Mr. Harley Finkelstein reports

SHOPIFY ANNOUNCES FIRST-QUARTER 2023 FINANCIAL RESULTS; AGREES TO SELL SHOPIFY LOGISTICS TO FLEXPORT

Shopify Inc. has released financial results for the quarter ended March 31, 2023.

"Shopify's strong first quarter results demonstrate once again that we're the go-to solution powering businesses of all sizes, on every surface where they sell. The changes we're announcing today will ensure we keep pace with the high velocity of change before us, delivering the cutting-edge solutions our customers have come to expect from Shopify," said Shopify's president, Harley Finkelstein.

Please see a letter from Shopify founder and chief executive officer Tobias Lutke addressing the team changes the company announced today on the company's website.

First quarter 2023 business highlights:

Shopify welcomed more brands on the company's platform in its first quarter of 2023, including consumer favourites like Keen, 7 for All Mankind, Seiko and Herschel Supply. The following are notable highlights from Shopify's first quarter across the company's three key merchant investment themes, which are helping merchants expand from first sale to full scale, go global and attract more consumers through more channels:

• Launched Commerce Components by Shopify (CCS), the modern, composable stack for enterprise retail; CCS combines access to Shopify's foundational, high-performing components, along with flexible APIs (application programming interfaces), to build dynamic customer experiences that integrate seamlessly with a retailer's preferred back-office services;
• Announced updated pricing for Basic, Shopify and Advanced plans on Jan. 23, 2023; new pricing went into effect for new merchants on Jan. 24, 2023, and for existing merchants prior to Jan. 24, 2023, on April 23, 2023;
• Powered by OpenAI's ChatGPT API, Shopify launched a new AI (artificial intelligence) shopping assistant on the company's Shop app, creating a fast and more personalized shopping experience for consumers that serves up more relevant product recommendations across Shop's millions of products;
• Partnered with Intuit to become its preferred partner to migrate new retailers in need of a point-of-sale solution after Intuit made the decision to sunset its QuickBooks Desktop point-of-sale product;
• Launched Pinterest as an advertising channel for Shopify Audiences; Shopify Audiences is now driving performance-paid advertising on Meta, Google and Pinterest;
• Signed partnership agreements with systems integrators IBM Consulting and Cognizant to accelerate the adoption of CCS and Shopify Plus with larger brands and in more geographies.

First quarter financial highlights:

• Gross merchandise volume (GMV) increased 15 per cent to $49.6-billion, an increase of $6.4-billion over the first quarter of 2022, up 18 per cent on a constant-currency basis.
• Total revenue increased 25 per cent to $1.5-billion compared with the prior year, up 27 per cent on a constant-currency basis.
• Merchant solutions revenue increased 31 per cent to $1.1-billion, compared with the prior year, up 33 per cent on a constant-currency basis, driven primarily by the growth of GMV and continued penetration of Shopify Payments.
• Gross payments volume (GPV) grew to $27.5-billion, representing 56 per cent of GMV processed in the quarter, versus $22-billion, or 51 per cent, for the first quarter of 2022.
• Subscription solutions revenue increased 11 per cent to $382-million, compared with the prior year, up 11 per cent on a constant-currency basis, primarily due to more merchants joining the platform as well as higher variable platform fees and apps.
• Monthly recurring revenue (MRR) as of March 31, 2023, increased 10 per cent to $116-million compared with the prior year. MRR gains were driven by more merchants converting to full-priced standard subscription plans from the company's trial experiments as well as continued growth in the number of Shopify Plus merchants and retail locations utilizing the company's Point-of-Sale Pro solution. Shopify Plus contributed $39-million, or 34 per cent, of MRR, compared with 30 per cent of MRR as of March 31, 2022.
• Gross profit dollars grew 12 per cent to $717-million, compared with the prior year. Gross margin for the quarter was 47.5 per cent, compared with 53.0 per cent in the first quarter of 2022, driven primarily by a higher mix of revenue from the company's lower-margin merchant solutions segment, primarily from the lower-margin revenue contributions from Deliverr and Shopify Payments.
• Operating loss was $193-million, or 13 per cent of revenue, versus $98-million, or 8 per cent of revenue, for the comparable period a year ago.
• Adjusted operating loss was $31-million, or 2 per cent of revenue, compared with adjusted operating income of $32-million, or 3 per cent of revenue, in the first quarter of 2022. The difference primarily reflects lower gross margin percentage compared with the same period last year and increases in operating expenses related to higher compensation, including Deliverr.
• Capital expenditures were $14-million, compared with $16-million in the first quarter of 2022.
• Free cash flow was $86-million, or 6 per cent of revenues, compared with negative free cash flow of $41-million, or 3 per cent of revenues, in the first quarter of last year.
• Shopify had cash and marketable securities of $4.9-billion as of March 31, 2023, and a net cash position of $3.9-billion after consideration of the outstanding convertible notes.
• Shopify Capital extended $477-million in merchant cash advances and loans in the first quarter of 2023 and had approximately $629-million outstanding on March 31, 2023.

Subsequent to the first quarter of 2023:

• On May 4, 2023, Shopify took steps to change the shape of its business. These changes allow Shopify to sharpen its focus on the company's mission so it can have the highest impact on merchants. The changes impact head count across the company, including significant changes to Shopify's logistics business.

Shopify sells logistics assets to Flexport

On May 3, 2023, Shopify entered into a definitive agreement to sell the majority of its logistics business, including the people, technology and services related to these operations, to Flexport, a leading technology-driven global logistics platform. Shopify has been building a world-class logistics solution that is port to porch -- giving merchants speed, flexibility and affordability, all with a simple, seamless integration into the Shopify tools they already know and rely on every day. This transaction will take the logistics solution Shopify has been building and place it in the hands of a trusted and mission-aligned partner -- Flexport.

The transition of Shopify logistics assets to Flexport will be led by Harish Abbott, co-founder and chief executive officer of Deliverr, under the guidance of Flexport chief executive officer Dave Clark. Under the terms of the agreement, Shopify will receive stock representing a 13-per-cent equity interest in Flexport on top of its existing equity interest. In connection with the closing of the sale, Shopify is entitled to name a director to Flexport's board. Flexport will become the official logistics partner for Shopify and the preferred provider for Shop Promise. This transaction is expected to close in the second quarter of 2023, subject to certain conditions and regulatory approval, as applicable.

2023 outlook

The outlook that follows supersedes all prior financial outlook statements made by Shopify, 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. The company's financial outlook includes the pricing changes to its subscription plans and assumptions related to the planned sale of Shopify's logistics businesses and work force reduction.

For the second quarter of 2023, Shopify expects:

• Revenue to grow at a similar rate to the first quarter growth rate on a year-over-year basis;
• Gross margin percentage to be similar to the first quarter 2023 gross margin percentage;
• Operating expense dollars, when excluding one-time items related to the planned sale of the company's logistics businesses and severance, to decrease by a mid-single-digit percentage compared with operating expenses in the first quarter 2023;
• Stock-based compensation to be approximately $110-million, excluding one-time charges related to the sale of the company's logistics businesses.

Additionally, Shopify expects to achieve free cash flow profitability for each quarter of 2023 and capital expenditures of approximately $100-million for the full year. Shopify also estimates that it will incur a severance charge in the range of $140-million to $150-million in the second quarter of 2023 related to the work force reduction.

Quarterly conference call

Shopify's management team will hold a conference call to discuss its first quarter results on May 4, 2023, at 8:30 a.m. ET. The conference call will be webcast on the investor relations section of Shopify's website. An archived replay of the webcast will be available following the conclusion of the call.

Shopify's first quarter 2023 interim unaudited condensed consolidated financial statements and notes and its first quarter 2023 management discussion and analysis will be available on the company's website and will be filed on SEDAR and on EDGAR.

About Shopify Inc.

Shopify is the leading global commerce company that provides essential Internet infrastructure for commerce, offering trusted tools to start, scale, market and run a retail business of any size. Shopify makes commerce better for everyone with a platform and services that are engineered for speed, customization, reliability and security while delivering a better shopping experience for consumers on-line, in-store and everywhere in between. Shopify powers millions of businesses in more than 175 countries and is trusted by brands such as Mattel, Gymshark, Heinz, FTD, Netflix, Kylie Cosmetics, Skims, Supreme and many more.

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