Mr. Harley Finkelstein reports

SHOPIFY ANNOUNCES SECOND-QUARTER 2023 FINANCIAL RESULTS

Shopify Inc. today released its financial results for the quarter ended June 30, 2023.

"Our business momentum has led to another quarter of strong financial results. We're not just shipping products faster, but we are also expanding our global merchant base, all while improving our ability to generate greater free cash flow," said Harley Finkelstein, president of Shopify. "As we lean into the new shape of Shopify, our focus remains on building the world's best product to empower entrepreneurs and businesses everywhere."

Recent business highlights

• On July 26, Shopify released its semi-annual product and innovation showcase, Shopify Editions. Over 100 updates were featured in the company's Summer '23 Edition including the following:
  • Shopify Magic is a suite of artificial-intelligence-enabled features integrated across the Shopify platform to make it easier for merchants to run their businesses.
  • Sidekick, powered by the Shopify Magic umbrella, is an AI-enabled commerce assistant that allows merchants to use AI to increase productivity, improve work flows, make smarter decisions and spend less time on operational tasks.
  • Shopify Collective is a low-cost, low-risk business-to-business solution that enables merchants to source products from other brands on Shopify and have them shipped directly to their customers.
  • Shopify Marketplace Connect app is a centralized hub for merchants to sell on all major marketplaces, including Amazon, eBay and Walmart, while connecting, managing and fulfilling their orders through Shopify.
  • Shopify Checkout is expanding its extensibility with over 15 new APIs (application programming interfaces) and updates, allowing partners and developers to craft unique checkout experiences with apps and manage them within the checkout editor, scaling alongside merchants as their checkout needs grow more complex.
  • Shopify Credit is a pay-in full business credit card exclusively for Shopify merchants, rewarding them by offering amplified cash back on the categories where they spend the most.
• Integrated Shop Pay Installments into Shopify Point-of-Sale allowing retail merchants the ability to offer in-store shoppers the same payment flexibility offered on-line.
• Completed the United States rollout of Shop Cash, a rewards program that allows shoppers to earn Shop Cash on eligible Shop Pay purchases and redeem it in the Shop app.
• Launched Shopify Bill Pay, a new tool that streamlines expense management by enabling merchants to manage and pay vendors directly in the Shopify admin.
• Completed the previously announced sale of the Shopify Logistics businesses.

Second quarter financial highlights

• Gross merchandise volume (1) (GMV) increased 17 per cent to $55.0-billion, an increase of $8.2-billion over the second quarter of 2022, up 18 per cent on a constant currency basis.
• Total revenue increased 31 per cent to $1.7-billion compared with the prior year, up 31 per cent on a constant currency basis.
• Merchant Solutions revenue increased 35 per cent to $1.3-billion compared with the prior year driven primarily by the growth of GMV and continued penetration of Shopify Payments.
• Gross Payments Volume (2) (GPV) grew to $31.7-billion, representing 58 per cent of GMV processed in the quarter, versus $24.9-billion, or 53 per cent, for the second quarter of 2022.
• Subscription Solutions revenue increased 21 per cent to $444-million compared with the prior year primarily due to more merchants joining the platform and the pricing changes that went into effect for existing merchants in April.
• Monthly recurring revenue (3) (MRR) as of June 30, 2023, increased 30 per cent to $139-million compared with the prior year. MRR gains were driven primarily by the pricing changes that went into effect for the company's existing merchants in late April and continued growth in the number of Standard and Plus merchants. Shopify Plus contributed $41-million, or 29 per cent, of MRR compared with 31 per cent of MRR as of June 30, 2022.
• Gross profit grew 27 per cent to $835-million, compared with the prior year. Gross margin for the quarter was 49.3 per cent compared with 50.7 per cent in the second quarter of 2022, driven by a higher mix of revenue from the company's lower margin Merchant Solutions segment, primarily from the lower-margin revenue contributions from Deliverr.
• Operating loss was $1.6-billion which includes $1.7-billion in one-time items from the impairment and acceleration of stock-based compensation related to the sales of the company's logistics businesses, as well as severance. Excluding these one-time charges, operating income was positive for the quarter.
• Adjusted operating income (4) was $146-million, or 9 per cent of revenue, compared with adjusted operating loss of $42-million or 3 per cent of revenue in the second quarter of 2022. The difference primarily reflects higher revenue compared with the same period last year as well as lower adjusted operating expenses.
• Capital expenditures (5) were $21-million compared with $12-million in the second quarter of 2022.
• Free cash flow (6) was $97-million or 6 per cent of revenues, compared with negative free cash flow of $87-million or 7 per cent of revenues in the second quarter of last year.
• Cash and marketable securities were $4.8-billion as of June 30, 2023, and the company had a net cash position of $3.9-billion after consideration of the outstanding convertible notes. Shopify Capital had $719-million in loans receivables and merchant cash advances outstanding on June 30, 2023.

2023 outlook

The outlook provided herein 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. Note that year-over-year comparability in the company's financial outlook will be impacted by the sale of its logistics businesses, which Shopify expects will create a revenue growth headwind of approximately 300 to 400 basis points and a gross margin tailwind of approximately 300 to 400 basis points when compared with the third quarter of 2022.

For the third quarter of 2023, the company expects:

• Revenue to grow at a low 20s percentage rate on a year-over-year basis, which translates into a year-over-year growth rate in the mid 20s, when adjusting for the 300 to 400 basis points headwind from the sale of the company's logistics businesses;
• Gross margin percentage to be approximately two to three percentage points higher than the second quarter 2023 gross margin of 49.3 per cent;
• Operating expense dollars to be flat to up slightly compared with the second quarter of 2023 operating expense dollars, when excluding one-time items from the impairment and accelerated stock-based compensation related to the sale of the company's logistics businesses and severance from the second quarter;
• Stock-based compensation to be approximately $110-million;
• Capital expenditures of approximately $45-million for the full year, inclusive of $33-million in the first half of the year related to logistics;
• Free cash flow profitability for the third quarter of 2023 to be greater than the entire first half of 2023.

Quarterly conference call

Shopify's management team will hold a conference call to discuss our second quarter results today, Aug. 2, 2023, at 5 p.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 second quarter 2023 interim unaudited condensed consolidated financial statements and notes and its second quarter 2023 management's discussion and analysis will be available on Shopify'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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