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Shopify Announces Third-Quarter 2018 Financial Results

October 25, 2018 7:00 AM

Third-Quarter Revenue Grows 58% 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 September 30, 2018.

“Solid execution and continued rapid growth drove our strong results in the third quarter,” stated Amy Shapero, Shopify’s CFO. “We relentlessly shipped new products and features to prepare our merchants for their biggest selling season of the year, merchants’ GMV expansion was well ahead of ecommerce growth overall, and our merchant base continues to expand at a healthy clip. We’re well positioned to close 2018 and enter 2019 with excellent momentum.”

Third-Quarter Financial Highlights

Third-Quarter Business Highlights

In the third quarter, Shopify continued to deliver features to help merchants sell more, sell more efficiently, and optimize the value of Shopify’s vast partner ecosystem:

Subsequent to the close of the third quarter:

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:

For the fourth quarter of 2018, Shopify currently expects:

Quarterly Conference Call

Shopify’s management team will hold a conference call to discuss its third-quarter results today, October 25, 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 Third-Quarter 2018 Interim Unaudited Condensed Consolidated Financial Statements and Notes and its Third-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 omni-channel commerce platform. Merchants use Shopify to design, set up, and manage their stores across multiple sales channels, including mobile, web, 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, from payments to shipping. 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 Nestle, Kylie Cosmetics, Allbirds, MVMT, 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”, “continue”, “will”, “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 � Nine Months Ended

September
30, 2018

�

September
30, 2017

September
30, 2018

�

September
30, 2017

$ $ � $ � $ �
Revenues
Subscription solutions 120,517 82,435 331,436 216,113
Merchant solutions 149,547 � 89,021 � 397,931 � 234,377 �
270,064 � 171,456 � 729,367 � 450,490 �
Cost of revenues
Subscription solutions 26,600 15,458 74,284 41,400
Merchant solutions 93,737 � 55,971 � 244,559 � 149,982 �
120,337 � 71,429 � 318,843 � 191,382 �
Gross profit 149,727 � 100,027 � 410,524 � 259,108 �
Operating expenses
Sales and marketing 91,635 58,314 254,906 158,520
Research and development 61,629 36,350 163,650 95,658
General and administrative 27,831 � 18,039 � 74,430 � 47,974 �
Total operating expenses 181,095 � 112,703 � 492,986 � 302,152 �
Loss from operations (31,368 ) (12,676 ) (82,462 ) (43,044 )
� � � �
Other income 8,184 � 3,296 � 19,423 � 6,036 �
Net loss (23,184 ) (9,380 ) (63,039 ) (37,008 )
Other comprehensive income (loss), net of tax 6,101 � 2,604 � (5,131 ) 8,672 �
Comprehensive loss (17,083 ) (6,776 ) (68,170 ) (28,336 )

Basic and diluted net loss per share attributable to
shareholders

(0.22 ) (0.09 ) (0.60 ) (0.39 )

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

106,647,222 98,777,975 104,976,730 94,502,097
�
�

Shopify Inc.

Condensed Consolidated Balance Sheets

(Expressed in US $000’s except share amounts, unaudited)

�
� As at
September 30, 2018 � December 31, 2017
$ $
Assets
Current assets
Cash and cash equivalents 243,421 141,677
Marketable securities 1,334,804 796,362
Trade and other receivables, net 35,799 21,939
Merchant cash advances receivable, net 99,518 47,101
Other current assets 23,444 � 18,598 �
1,736,986 � 1,025,677 �
Long-term assets
Property and equipment, net 55,754 50,360
Intangible assets, net 26,060 17,210
Goodwill 22,894 � 20,317 �
104,708 � 87,887 �
Total assets 1,841,694 � 1,113,564 �
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities 107,839 62,576
Current portion of deferred revenue 36,987 30,694
Current portion of lease incentives 2,121 � 1,484 �
146,947 � 94,754 �
Long-term liabilities
Deferred revenue 1,744 1,352
Lease incentives 19,605 14,970
Deferred tax liability 1,320 � 1,388 �
22,669 � 17,710 �
Shareholders’ equity

Common stock, unlimited Class A subordinate voting shares
authorized, 94,487,350 and 87,067,604 issued and outstanding;
unlimited Class B multiple voting shares authorized, 12,481,600
and 12,810,084 issued and outstanding

1,794,013 1,077,477
Additional paid-in capital 66,004 43,392
Accumulated other comprehensive income (loss) (1,696 ) 3,435
Accumulated deficit (186,243 ) (123,204 )
Total shareholders’ equity 1,672,078 � 1,001,100 �
Total liabilities and shareholders’ equity 1,841,694 � 1,113,564 �
�
�

Shopify Inc.

Condensed Consolidated Statements of Cash Flows

(Expressed in US $000’s, unaudited)

�
� Nine Months Ended

September 30,
2018

�

September 30,
2017

$ � $ �
Cash flows from operating activities
Net loss for the period

(63,039)

(37,008 )

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

Amortization and depreciation 21,204 15,624
Stock-based compensation 68,301 34,185
Provision for uncollectible receivables related to merchant cash advances

�

5,043

2,473
Unrealized foreign exchange (gain) loss 637 (1,502 )
Changes in operating assets and liabilities:
Trade and other receivables

(22,524)

(8,701 )
Merchant cash advances receivable

(57,460)

(40,853 )
Other current assets

(8,255)

(2,179 )
Accounts payable and accrued liabilities 44,203 15,193
Deferred revenue 6,685 8,862
Lease incentives 5,272 2,812 �
Net cash provided by (used in) operating activities 67 (11,094 )
Cash flows from investing activities
Purchase of marketable securities

(1,689,553)

(949,202 )
Maturity of marketable securities 1,160,003 451,509
Acquisitions of property and equipment

(20,432)

(9,258 )
Acquisitions of intangible assets

(12,328)

(2,882 )
Acquisition of businesses, net of cash acquired

(3,718)

(15,718 )
Net cash used by investing activities

(566,028)

(525,551 )
Cash flows from financing activities
Proceeds from the exercise of stock options

�

22,273

10,500
Proceeds from public offering, net of issuance costs

�

646,984

560,057 �
Net cash provided by financing activities

�

669,257

570,557 �
Effect of foreign exchange on cash and cash equivalents

(1,552)

1,924 �
Net increase in cash and cash equivalents 101,744 35,836
Cash and cash equivalents – Beginning of Period 141,677 84,013 �
Cash and cash equivalents – End of Period 243,421 119,849 �
�
�

Shopify Inc.

Reconciliation from GAAP to Non-GAAP Results

(Expressed in US $000’s, except share and per share amounts, unaudited)

�
� Three months ended � Nine Months Ended

September 30,
2018

�

September 30,
2017

September 30,
2018

�

September 30,
2017

$ $ $ $
GAAP Gross profit 149,727 100,027 410,524 259,108
% of Revenue 55 % 58 % 56 % 58 %
add: stock-based compensation 618 318 1,628 794

add: payroll taxes related to stock-based
compensation

37 � 37 � 153 � 117 �
Non-GAAP Gross profit 150,382 � 100,382 � 412,305 � 260,019 �
% of Revenue 56 % 59 % 57 % 58 %
�
GAAP Sales and marketing 91,635 58,314 254,906 158,520
% of Revenue 34 % 34 % 35 % 35 %
less: stock-based compensation 6,015 2,565 15,775 6,050

less: payroll taxes related to stock-based
compensation

382 � 164 � 1,640 � 644 �
Non-GAAP Sales and marketing 85,238 � 55,585 � 237,491 � 151,826 �
% of Revenue 32 % 32 % 33 % 34 %
�
GAAP Research and development 61,629 36,350 163,650 95,658
% of Revenue 23 % 21 % 22 % 21 %
less: stock-based compensation 14,719 8,595 39,223 21,681

less: payroll taxes related to stock-based
compensation

950 � 729 � 3,583 � 2,036 �
Non-GAAP Research and development 45,960 � 27,026 � 120,844 � 71,941 �
% of Revenue 17 % 16 % 17 % 16 %
�
GAAP General and administrative 27,831 18,039 74,430 47,974
% of Revenue 10 % 11 % 10 % 11 %
less: stock-based compensation 4,833 1,898 11,675 5,659

less: payroll taxes related to stock-based
compensation

174 � 83 � 659 � 524 �
Non-GAAP General and administrative 22,824 � 16,058 � 62,096 � 41,791 �
% of Revenue 8 % 9 % 9 % 9 %
�
GAAP Operating expenses 181,095 112,703 492,986 302,152
% of Revenue 67 % 66 % 68 % 67 %
less: stock-based compensation 25,567 13,058 66,673 33,390

less: payroll taxes related to stock-based
compensation

1,506 � 976 � 5,882 � 3,204 �
Non-GAAP Operating Expenses 154,022 � 98,669 � 420,431 � 265,558 �
% of Revenue 57 % 58 % 58 % 59 %
�
�

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 � Nine Months Ended

September 30,
2018

�

September 30,
2017

September 30,
2018

�

September 30,
2017

$ $ $ $
GAAP Operating loss (31,368 ) (12,676 ) (82,462 ) (43,044 )
% of Revenue (12 )% (7 )% (11 )% (10 )%
add: stock-based compensation 26,185 13,376 68,301 34,184

add: payroll taxes related to stock-based
compensation

1,543 � 1,013 � 6,035 � 3,321 �
Adjusted Operating income (loss) (3,640 ) 1,713 � (8,126 ) (5,539 )
% of Revenue (1 )% 1 % (1 )% (1 )%
�
GAAP Net loss (23,184 ) (9,380 ) (63,039 ) (37,008 )
% of Revenue (9 )% (5 )% (9 )% (8 )%
add: stock-based compensation 26,185 13,376 68,301 34,184

add: payroll taxes related to stock-based
compensation

1,543 � 1,013 � 6,035 � 3,321 �
Adjusted Net income 4,544 � 5,009 � 11,297 � 497 �
% of Revenue 2 % 3 % 2 % — %
�
GAAP net loss per share attributable to shareholders (0.22 ) (0.09 ) (0.60 ) (0.39 )
add: stock-based compensation 0.25 0.14 0.65 0.36

add: payroll taxes related to stock-based
compensation

0.01 � 0.01 � 0.06 � 0.04 �

Adjusted net income per share attributable to
shareholders

0.04 � 0.05 � 0.11 � 0.01 �

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

106,647,222 98,777,975 104,976,730 94,502,097
�
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.

Shopify

INVESTORS:

Katie Keita, 613-241-2828 x 1024

Director, Investor Relations

[email protected]

or

MEDIA:

Sheryl So, 416-238-6705 x 302

Public Relations Manager

[email protected]

Source: Shopify Inc.

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