Mr. Harley Finkelstein reports

SHOPIFY ANNOUNCES THIRD-QUARTER 2023 FINANCIAL RESULTS

Shopify Inc. has released its financial results for the quarter ended Sept. 30, 2023.

"Our third quarter results demonstrate the progress we are making to further solidify Shopify's position as the global leader in commerce," said Harley Finkelstein, president of Shopify. "Our ability to help our merchants succeed in any economic environment by delivering innovative product solutions has not only built strong trust with our merchants, but has positioned Shopify for sustained growth and profitability for the future. As we look forward to the busiest shopping season of the year, we're confident that our unified commerce platform empowers our merchants with the tools they need to seize every opportunity and achieve greater success."

"We're extremely pleased with our financial performance this quarter, which is a testament to the resilience and adaptability of our platform and our merchants," said Jeff Hoffmeister, chief financial officer of Shopify. "Our results showcased the durability of our business model as we delivered a compelling combination of both top-line growth and profitability, with revenue growing 25 per cent year-over-year and free cash flow margin reaching 16 per cent. We will continue to operate with discipline, thoughtfully investing in the huge opportunities ahead across regions, products and channels to help merchants capture every opportunity every step of the way."

Recent business highlights:

• Launched the retail plan, a new pricing plan for brick-and-mortar businesses selling primarily in person that includes all Shopify POS (point-of-sale) Pro features, as well as tools to build a simple on-line presence.
• Expanded availability of Shopify's all-in-one mobile point-of-sale system, POS Go, to the United Kingdom and Ireland.
• Released in the United States and Canada, new enterprise-grade payments hardware, POS Terminal, which combines POS Go and the all-new POS Go Dock to give merchants the option to turn their mobile point-of-sale system into a Wi-Fi- and Ethernet-connected reliable countertop payment device.
• Expanded the company's end-to-end cross-border commerce solution with native merchant of record offering, Shopify Markets Pro, to general availability in the U.S. in the third quarter.
• Optimized Shopify Checkout for conversion and speed by redesigning the checkout to a streamlined one-page checkout experience.
• Finalized commercial agreement with Flexport, to extend the partnership between Shopify and Flexport.
• Announced an app integration that allows U.S. merchants using Amazon's fulfilment network the option to add the Buy with Prime app from Shopify's app ecosystem into Shopify Checkout, with transactions processed through Shopify Payments.
• Partnered with Faire to continue to build out Shopify's business-to-business commerce offerings for its merchants, as well as create additional on-ramps onto Shopify as Faire's preferred point-of-sale provider for its independent retail community.
• Announced a global partnership with WPP to jointly develop products and pair WPP's commerce expert network with Shopify's platform to help brands scale faster and reach more customers.
• Recognized as a leader in the 2023 Gartner Magic Quadrant for Digital Commerce and placed highest in the ability to execute, further exemplifying Shopify's culture of innovation and unique vision for commerce.

Third quarter financial highlights:

• Gross merchandise volume (GMV) increased 22 per cent to $56.2-billion, an increase of $10-billion over the third quarter of 2022.
• Total revenue increased 25 per cent to $1.7-billion compared with the prior year, which translates into year-over-year growth of 30 per cent, after adjusting for the approximately 500-basis-point impact from the sales of the company's logistics businesses.
• Merchant solutions revenue increased 24 per cent to $1.2-billion compared with the prior year, driven primarily by the growth of GMV and Shopify Payments.
• Gross payments volume (GPV) grew to $32.8-billion, representing 58 per cent of GMV processed in the quarter, versus $25-billion, or 54 per cent, for the third quarter of 2022.
• Subscription solutions revenue increased 29 per cent to $486-million compared with the prior year, driven primarily by more merchants joining the platform and the pricing changes that went into effect for existing merchants on the company's standard subscription plans.
• Monthly recurring revenue (MRR) as of Sept. 30, 2023, increased 32 per cent to $141-million compared with the prior year, driven by continued growth across all of the company's subscription plans. Shopify Plus contributed $44-million, or 31 per cent, of MRR compared with 33 per cent of MRR as of Sept. 30, 2022.
• Gross profit grew 36 per cent to $901-million compared with the prior year. Gross margin for the quarter was 52.6 per cent compared with 48.5 per cent in the third quarter of 2022, driven primarily from lapping the dilutive impact of the logistics business in the prior year.
• Operating income was $122-million, or 7 per cent of revenue, compared with an operating loss of $346-million, or 25 per cent of revenue, for the comparable period a year ago, driven primarily by higher gross profit and lower operating expenses in the quarter.
• Free cash flow was $276-million, or free cash flow margin of 16 per cent, compared with negative free cash flow of $148-million, or negative free cash flow margin of 11 per cent, in the third quarter of 2022.
• Cash and marketable securities were $4.9-billion as of Sept. 30, 2023, and Shopify had a net cash position of $4-billion after consideration of its outstanding convertible notes.

Two thousand twenty-three 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.

Note that year-over-year comparability in the company's financial outlook will be impacted by the sales of its logistics businesses, which it expects will create a revenue growth headwind of approximately 400 basis points (bps) to 500 bps and a gross margin tailwind of approximately 300 bps to 400 bps, when compared with the fourth quarter of 2022.

For the remainder of 2023, Shopify expects:

• Full-year revenue to grow at a mid-20s percentage rate on a year-over-year basis, driven by fourth-quarter revenue growth in the high teens year-over-year, which translates into a year-over-year growth rate in the low to mid 20s when excluding the 400 bps to 500 bps impact from the sales of its logistics businesses. As a reminder, for purposes of year-over-year comparability, the fourth quarter of 2022 was Shopify's strongest quarter of growth in the prior year.
• Fourth quarter gross margin percentage to be 300 bps to 400 bps higher than the fourth quarter of 2022 gross margin of 46 per cent, primarily due to the absence of the logistics business. Q4 gross margin will be down from Q3 2023, as has historically been the case, as Payments revenue will be a larger percentage of overall revenue due to the seasonality of the holiday selling season.
• Fourth quarter operating expense dollars to be down by a low-single-digit percentage rate compared with Q3 2023 operating expense dollars.
• Fourth quarter stock-based compensation to be approximately $100-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.
• Fourth quarter free cash flow as a percentage of revenue to be in the high teens. Free cash flow margin and free cash flow dollars have both improved every quarter this year, and Q4 will continue to deliver on this upward trend -- a clear manifestation of the steps that Shopify has taken this year to drive toward greater profitability, as it builds for the long term.

Quarterly conference call

Shopify's management team will hold a conference call to discuss its third quarter results today, Nov. 2, 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 third quarter 2023 interim unaudited condensed consolidated financial statements and notes, and its third 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.

Q3 key performance indicators

The associated table represents a summary of the company's Q3 key performance indicators, along with period-over-period changes.

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