchange rate fluctuations;
(xii) achieving or maintaining data transmission capacity; and (xiii)
other one-time events and other important factors disclosed previously
and from time to time in Shopify's filings with the U.S. Securities and
Exchange Commission and the securities commissions or similar securities
regulatory authorities in each of the provinces or territories of
Canada. The forward-looking statements contained in this news release
represent Shopify's expectations as of the date of this news release, or
as of the date they are otherwise stated to be made, and subsequent
events may cause these expectations to change. Shopify undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as may be required by law.

         

Shopify Inc.

Condensed Consolidated Statements of Operations and
Comprehensive Loss

(Expressed in US $000's, except share and per share amounts,
unaudited)

 
Three months ended Six months ended

June 30,
2018

   

June 30,
2017

June 30,
2018

   

June 30,
2017

$ $ $ $
Revenues
Subscription solutions 110,721 71,598 210,919 133,678
Merchant solutions 134,242 80,057 248,384 145,356
244,963 151,655 459,303 279,034
Cost of revenues
Subscription solutions 24,524 13,688 47,684 25,942
Merchant solutions 83,484 51,127 150,822 94,011
108,008 64,815 198,506 119,953
Gross profit 136,955 86,840 260,797 159,081
Operating expenses
Sales and marketing 87,487 54,872 163,271 100,206
Research and development 54,305 32,714 102,021 59,308
General and administrative 25,924 15,161 46,599 29,935
Total operating expenses 167,716 102,747 311,891 189,449
Loss from operations (30,761) (15,907) (51,094) (30,368)
       
Other income 6,808 1,877 11,239 2,740
Net loss (23,953) (14,030) (39,855) (27,628)
Other comprehensive income (loss), net of tax (4,398) 4,631 (11,232) 6,068
Comprehensive loss (28,351) (9,399) (51,087) (21,560)
Basic and diluted net loss per share attributable to shareholders (0.23) (0.15) (0.38) (0.30)
Weighted average shares used to compute basic and diluted net loss
per share attributable to shareholders
105,978,076 94,290,538 104,127,640 92,277,895
 
     

Shopify Inc.

Condensed Consolidated Balance Sheets

(Expressed in US $000's except share amounts, unaudited)

 
As at
June 30, 2018     December 31, 2017
$ $
Assets
Current assets
Cash and cash equivalents 219,801 141,677
Marketable securities 1,354,367 796,362
Trade and other receivables, net 32,510 21,939
Merchant cash advances receivable, net 79,981 47,101
Other current assets 20,041   18,598  
1,706,700   1,025,677  
Long-term assets
Property and equipment, net 54,807 50,360
Intangible assets, net 24,656 17,210
Goodwill 22,894   20,317  
102,357   87,887  
Total assets 1,809,057   1,113,564  
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities 95,729 62,576
Current portion of deferred revenue 35,029 30,694
Current portion of lease incentives 1,622   1,484  
132,380   94,754  
Long-term liabilities
Deferred revenue 1,634 1,352
Lease incentives 17,333 14,970
Deferred tax liability 1,509   1,388  
20,476   17,710  
Shareholders' equity
Common stock, unlimited Class A subordinate voting shares
authorized, 93,640,086 and 87,067,604 issued and outstanding;
unlimited Class B multiple voting shares authorized, 12,730,063 and
12,810,084 issued and outstanding
1,771,304 1,077,477
Additional paid-in capital 55,753 43,392
Accumulated other comprehensive income (loss) (7,797 ) 3,435
Accumulated deficit (163,059 ) (123,204 )
Total shareholders' equity 1,656,201   1,001,100  
Total liabilities and shareholders' equity 1,809,057   1,113,564  
 
     

Shopify Inc.

Condensed Consolidated Statements of Cash Flows

(Expressed in US $000's, unaudited)

 
Six months ended
June 30, 2018     June 30, 2017
$ $
Cash flows from operating activities
Net loss for the period (39,855) (27,628)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization and depreciation 15,008 9,887
Stock-based compensation 42,116 20,808
Provision for uncollectible receivables related to merchant cash
advances
4,072 1,922
Unrealized foreign exchange (gain) loss 369 (901)
Changes in operating assets and liabilities:
Trade and other receivables (16,426) (2,978)
Merchant cash advances receivable (36,952) (22,865)
Other current assets (5,532) 348
Accounts payable and accrued liabilities 27,285 10,595
Deferred revenue 4,617 5,810
Lease incentives 2,501 143
Net cash used by operating activities (2,797) (4,859)
Cash flows from investing activities
Purchase of marketable securities (1,297,346) (638,212)
Maturity of marketable securities 744,406 213,609
Acquisitions of property and equipment (15,107) (5,290)
Acquisitions of intangible assets (9,353) (2,024)
Acquisition of businesses, net of cash acquired (3,718) (15,718)
Net cash used by investing activities (581,118) (447,635)
Cash flows from financing activities
Proceeds from the exercise of stock options 16,140 6,932
Proceeds from public offering, net of issuance costs 646,984 560,057
Net cash provided by financing activities 663,124 566,989
Effect of foreign exchange on cash and cash equivalents (1,085) 889
Net increase in cash and cash equivalents 78,124 115,384
Cash and cash equivalents – Beginning of Period 141,677 84,013
Cash and cash equivalents – End of Period 219,801 199,397
 
         

Shopify Inc.

Reconciliation from GAAP to Non-GAAP Results

(Expressed in US $000's, except share and per share amounts,
unaudited)

 
Three months ended Six months ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
$ $ $ $
GAAP Gross profit 136,955 86,840 260,797 159,081
% of Revenue 56 % 57 % 57 % 57 %
add: stock-based compensation 584 261 1,010 475
add: payroll taxes related to stock-based compensation 53   46   116   81  
Non-GAAP Gross profit 137,592   87,147   261,923   159,637  
% of Revenue 56 % 57 % 57 % 57 %
 
GAAP Sales and marketing 87,487 54,872 163,271 100,206
% of Revenue 36 % 36 % 36 % 36 %
less: stock-based compensation 5,722 2,004 9,760 3,485
less: payroll taxes related to stock-based compensation 527   301   1,258   480  
Non-GAAP Sales and marketing 81,238   52,567   152,253   96,241  
% of Revenue 33 % 35 % 33 % 34 %
 
GAAP Research and development 54,305 32,714 102,021 59,308
% of Revenue 22 % 22 % 22 % 21 %
less: stock-based compensation 13,639 7,255 24,504 13,088
less: payroll taxes related to stock-based compensation 1,582   820   2,633   1,305  
Non-GAAP Research and development 39,084   24,639   74,884   44,915  
% of Revenue 16 % 16 % 16 % 16 %
 
GAAP General and administrative 25,924 15,161 46,599 29,935
% of Revenue 11 % 10 % 10 % 11 %
less: stock-based compensation 4,246 2,081 6,842 3,760
less: payroll taxes related to stock-based compensation 140   201   485   442  
Non-GAAP General and administrative 21,538   12,879   39,272   25,733  
% of Revenue 9 % 8 % 9 % 9 %
 
GAAP Operating expenses 167,716 102,747 311,891 189,449
% of Revenue 68 % 68 % 68 % 68 %
less: stock-based compensation 23,607 11,340 41,106 20,333
less: payroll taxes related to stock-based compensation 2,249   1,322   4,376   2,227  
Non-GAAP Operating Expenses 141,860   90,085   266,409   166,889  
% of Revenue 58 % 59 % 58 % 60 %
 
         

Shopify Inc.

Reconciliation from GAAP to Non-GAAP Results (continued)

(Expressed in US $000's, except share and per share amounts,
unaudited)

 
Three months ended Six months ended
June 30, 2018     June 30, 2017 June 30, 2018     June 30, 2017
$ $ $ $
GAAP Operating loss (30,761 ) (15,907 ) (51,094 ) (30,368 )
% of Revenue (13 )% (10 )% (11 )% (11 )%
add: stock-based compensation 24,191 11,601 42,116 20,808
add: payroll taxes related to stock-based compensation 2,302   1,368   4,492   2,308  
Adjusted Operating loss (4,268 ) (2,938 ) (4,486 ) (7,252 )
% of Revenue (2 )% (2 )% (1 )% (3 )%
 
GAAP Net loss (23,953 ) (14,030 ) (39,855 ) (27,628 )
% of Revenue (9 )% (9 )% (9 )% (10 )%
add: stock-based compensation 24,191 11,601 42,116 20,808
add: payroll taxes related to stock-based compensation 2,302   1,368   4,492   2,308  
Adjusted Net income (loss) and comprehensive loss 2,540   (1,061 ) 6,753   (4,512 )
% of Revenue 1 % (1 )% 1 % (2 )%
 
GAAP net loss per share attributable to shareholders (0.23 ) (0.15 ) (0.38 ) (0.30 )
add: stock-based compensation 0.23 0.12 0.40 0.23
add: payroll taxes related to stock-based compensation 0.02   0.01   0.04   0.03  
Adjusted net income (loss) per share attributable to shareholders 0.02   (0.01 ) 0.06   (0.04 )
Weighted average shares used to compute GAAP and non-GAAP net loss
per share attributable to shareholders
105,978,076 94,290,538 104,127,640 92,277,895
 
 
1. Monthly Recurring Revenue, or MRR, is calculated by multiplying
the number of merchants by the average monthly subscription plan fee
in effect on the last day of that period and is used by management
as a directional indicator of subscription solutions revenue going
forward assuming merchants maintain their subscription plan the
following month.
2. Gross Merchandise Volume, or GMV, represents the total dollar
value of orders processed on the Shopify platform in the period, net
of refunds, and inclusive of shipping and handling, duty and
value-added taxes.
3. Gross Payments Volume, or GPV, is the amount of GMV processed
through Shopify Payments.
4. Please refer to "Non-GAAP Financial Measures" in this press
release.
 

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