Shopify Announces First-Quarter 2018 Financial Results

First-Quarter Revenue Grows 68% Year on Year

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

OTTAWA, Ontario–(BUSINESS WIRE)–Shopify Inc. (NYSE:SHOP)(TSX:SHOP), the leading multi-channel commerce
platform, today announced strong financial results for the quarter ended
March 31, 2018.

“Merchants love Shopify because it allows them to sell anywhere,
anytime. It also helps them with the many tasks that come with running a
retail business,” said Tobi Lütke, Shopify’s CEO. “These layers of value
we offer merchants give us a healthy variety of growth drivers. One of
those drivers is our merchants’ own success. Helping them get their
first sale and keeping them selling is a big part of what we work on
every day.”

First-Quarter Financial Highlights

  • Total revenue in the first quarter was $214.3 million, a 68% increase
    from the comparable quarter in 2017.
  • Subscription Solutions revenue grew 61% to $100.2 million. This
    increase was driven by the continued rapid growth in Monthly Recurring
    Revenue1 (“MRR”) , driven by an increase in the number of
    merchants joining the Shopify platform.
  • Merchant Solutions revenue grew 75% to $114.1 million, driven
    primarily by the growth of Gross Merchandise Volume2
    (“GMV”), which includes revenue from payments processing, transaction
    fees, Shopify Capital, referral fees from partners and Shopify
    Shipping, each of which grew more than 50% over last year’s first
    quarter. Increasing penetration of Shopify Capital and Shopify
    Shipping also contributed to the slight acceleration in the
    year-over-year growth rate of Merchant Solutions revenue.
  • MRR as of March 31, 2018 was $32.5 million, up 57% compared with $20.7
    million as of March 31, 2017. Shopify Plus contributed $7.0 million,
    or 22%, of MRR compared with 17% of MRR as of March 31, 2017.
  • GMV for the first quarter was $8.0 billion, an increase of $3.1
    billion, or 64% over the first quarter of 2017. Gross Payments Volume3
    (“GPV”) grew to $3.0 billion, which accounted for 38% of GMV processed
    in the quarter, versus $1.8 billion, or 38%, for the first quarter of
    2017.
  • Gross profit dollars grew 71% to $123.8 million as compared with the
    $72.2 million recorded for the first quarter of 2017.
  • Operating loss for the first quarter of 2018 was $20.3 million, or 9%
    of revenue, versus a loss of $14.5 million, or 11% of revenue, for the
    comparable period a year ago.
  • Adjusted operating loss4 for the first quarter of 2018 was
    0.1% of revenue, or $0.2 million; adjusted operating loss for the
    first quarter of 2017 was 3.4% of revenue, or $4.3 million.
  • Net loss for the first quarter of 2018 was $15.9 million, or $0.16 per
    share, compared with $13.6 million, or $0.15 per share, for the first
    quarter of 2017.
  • Adjusted net income4 for the first quarter of 2018 was $4.2
    million, or $0.04 per share, compared with an adjusted net loss of
    $3.5 million, or $0.04 per share, for the first quarter of 2017.
  • At March 31, 2018, Shopify had $1.58 billion in cash, cash equivalents
    and marketable securities, compared with $938 million on December 31,
    2017. The increase reflects the proceeds from Shopify’s offering of
    Class A subordinate voting shares in the first quarter.

First-Quarter Business Highlights

Shopify continues to expand its feature set to enrich the platform for
merchants upmarket, downmarket, within its partner ecosystem, and
internationally:

  • In March, shopping on Instagram was expanded beyond the US to the UK,
    Australia, Canada, Germany, France, Italy, Spain, and Brazil.
    Merchants in these countries, plus 35 more countries that were added
    in April, can now tag products in their posts, letting consumers
    complete the entire buyer journey from discovery to checkout. With
    over 500 million daily active users, Instagram is one of the
    fastest-growing social apps around, connecting consumers, influencers,
    and brands.
  • Also in March, Shopify launched an integration with Google Pay on
    Shopify stores, allowing hundreds of millions of shoppers to
    experience an accelerated checkout. With Google Pay, shoppers will
    experience a fast checkout involving fewer steps and a mobile-first
    design. Shopify is the first commerce platform enabling Google Pay for
    its users.
  • Shopify Shipping adoption continued to increase with a third of
    eligible merchants in the United States and Canada using Shopify
    Shipping in March. With the contribution of carriers added last
    quarter to the Shopify platform, monthly billings for Shopify Shipping
    in the first quarter have already surpassed the peak achieved at the
    height of the 2017 retail season.
  • Purchases from merchants’ stores coming from mobile devices continued
    to climb in the quarter, accounting for 75% of traffic and 64% of
    orders for the three months ended March 31, 2018, versus 69% and 59%,
    respectively, for the first quarter of 2017.
  • Shopify Capital issued $60.4 million in merchant cash advances in the
    first quarter of 2018, more than three times the $18.9 million issued
    in the first quarter of last year. Shopify Capital has grown to over
    $230 million in cumulative cash advanced since its launch in April
    2016, $63.5 million of which was outstanding on March 31, 2018.

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 billion to $1.01 billion
  • GAAP operating loss in the range of $105 million to $110 million
  • Adjusted operating profit4 in the range of $0 million to $5
    million, which excludes stock-based compensation expenses and related
    payroll taxes of $110 million

For the second quarter of 2018, Shopify currently expects:

  • Revenues in the range of $230 million to $235 million
  • GAAP operating loss in the range of $32 million to $34 million
  • Adjusted operating loss4 in the range of $5 million to $7
    million, which excludes stock-based compensation expenses and related
    payroll taxes of $27 million

Quarterly Conference Call

Shopify’s management team will hold a conference call to discuss its
first-quarter results today, May 1, 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 First-Quarter 2018 Interim Unaudited Condensed Consolidated
Financial Statements and Notes and its First-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.
Words such as “expects”, “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
March 31, 2018   March 31, 2017
$ $
Revenues
Subscription solutions 100,198 62,080
Merchant solutions 114,142 65,299
214,340 127,379
Cost of revenues
Subscription solutions 23,160 12,254
Merchant solutions   67,338 42,884
90,498 55,138
Gross profit 123,842 72,241
Operating expenses
Sales and marketing 75,784 45,334
Research and development 47,716 26,594
General and administrative 20,675 14,774
Total operating expenses 144,175 86,702
Loss from operations (20,333) (14,461)
   
Other income 4,431 863
Net loss (15,902) (13,598)
Other comprehensive income (loss), net of tax (6,834) 1,437  
Comprehensive loss (22,736) (12,161)
Basic and diluted net loss per share attributable to shareholders (0.16 ) (0.15 )

Weighted average shares used to compute basic and diluted net loss
per share
attributable to shareholders

102,256,644 90,242,889


Shopify Inc.
Condensed Consolidated Balance Sheets
(Expressed
in US $000’s except share amounts, unaudited)

  As at
March 31, 2018   December 31, 2017
$ $
Assets
Current assets
Cash and cash equivalents 196,578 141,677
Marketable securities 1,383,455 796,362
Trade and other receivables, net 28,365 21,939
Merchant cash advances receivable, net 63,528 47,101
Other current assets 17,551   18,598  
1,689,477   1,025,677  
Long-term assets
Property and equipment, net 51,654 50,360
Intangible assets, net 21,088 17,210
Goodwill 20,317   20,317  
93,059   87,887  
Total assets 1,782,536   1,113,564  
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities 79,053 62,576
Current portion of deferred revenue 32,993 30,694
Current portion of lease incentives 1,530   1,484  
113,576   94,754  
Long-term liabilities
Deferred revenue 1,480 1,352
Lease incentives 16,355 14,970
Deferred tax liability 1,236   1,388  
19,071   17,710  
Shareholders’ equity

Common stock, unlimited Class A subordinate voting shares
authorized,
92,882,410 and 87,067,604 issued and outstanding;
unlimited
Class B multiple voting shares authorized, 12,745,988
and
12,810,084 issued and outstanding

1,745,300 1,077,477
Additional paid-in capital 47,094 43,392
Accumulated other comprehensive income (loss) (3,399 ) 3,435
Accumulated deficit (139,106 ) (123,204 )
Total shareholders’ equity 1,649,889   1,001,100  
Total liabilities and shareholders’ equity 1,782,536   1,113,564  


Shopify Inc.
Condensed Consolidated Statements of Cash
Flows

(Expressed in US $000’s, unaudited)

  Three months ended
March 31, 2018   March 31, 2017
$ $
Cash flows from operating activities
Net loss for the period (15,902) (13,598)

Adjustments to reconcile net loss to net cash provided by (used
in) operating
activities:

Amortization and depreciation 7,582 4,534
Stock-based compensation 17,925 9,207
Provision for uncollectible receivables related to merchant cash
advances
1,582 592
Unrealized foreign exchange gain (128) (111)
Changes in operating assets and liabilities:
Trade and other receivables (8,161) 557
Merchant cash advances receivable (18,009) (6,033)
Other current assets (2,193) (3,124)
Accounts payable and accrued liabilities 11,571 8,836
Deferred revenue 2,427 3,122
Lease incentives 1,431 17
Net cash provided (used) by operating activities (1,875) 3,999
Cash flows from investing activities
Purchase of marketable securities (933,307) (97,675)
Maturity of marketable securities 347,902 111,535
Acquisitions of property and equipment (5,405) (2,633)
Acquisitions of intangible assets (5,447) (924)
Net cash provided (used) by investing activities (596,257) 10,303
Cash flows from financing activities
Proceeds from the exercise of stock options 6,294 2,980
Proceeds from public offering, net of issuance costs 646,984  
Net cash provided by financing activities 653,278   2,980
Effect of foreign exchange on cash and cash equivalents (245) (27)
Net increase in cash and cash equivalents 54,901 17,255
Cash and cash equivalents – Beginning of Period 141,677 84,013
Cash and cash equivalents – End of Period 196,578 101,268


Shopify Inc.
Reconciliation from GAAP to Non-GAAP Results
(Expressed
in US $000’s, except share and per share amounts, unaudited)

  Three months ended
March 31, 2018   March 31, 2017
$ $
GAAP Gross profit 123,842 72,241
% of Revenue 58 % 57 %
add: stock-based compensation 426 214
add: payroll taxes related to stock-based compensation 63   35  
Non-GAAP Gross profit 124,331   72,490  
% of Revenue 58 % 57 %
 
GAAP Sales and marketing 75,784 45,334
% of Revenue 35 % 36 %
less: stock-based compensation 4,038 1,481
less: payroll taxes related to stock-based compensation 731   179  
Non-GAAP Sales and marketing 71,015   43,674  
% of Revenue 33 % 34 %
 
GAAP Research and development 47,716 26,594
% of Revenue 22 % 21 %
less: stock-based compensation 10,865 5,833
less: payroll taxes related to stock-based compensation 1,051   485  
Non-GAAP Research and development 35,800   20,276  
% of Revenue 17 % 16 %
 
GAAP General and administrative 20,675 14,774
% of Revenue 10 % 12 %
less: stock-based compensation 2,596 1,679
less: payroll taxes related to stock-based compensation 345   241  
Non-GAAP General and administrative 17,734   12,854  
% of Revenue 8 % 10 %
 
GAAP Operating expenses 144,175 86,702
% of Revenue 67 % 68 %
less: stock-based compensation 17,499 8,993
less: payroll taxes related to stock-based compensation 2,127   905  
Non-GAAP Operating Expenses 124,549   76,804  
% of Revenue 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
March 31, 2018   March 31, 2017
$ $
GAAP Operating loss (20,333 ) (14,461 )
% of Revenue (9 )% (11 )%
add: stock-based compensation 17,925 9,207
add: payroll taxes related to stock-based compensation 2,190   940  
Adjusted Operating loss (218 ) (4,314 )
% of Revenue % (3 )%
 
GAAP Net loss (15,902 ) (13,598 )
% of Revenue (7 )% (11 )%
add: stock-based compensation 17,925 9,207
add: payroll taxes related to stock-based compensation 2,190   940  
Adjusted Net income (loss) and comprehensive loss 4,213   (3,451 )
% of Revenue 2 % (3 )%
 
GAAP net loss per share attributable to shareholders (0.16 ) (0.15 )
add: stock-based compensation 0.18 0.10
add: payroll taxes related to stock-based compensation 0.02   0.01  
Adjusted net income (loss) per share attributable to shareholders 0.04   (0.04 )

Weighted average shares used to compute GAAP and non-GAAP net loss
per share
attributable to shareholders

102,256,644 90,242,889

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.

Contacts

Shopify
INVESTORS:
Katie Keita, 613-241-2828 x 1024
Director,
Investor Relations
IR@shopify.com
or
MEDIA:
Sheryl
So, 416-238-6705 x 302
Public Relations Manager
press@shopify.com