Shopify Inc.

Thank you for standing by. This is the conference operator. Welcome to the Shopify second quarter 2020 financial results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Katie Keita, Director of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. We are joined this morning by Toby Lutka, Shopify's CEO, Harley Finkelstein, our Chief Operating Officer, and Amy Shapiro, our CFO. Each of us is dialing in from our homes. After some brief prepared remarks by Harley and Amy, we will open it up for your questions. We hope you enjoyed the on-hold music created by Shopify's own internal talent. Now for something slightly more austere by our legal department titled Risky Business. We will make forward-looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our press release this morning, as well as in our filings with US and Canadian regulators. Note that the adjusted financial measures we speak to today are non-GAAP financial measures, which are not a substitute for GAAP financial measures. Reconciliations between the two can be found in our earnings press release, and finally, We report in US dollars, so all amounts discussed today are in US dollars unless otherwise indicated. With that, I turn the call over to Harley.

Good morning, everyone, and thank you for joining us today. We hope that you are all keeping safe and healthy. Over the past few months, we've seen the COVID-19 pandemic fundamentally shift the way businesses and consumers interact. It has catalyzed e-commerce, introducing major changes in buyer behavior, and pulling forward what retail would look like in 2030 to 2020. Many merchants were caught off guard, and we knew that Shopify needed to act fast to help them survive. So, from late March through the second quarter, we dialed up our urgency to enable independent businesses to adapt and compete in this new reality. This urgency helped more merchants not just survive, but thrive in a period of major upheaval. I cannot recall a time in our history when we have shipped so many features in such a short period of time. helping so many merchants recover and many others reach new levels of success. As a result, Q2 GMV growth accelerated to its highest level since before our 2015 IPO, driving Shopify's cumulative GMV to over $200 billion. Stores selling on Shopify sold one and a half times what they did in Q4 of last year, the seasonally strongest quarter of the year, and that number of stores is growing all the time. This tells me that we're on the right track and made the right decisions early in the pandemic. The success our merchants are seeing motivates us to push even harder. In Q2, Shopify hosted its first virtual company event, Shopify Reunite, which attracted more than 50,000 viewers, far more than we would have been able to reach with our annual in-person event. Our new product and feature announcements span the online store, multi-channel capabilities, retail, shipping, and finance. all geared towards helping merchants navigate and quickly adapt to a rapidly changing commerce landscape. I want to highlight a few of these features, and then I'll provide an update on how our merchants are responding in the current environment, our progress with Shopify Plus, and our partner ecosystem. We shipped the Express theme, a free theme designed to get any business online quickly, such as restaurants and cafes. We also introduced online tipping to support the food and services industries and businesses offering local delivery. we introduced natively integrated channels from Facebook shops, Walmart.com, and Pinterest, enabling our merchants to sell in more places where their buyers are and driving new traffic to their stores. As COVID restrictions ease, our retail merchants are focused on protecting their customers and employees by leveraging safe distance technologies, such as contactless payments. After introducing the new tap-and-chip hardware in the U.S. last year, we rolled it out in Canada following the global launch of our all-new point-of-sale software in early May. Together, our point-of-sale offering is a powerful product that provides a seamless omnichannel experience for both the merchant and the buyer. The shift to online commerce is redefining the role of the physical store, and many retailers are reimagining their stores to serve as order fulfillment centers to meet digital demand. So we enhance our curbside pickup and our local delivery capabilities to give merchants more control of their retail operations by driving last-mile execution. We also announced two financial services products set to launch in the U.S. later this year, Shopify Balance and Shop Pay Installments. We're introducing Shopify Balance to further level the playing field, giving our merchants access to their cash faster and providing critical money management tools to effectively manage their business. Through our no-fee business account, merchants will be able to understand cash flows, track expenses, and pay bills. Merchants will also receive a physical or virtual card, which will help them access their own sales revenue faster than before and get rewards like cash back and discounts that will help more of our merchants reinvest in their future. Our upcoming Buy Now, Pay Later product, Shop Pay Installments, will let merchants give buyers more options by paying in installments with no interest and no fees. Working through our partner, Affirm, we will offer a product that can help merchants to sell more by increasing cart size and sales conversion rates. ShopPay installments will be integrated into our accelerated checkout, ShopPay, which offers four times faster checkout and close to two times higher conversion than regular checkout options, providing a frictionless experience for merchants and their buyers. Since its launch, ShopPay has facilitated cumulative GMV of more than $11 billion. Entrepreneurs have proven time and again that they're resilient and resourceful, and here's how merchants are tackling their challenges head-on in the midst of the COVID-19 pandemic. First, our merchants are creating new buyer opportunities. 39% of brick-and-mortar merchants in our English-speaking geographies adopted some form of local in-store or curbside pickup delivery solutions in Q2. That is up from 26% in early May to meet increasing local demand. Merchants also saw more local customers shopping at their stores, with the percentage of local customers per shop again increasing quarter over quarter. Merchants also grew their multi-channel presence over the second quarter with a greater proportion of merchants installing two or more channels in an effort to reach broader audiences. Second, more merchants are leveraging merchant solutions as they seek to reduce friction while growing their businesses. More merchants access capital quickly in Q2 as the number of U.S. merchants accepting capital rose, and we offer financing for the first time to merchants in the U.K. and Canada, where we launched Shopify Capital in March and April, respectively. Cumulative funding across all three countries reached $1.2 billion at the end of June. More merchants also used Shopify shipping as new users fulfilled their very first orders on the platform, and we expanded our offerings to Australia. Adoption increased at 49% of eligible merchants in the U.S. and Canada in Q2, up from 42% in the same quarter last year. And third, our merchants accessed new opportunities to strengthen customer relationships and loyalty. Merchants leverage tools like Shopify email and the Shop app to deepen merchant relationships with buyers and increase customer lifetime value. Over 150 million emails have now been sent through email campaigns since Shopify's email launch in Q1. Shopify Plus merchants experienced an exceptionally strong second quarter. More brands joined Shopify Plus this quarter than ever before. As merchants from lower-level plans grow their sales and upgrade, and more large brands seek to scale their businesses in an agile and cost-effective manner. This is especially critical right now as digital commerce accelerates and an uncertain macroeconomic environment persists. The optionality that Shopify Plus offers from speed to market to cost and the ability to experiment and act like an entrepreneur is resonating heavily with enterprise-level merchants, encouraging them to rethink their channel strategies and accelerate their timelines towards digital transformation. In our second quarter, brands from different verticals launch stores on Shopify Plus. including the legendary bike company founded in 1895, Schwinn, beachwear company, Hurley, and Western apparel brand, Stetson, Canadian grocery store, Farm Boy, UK food and drink, CPG, Princes, chocolate bar company, Snickers, and the major beer company, Molson Coors, and many more brands across a range of products and industries. In Q2, we also rolled out the new Shopify Plus admin. a revamped backend for merchants to manage their organizations, including multiple stores, analytics, staff accounts, user permissions, and automation tools like Shopify Flow, all in one place. Our partner ecosystem continued to work hard for our merchants, with over 30,000 partners referring a merchant to Shopify over the last 12 months. Speed, creativity, and cost-effectiveness are top of mind for our partners as they help merchants move online and optimize their stores in the shifting landscape. Our partners have been going above and beyond, getting work out the door faster than we've previously seen, with a number of stores created in three days or less increasing by 123% in Q2 versus Q1. They're also supporting our merchants in a variety of ways, helping them find quick wins that will make a difference to their business now, like running content marketing and social media on their behalf. The versatility and dedication of our partners truly highlights the strength and quality of the Shopify ecosystem. Technology has democratized entrepreneurship and everyone's ability to build a successful business. The acceleration of digital commerce has pushed this opportunity forward, an opportunity that Shopify has been building towards for over 15 years. With the ongoing COVID-19 pandemic, the continued uncertainty in our macroeconomic environment, and the growing momentum in the fight for equality, Shopify's role to level the playing field for all entrepreneurs has never been more clear. Our mission has always been to make commerce better for everyone, and Shopify is working harder than ever to pull entrepreneurs forward into the future that is emerging.