Mr. Harley Finkelstein reports

SHOPIFY ANNOUNCES FOURTH-QUARTER AND FULL-YEAR 2023 FINANCIAL RESULTS

Shopify Inc. has released financial results for the quarter and year ended Dec. 31, 2023.

"Two thousand twenty-three was an incredible year for both Shopify and our merchants. Our strong Q4 and annual results are a powerful testament to the progress we have made building fast, reliable and unified software for merchants of all sizes," said Harley Finkelstein, president of Shopify. "As we look ahead to 2024, our focus remains on driving innovation in an ever-evolving commerce landscape, delivering products that will propel our merchants' businesses forward, with the support of our world-class talent and our valued merchants and partners."

"Our GMV [gross merchandise volume] growth accelerated in Q4 and for all of 2023, which powered Shopify's strong financial results. In Q4 we delivered year-over-year revenue growth of 24 per cent, which represents 30-per-cent growth when adjusting for the sale of our logistics businesses, and achieved an operating income margin of 13 per cent and a free cash flow margin of 21 per cent," said Jeff Hoffmeister, chief financial officer of Shopify. "For 2024, we look to build on the momentum that we achieved in 2023 and continue to deliver a strong combination of both top-line growth and profitability."

2023 business highlights

Shopify's commitment to its mission -- to make commerce better for everyone -- remained unwavering in 2023. The company continued to build mission-critical solutions to power the future of commerce, signing and bringing more merchants of all sizes on to its commerce platform, including brands like Carrier, Nike Strength, Dollar Shave Club, Banana Republic Home and Boardriders, which is home to well-known brands including Roxy, Quiksilver, Billabong, among many others.

Here are some highlights from the year that further expanded the company's unified commerce operating system to enable merchants of all sizes to start, scale and grow their businesses:

• Launched Shopify Magic, a suite of AI-enabled (artificial intelligence) features integrated across the Shopify platform to make it easier for merchants to run their businesses;
• Introduced Sidekick, an AI-enabled commerce assistant that allows merchants to use AI to increase productivity, improve workflows, make smarter decisions and spend less time on operational tasks;
• Powered by OpenAI's ChatGPT API (application programming interface), Shopify launched an AI shopping assistant on Shop, creating a fast and more personalized shopping experience for consumers that serves up more relevant product recommendations across Shop's millions of products;
• Expanded availability of Shopify's all-in-one mobile point-of-sale system, POS Go, to Canada, the United Kingdom and Ireland;
• Released in the United States and Canada new enterprise-grade payment 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-connected and Ethernet-connected reliable countertop payment device;
• Integrated Shop Pay Installments into Shopify POS, allowing retail merchants the ability to offer in-store shoppers the same payment flexibility offered on-line;
• Completed the U.S. rollout of Shop Cash, a rewards program that allows shoppers to earn Shop Cash on eligible Shop Pay purchases and redeem it on both the app and Web-based versions of Shop;
• Expanded Shopify's end-to-end, cross-border commerce solution, Shopify Markets Pro, to general availability in the United States;
• Optimized Shopify Checkout for speed and conversion by redesigning the checkout to a streamlined one-page checkout experience and expanded its extensibility with new APIs and updates;
• Launched Shopify Bill Pay, a tool that streamlines expense management by enabling merchants to manage and pay vendors directly in the Shopify admin;
• Launched Shopify Credit, a pay-in-full business credit card exclusively for Shopify merchants and designed to help flex monthly cash flow with tailored credit limits based on sales with no credit check, interest or fees while earning cashback savings on the top eligible spend categories;
• Launched Shopify Collective, 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;
• Launched Shopify Marketplace Connect app, 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;
• 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, to build dynamic customer experiences that integrate seamlessly with a retailer's preferred back-office services;
• Announced an app integration with Amazon that offers U.S. merchants the option to add the Buy with Prime app into Shopify Checkout with transactions processed through Shopify Payments;
• 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;
• Launched the Retail Plan, a new pricing plan for brick-and-mortar businesses selling primarily in person, which includes all Shopify POS Pro features as well as tools to build a simple on-line presence.

Recent business highlights:

• Released on Jan. 31, 2024, Shopify's Winter '24 Edition, focused on strengthening its commerce foundations with new capabilities spanning across conversion, channels, marketing and operations; over 100 updates were featured in this edition, including the following:
  • Implemented merchandising upgrades that include improved product classification with a new taxonomy that maps products to a rich set of associated attributes and an expanded variant limit of 2,000 to better support merchants with large or complex catalogues;
  • Launched Shopify Subscriptions, an app that gives merchants an easy way to set up and manage their subscriptions directly from the Shopify admin to help merchants increase their customer lifetime value and predictable revenue;
  • Introduced Ship from Store to Shopify POS allowing staff at brick-and-mortar locations to easily pick, pack and ship on-line orders to customers;
  • Expanded Shop Cash offers to Shop Campaigns to help merchants more efficiently target and acquire customers;
  • Rolled out new features to Shopify Magic, including a media editor that can make professional image edits with just a few clicks or keyword prompts;
• Shopify updated its pricing for Plus plans and Shopify Payments; the updated pricing went into effect for new Plus merchants on Feb. 8, 2024.

Fourth quarter financial highlights:

• Gross merchandise volume (GMV) increased 23 per cent to $75.1-billion, an increase of $14.2-billion over the fourth quarter of 2022.
• Revenue increased 24 per cent to $2.1-billion compared with the prior year, which translates into year-over-year growth of 30 per cent after adjusting for the sales of its logistics businesses.
• Merchant solutions revenue increased 21 per cent to $1.6-billion, compared with the prior year, driven primarily by the growth of GMV and continued penetration of Shopify Payments.
• Gross payment volume (GPV) grew to $45.1-billion, representing 60 per cent of GMV processed in the quarter, versus $34.2-billion, or 56 per cent, for the fourth quarter of 2022.
• Subscription solutions revenue increased 31 per cent to $525-million, compared with the prior year, driven by the growth in the number of merchants and the pricing increases on the company's standard subscription plans.
• Monthly recurring revenue (MRR) as of Dec. 31, 2023, increased 35 per cent to $149-million, compared with the prior year, driven by continued growth across all of the company's subscription plans. Shopify Plus contributed $46-million, or 31 per cent, of MRR, compared with 33 per cent of MRR as of Dec. 31, 2022.
• Gross profit dollars grew 33 per cent to $1.1-billion compared with the prior year. Gross margin for the quarter was 49.5 per cent, compared with 46.0 per cent in the fourth quarter of 2022, driven primarily by the lack of the dilutive impact of the logistics business.
• Free cash flow was $446-million, compared with free cash flow of $90-million in the prior year.
• Free cash flow margin for the quarter was 21 per cent, compared with free cash flow margin of 5 per cent in the fourth quarter of 2022.
• Cash and marketable securities were $5-billion as of Dec. 31, 2023, and the company had a net cash position of $4.1-billion after consideration of its outstanding convertible notes.

Full-year financial highlights:

• Gross merchandise volume increased 20 per cent to $235.9-billion, an increase of $38.7-billion over the prior year.
• Total revenue increased 26 per cent to $7.1-billion compared with 2022. Within this, merchant solutions revenue grew 27 per cent to $5.2-billion, and subscription solutions revenue grew 23 per cent to $1.8-billion.
• Gross payment volume was $137-billion, which accounted for 58 per cent of GMV processed, versus $106.1-billion, or 54 per cent, for 2022.
• Gross profit dollars grew 28 per cent to $3.5-billion in 2023, compared with $2.8-billion for 2022. Gross margin was 49.8 per cent compared with 49.2 per cent in 2022, driven primarily by the lack of the dilutive impact of the logistics business, the pricing changes on standard plans and support efficiencies within subscription solutions, which were partially offset by the continued growth in the company's lower-margin payment business.
• Free cash flow was $905-million, compared with negative free cash flow of $186-million in the prior year.
• Free cash flow margin was 13 per cent, compared with negative free cash flow margin of 3 per cent for 2022, achieving sequential growth in both free cash flow dollars and free cash flow margin every quarter this year.

2024 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 Shopify expects will create a revenue growth headwind of approximately 500 to 600 basis points and a gross margin tailwind of approximately 450 to 500 basis points when compared with the first quarter of 2023.

For the first quarter of 2024, Shopify expects:

• Revenue to grow at a percentage rate of low twenties on a year-over-year basis, which translates into a year-over-year growth rate in the mid-twenties to high twenties when adjusting for the 500-to-600-basis-point impact from the sale of the company's logistics businesses;
• Gross margin for Q1 is expected to increase approximately 150 basis points compared with Q4 2023;
• GAAP (generally accepted accounting principles) operating expense dollars to be up at a percentage rate of low teens compared with Q4 2023;
• Stock-based compensation to be approximately $105-million and capital expenditures to be approximately $10-million;
• Free cash flow as a percentage of revenue to be in the high single digits, with sequential improvement every quarter throughout the year.

Quarterly conference call

Shopify's management team will hold a conference call to discuss its fourth quarter and 2023 annual results today, Feb. 13, 2024, 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 audited consolidated financial statements and accompanying notes, management discussion and analysis, and annual information form for the year ended Dec. 31, 2023, will be available on Shopify's website and will be filed on SEDAR+ and on EDGAR. Shareholders may, upon request, receive a hard copy of the complete audited financial statements free of charge.

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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