SHOP Shopify Inc

Fourth-Quarter Revenue and GMV Grow 54% Year on Year

GMV Exceeds $14 Billion for the Fourth Quarter and $41 Billion for 2018

Shopify reports in U.S. dollars and in accordance with U.S. GAAP

Shopify Inc. (NYSE:SHOP)(TSX:SHOP), the leading multi-channel commerce platform, today announced strong financial results for the quarter and full year ended December 31, 2018.

“We made history in 2018: no other SaaS company has crossed the $1 billion-dollar revenue mark at a faster growth rate than Shopify has,” said Tobi Lütke, Shopify’s CEO. "This milestone is significant due to the backdrop: Shopify allows people to partake in the entrepreneurial world who would otherwise not be able to do so. We have been focused on growing this market for the past 12 years even though a lot of people told us that this isn’t a valuable business model. We let the results speak for themselves."

"Our merchants had an incredible fourth quarter, and we are energized by their success," said Amy Shapero, Shopify’s CFO. "With our focus on helping entrepreneurs everywhere, including those within the enterprise, launch their businesses and grow them, in 2018 we reached a billion orders cumulatively, and saw the highest-ever mix of merchants join the platform from outside our core geographies. We look forward to expanding our footprint even more in 2019 as we continue to bring more product innovation and more value to merchants of all sizes around the world."

Fourth-Quarter Financial Highlights

• Total revenue in the fourth quarter was $343.9 million, a 54% increase from the comparable quarter in 2017.
• Subscription Solutions revenue grew 42% to $133.6 million. This increase was driven primarily by growth in Monthly Recurring Revenue1 ("MRR"), driven primarily by an increase in the number of merchants joining the Shopify platform.
• Merchant Solutions revenue grew 63%, to $210.3 million, driven primarily by the growth of Gross Merchandise Volume2 ("GMV"), as well as by strong growth in Shopify Capital and Shopify Shipping.
• MRR as of December 31, 2018 was $40.9 million, up 37% compared with $29.9 million as of December 31, 2017. Shopify Plus contributed $10.4 million, or 25%, of MRR compared with 21% of MRR as of December 31, 2017.
• GMV for the fourth quarter was $14.0 billion, an increase of $4.9 billion, or 54% over the fourth quarter of 2017. Gross Payments Volume3 ("GPV") grew to $5.8 billion, which accounted for a record 41% of GMV processed in the quarter, versus $3.5 billion, or 39%, for the fourth quarter of 2017.
• Gross profit dollars grew 53%, to $185.7 million, compared with the $121.1 million recorded for the fourth quarter of 2017.
• Operating loss for the fourth quarter of 2018 was $9.5 million, or 3% of revenue, versus a loss of $6.1 million, or 3% of revenue, for the comparable period a year ago.
• Adjusted operating income4 for the fourth quarter of 2018 was 6% of revenue, or $20.0 million; adjusted operating income for the fourth quarter of 2017 was 5% of revenue, or $11.6 million.
• Net loss for the fourth quarter of 2018 was $1.5 million, or $0.01 per share, compared with $3.0 million, or $0.03 per share, for the fourth quarter of 2017.
• Adjusted net income4 for the fourth quarter of 2018 was $27.9 million, or $0.26 per share, compared with adjusted net income of $14.7 million, or $0.15 per share, for the fourth quarter of 2017.
• At December 31, 2018, Shopify had $1.97 billion in cash, cash equivalents and marketable securities, compared with $938 million on December 31, 2017.

Fourth-Quarter Business Highlights

• Sales on Shopify’s platform over the Black Friday Cyber Monday period reached more than $1.5 billion of GMV in just four days, with the majority coming from mobile devices. This compares with $1 billion in GMV for the Black Friday Cyber Monday period in 2017.
• Shopify launched Shopify Payments in Spain, expanding availability of Shopify Payments to 11 countries: the U.S., Canada, United Kingdom, Australia, Ireland, New Zealand, Japan, Singapore, Hong Kong, Germany, and Spain. Shopify's investments in international expansion yielded a record percentage of new merchants on the Shopify platform in the fourth quarter from outside our core geographies, which comprise our longer-established geographies of North America, UK, and Australia.
• Shopify Shipping adoption continued to climb, with the percentage of eligible merchants in the United States and Canada utilizing Shopify Shipping approaching 40% by year end.
• Purchases from merchants’ stores coming from mobile devices versus desktop continued to climb in the quarter, accounting for 78% of traffic and 66% of orders for the three months ended December 31, 2018, versus 73% and 61%, respectively, for the fourth quarter of 2017.
• Shopify Capital issued $71.8 million in merchant cash advances and loans in the fourth quarter of 2018, an increase of 81% versus the $39.7 million issued in the fourth quarter of last year. Shopify Capital has grown to approximately $447 million in cumulative cash advanced since its launch in April 2016 through 2018, approximately $92 million of which was outstanding on December 31, 2018.

Full-Year Financial Highlights

• Total revenue for the full year 2018 was $1.073 billion, a 59% increase over 2017. Within this, Subscription Solutions revenue grew 50% to $465.0 million, while Merchant Solutions revenue grew 67% to $608.2 million.
• GMV2 for 2018 was $41.1 billion, an increase of 56% over 2017. GPV3 grew to $16.6 billion, which accounted for 40% of GMV processed versus $10.0 billion, or 38%, for 2017.
• Gross profit grew 57% to $596.3 million, compared with $380.3 million for 2017.
• Operating loss for 2018 was $91.9 million, or 9% of revenue, versus 49.2 million, or 7% of revenue, for 2017.
• Adjusted operating income4 for 2018 was 1% of revenue, or $11.8 million; adjusted operating income for 2017 was also 1% of revenue, or $6.0 million.
• Net loss for 2018 was $64.6 million, or $0.61 per share, compared with $40.0 million, or $0.42 per share, for 2017.
• Adjusted net income4 for 2018 was $39.2 million, or $0.37 per share, compared with adjusted net income of $15.2 million, or $0.16 per share, for 2017.

2018 Business Highlights

Shopify made progress on our three areas of targeted investment in 2018, which were international growth, our platform, and Shopify Plus:

• Shopify launched native language capabilities on the platform, bringing the total number of languages available to seven, including English, German, Japanese, French, Spanish, Brazilian Portuguese, and Italian. By year end 2018, 24% of our merchants were based outside our core geographies, compared with 21% in these largely non-English-speaking markets in 2017.
• Shopify expanded the feature set of our platform to help power merchant selling: our Marketing Dashboard facilitates purchasing advertising, while Shopify Ping streamlines and centralizes business conversations and marketing activities; Google Pay and Dynamic Checkout help remove friction for the buyer from the checkout process; and Fraud Protect gives merchants greater confidence in accepting orders.
• Shopify deepened the platform’s functionality to simplify merchant operations: our multi-location inventory feature enables merchants to track inventory across multiple sales and storage facilities; enhancements to our POS solution enables multi-channel returns and exchanges; and our Store Cam for Shopify app integrates live video feed from a physical location via Google Nest directly into the Shopify dashboard. In addition, Shopify made it easier for merchants to leverage our partner community with the launch of our Services Marketplace -- a job-centric hub where Shopify merchants can find Shopify partners -- as well as our new app store with improvements to app categorization, listings, and merchant recommendations.
• Shopify Plus merchants expanded their share of overall MRR and GMV, as they continued to thrive using Shopify’s powerful feature set and the base of Shopify Plus merchants grew by nearly 50%.

In our ongoing mission to make commerce better for everyone, merchants and consumers alike, Shopify plans to continue adding capabilities that make it easier for more entrepreneurs to start selling, further simplify merchant operations, and catalyze their GMV growth. With this ongoing cadence of innovation to empower merchants, in 2018 Shopify was adopted by hundreds of thousands more entrepreneurs seeking a multi-channel platform that is powerful, easy-to-use, and affordable.

2018 Shopify Merchant Highlights

Shopify helped maintain a vibrant and healthy commerce landscape that empowered merchants around the world in 2018:

• The number of merchants on the Shopify platform achieving over $1 million in GMV grew by 58% in 2018.
• Merchants selling on the Shopify platform for 12 months or more grew their GMV year-over-year at an average monthly rate of 24%.
• In the fourth quarter alone, Shopify merchants added nearly 40 million products to their shops.
• In 2018, Shopify paid over $100 million to our partners (themselves small and medium-sized businesses) for their apps and services benefiting Shopify merchants.
• The number of merchants trying the Shopify platform for the first time continued to expand in 2018, indicating Shopify is well positioned to power the merchant success stories of tomorrow.

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 2019, Shopify currently expects:

• Revenues in the range of $1.46 billion to $1.48 billion
• GAAP operating loss in the range of $140 million to $150 million
• Adjusted operating income4 in the range of $10 to $20 million, which excludes stock-based compensation expenses and related payroll taxes of $160 million

For the first quarter of 2019, Shopify currently expects:

• Revenues in the range of $305 million to $310 million
• GAAP operating loss in the range of $47 million to $49 million
• Adjusted operating loss4 in the range of $13 million to $15 million, which excludes stock-based compensation expenses and related payroll taxes of $34 million

Quarterly Conference Call

Shopify’s management team will hold a conference call to discuss our fourth-quarter results today, February 12, 2019, 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 Audited Consolidated Financial Statements and accompanying Notes, Management’s Discussion and Analysis, and Annual Information Form for the year ended December 31, 2018 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. Shareholders may, upon request, receive a hard copy of the complete audited financial statements free of charge.

About Shopify

Shopify is the leading multi-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 800,000 businesses in approximately 175 countries and is trusted by brands such as Unilever, Kylie Cosmetics, Allbirds, MVMT, and many more.

Non-GAAP Financial Measures

To supplement our 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 our financial and operating performance.

Adjusted operating loss/income, 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, the expansion of Shopify’s footprint in 2019, and Shopify’s plans to add capabilities in 2019. 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) the security of personal information we store relating to merchants and their customers, and consumers with whom we have a direct relationship; (x) evolving privacy laws and regulations, cross-border data transfer restrictions, data localization requirements and other domestic or foreign regulations; (xi) our potential inability to hire, retain and motivate qualified personnel; (xii) international sales and the use of our platform in various countries; 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.

Consolidated Statements of Operations and Comprehensive Loss

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

  Three months ended Years ended December 31, 2018     December 31, 2017 December 31, 2018     December 31, 2017 $ $ $ $ Revenues Subscription solutions 133,560 93,918 464,996 310,031 Merchant solutions 210,302 128,896 608,233 363,273 343,862 222,814 1,073,229 673,304 Cost of revenues Subscription solutions 26,706 19,867 100,990 61,267 Merchant solutions 131,413 81,802 375,972 231,784 158,119 101,669 476,962 293,051 Gross profit 185,743 121,145 596,267 380,253 Operating expenses Sales and marketing 95,163 67,174 350,069 225,694 Research and development 67,024 40,339 230,674 135,997 General and administrative 33,014 19,745 107,444 67,719 Total operating expenses 195,201 127,258 688,187 429,410 Loss from operations (9,458) (6,113) (91,920) (49,157)         Other income 7,944 3,126 27,367 9,162 Net loss (1,514) (2,987) (64,553) (39,995) Other comprehensive income (loss), net of tax (10,520) (3,419) (15,651) 5,253 Comprehensive loss (12,034) (6,406) (80,204) (34,742)

Basic and diluted net loss per share attributable toshareholders

(0.01) (0.03) (0.61) (0.42)

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

107,734,499 99,551,791 105,671,839 95,774,897      

Shopify Inc.

Consolidated Balance Sheets

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

  As at December 31, 2018     December 31, 2017 $ $ Assets Current assets Cash and cash equivalents 410,683 141,677 Marketable securities 1,558,987 796,362 Trade and other receivables, net 41,347 21,939 Merchant cash advances and loans receivable, net 91,873 47,101 Other current assets 26,192 18,598 2,129,082 1,025,677 Long-term assets Property and equipment, net 61,612 50,360 Intangible assets, net 26,072 17,210 Goodwill 38,019 20,317 125,703 87,887 Total assets 2,254,785 1,113,564 Liabilities and shareholders’ equity Current liabilities Accounts payable and accrued liabilities 96,956 62,576 Current portion of deferred revenue 39,180 30,694 Current portion of lease incentives 2,552 1,484 138,688 94,754 Long-term liabilities Deferred revenue 1,881 1,352 Lease incentives 22,316 14,970 Deferred tax liability 1,132 1,388 25,329 17,710 Shareholders’ equity

Common stock, unlimited Class A subordinate voting sharesauthorized, 98,081,889 and 87,067,604 issued and outstanding;unlimited Class B multiple voting shares authorized, 12,310,800and 12,810,084 issued and outstanding

2,215,936 1,077,477 Additional paid-in capital 74,805 43,392 Accumulated other comprehensive income (loss) (12,216) 3,435 Accumulated deficit (187,757) (123,204) Total shareholders’ equity 2,090,768 1,001,100 Total liabilities and shareholders’ equity 2,254,785 1,113,564      

Shopify Inc.

Consolidated Statements of Cash Flows

(Expressed in US $000’s, unaudited)

  Years ended December 31, 2018     December 31, 2017 $ $ Cash flows from operating activities Net loss for the year (64,553) (39,995) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization and depreciation 27,052 23,382 Stock-based compensation 95,720 49,163 Provision for uncollectible receivables related to merchant cash advances and loans receivable 5,922 2,606 Unrealized foreign exchange (gain) loss 1,272 (1,604) Changes in operating assets and liabilities: Trade and other receivables (32,649) (13,037) Merchant cash advances and loans receivable (50,694) (37,811) Other current assets (10,816) (3,706) Accounts payable and accrued liabilities 20,641 15,428 Deferred revenue 9,015 10,960 Lease incentives 8,414 2,515 Net cash provided by operating activities 9,324 7,901 Cash flows from investing activities Purchase of marketable securities (2,447,955) (1,129,263) Maturity of marketable securities 1,698,264 642,073 Acquisitions of property and equipment (27,950) (20,043) Acquisitions of intangible assets (13,595) (4,219) Acquisition of businesses, net of cash acquired (19,397) (15,718) Net cash used by investing activities (810,633) (527,170) Cash flows from financing activities Proceeds from the exercise of stock options 30,494 14,774 Proceeds from public offering, net of issuance costs 1,041,688 560,057 Net cash provided by financing activities 1,072,182 574,831 Effect of foreign exchange on cash and cash equivalents (1,867) 2,102 Net increase in cash and cash equivalents 269,006 57,664 Cash and cash equivalents – Beginning of Year 141,677 84,013 Cash and cash equivalents – End of Year 410,683 141,677          

Shopify Inc.

Reconciliation from GAAP to Non-GAAP Results

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

  Three months ended Years ended December 31, 2018     December 31, 2017 December 31, 2018     December 31, 2017 $ $ $ $ GAAP Gross profit 185,743 121,145 596,267 380,253 % of Revenue 54 % 54 % 56 % 56 % add: stock-based compensation 604 309 2,232 1,102 add: payroll taxes related to stock-based compensation 56   61   209   179   Non-GAAP Gross profit 186,403   121,515   598,708   381,534   % of Revenue 54 % 55 % 56 % 57 %   GAAP Sales and marketing 95,163 67,174 350,069 225,694 % of Revenue 28 % 30 % 33 % 34 % less: stock-based compensation 6,153 2,936 21,928 8,986 less: payroll taxes related to stock-based compensation 488   246   2,128   890   Non-GAAP Sales and marketing 88,522   63,992   326,013   215,818   % of Revenue 26 % 29 % 30 % 32 %   GAAP Research and development 67,024 40,339 230,674 135,997 % of Revenue 19 % 18 % 21 % 20 % less: stock-based compensation 15,941 9,653 55,164 31,338 less: payroll taxes related to stock-based compensation 828   1,190   4,411   3,222   Non-GAAP Research and development 50,255   29,496   171,099   101,437   % of Revenue 15 % 13 % 16 % 15 %   GAAP General and administrative 33,014 19,745 107,444 67,719 % of Revenue 10 % 9 % 10 % 10 % less: stock-based compensation 4,721 2,080 16,396 7,737 less: payroll taxes related to stock-based compensation 635   1,222   1,294   1,748   Non-GAAP General and administrative 27,658   16,443   89,754   58,234   % of Revenue 8 % 7 % 8 % 9 %   GAAP Operating expenses 195,201 127,258 688,187 429,410 % of Revenue 57 % 57 % 64 % 64 % less: stock-based compensation 26,815 14,669 93,488 48,061 less: payroll taxes related to stock-based compensation 1,951   2,658   7,833   5,860   Non-GAAP Operating Expenses 166,435   109,931   586,866   375,489   % of Revenue 48 % 49 % 55 % 56 %          

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 Years ended December 31, 2018     December 31, 2017 December 31, 2018     December 31, 2017 $ $ $ $ GAAP Operating loss (9,458 ) (6,113 ) (91,920 ) (49,157 ) % of Revenue (3 )% (3 )% (9 )% (7 )% add: stock-based compensation 27,419 14,978 95,720 49,163 add: payroll taxes related to stock-based compensation 2,007   2,719   8,042   6,039   Adjusted Operating income 19,968   11,584   11,842   6,045   % of Revenue 6 % 5 % 1 % 1 %   GAAP Net loss (1,514 ) (2,987 ) (64,553 ) (39,995 ) % of Revenue — % (1 )% (6 )% (6 )% add: stock-based compensation 27,419 14,978 95,720 49,163 add: payroll taxes related to stock-based compensation 2,007   2,719   8,042   6,039   Adjusted Net income 27,912   14,710   39,209   15,207   % of Revenue 8 % 7 % 4 % 2 %   GAAP net loss per share attributable to shareholders (0.01 ) (0.03 ) (0.61 ) (0.42 ) add: stock-based compensation 0.25 0.15 0.91 0.51 add: payroll taxes related to stock-based compensation 0.02   0.03   0.08   0.06   Adjusted net income per share attributable to shareholders 0.26   0.15   0.38   0.15  

Weighted average shares used to compute GAAPand non-GAAP net loss per share attributable toshareholders

107,734,499 99,551,791 105,671,839 95,774,897   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.

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INVESTORS:Katie KeitaSenior Director, Investor Relations613-241-2828 x 1024IR@shopify.comMEDIA:Julie NicholsonDirector of Communications416-238-6705 x 302press@shopify.com