Shopify Inc.

Thank you, operator, and good morning, everyone. We are glad you can join us for Shopify's second quarter 2021 conference call. We are joined this morning by Toby Lutka, Shopify CEO, Harley Finkelstein, Shopify's president, and Amy Shapiro, our CFO. After their prepared remarks, we will open it up for your questions. 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 assumptions, risks, and uncertainties in our press release this morning, as well as in our filings with U.S. and Canadian regulators. Note that adjusted financial measures we speak to today are non-GAAP 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 U.S. dollars, so all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I turn the call over to Harley.

Thanks, Katie, and good morning. Shopify's momentum continued in our second quarter as strong commerce trends prevailed and more merchants joined and succeeded on our platform. In fact, GMB reached its highest level ever as physical stores in more regions reopened their doors in the early days of the post-pandemic recovery. and as buyers continue to value the convenience that online tools bring to shopping. Case in point, in places that have begun to reopen, like the UK, GMV grew faster than our overall GMV in the quarter year over year, indicating that online and in-store commerce are no longer mutually exclusive. And while we did start to see a shift in some consumer spend back to services and recreation towards the end of the quarter, which we expected, all regions remain at GMV levels above pre-COVID levels. This may be why Shopify remains the go-to platform for entrepreneurs around the world to launch and to grow their businesses as they sell directly to their customers. Merchants using Shopify are exceptionally well prepared to make commerce happen on every surface area that it needs to, whether it's online, in-store, or through your favorite apps. Our brick and mortar merchants illustrated this as they adapted to the accelerated shift to digital commerce in 2020 and are now navigating the early stages of returning to in-store selling. Retail point of sale GMV is nearly back to pre-COVID levels as a percentage of overall GMV, even on these higher GMV levels, as physical stores reopen and merchants are better equipped with our upgraded hardware and software. More locations adopted Point of Sale Pro in our second quarter for its modern omnichannel features like buy online, pick up in store, which was adopted by 63% of brick and mortar merchants in English-speaking geographies at the end of June. This is up from just 2% in February last year. Social commerce is another way that merchants are expanding their presence and succeeding. In fact, in Q2, year-over-year GMV growth from Facebook and Google channels were several times that of the online store. With consumers spending more time than ever on apps, we continue to expand key partnerships. We deepened our partnership with Google in Q2, making it easier for our merchants to sell on Google through a simplified onboarding process and extending our accelerated checkout Shop Pay to all US merchants selling on Google, whether they use Shopify or not. Buyers love using Shop Pay to checkout. The speed and ease of making a purchase strengthens the relationship between merchants and their buyers, which is why we are bringing Shop Pay to more services. Shop Pay is available now to US merchants on Facebook and will be available to Shopify and non-Shopify merchants selling on Facebook and Google in the US later this year. We're seeing early traction for Shop Pay on Facebook and Instagram with more buyers opting in and a larger share of GMV through these services since we announced the integration in February. We remain on track to add Shopify payments as the processor for all Shopify merchant transactions on Facebook properties by year end. As global retail e-commerce sales are expected to continue shifting to mobile devices, mobile shopping from Shopify merchants has to keep getting easier and more fun if they're to compete. Our online shopping assistant, Shop, is built for easy shopping on mobile with buyer-friendly features like order tracking and Shop Pay. Starting in Q2, merchants can manage how they show up in Shop by customizing their store profile in the app. They can also track the impact of Shop on their business from a new analytics dashboard while driving repeat purchases from customers through automated marketing tools. Shop now supports in-app purchases, allowing customers to add to cart and check out with Shop Pay within the app. In Q2, we also introduced new filters for discovery on Shop for local businesses, LGBTQ plus-owned businesses, and Indigenous-owned businesses. At the end of Q2, Shop had more than 118 million registered users, including both buyers that have opted into Shop Pay, as well as users of the app, of which approximately 23 million were monthly active users. At the end of June, Shopify had facilitated nearly $30 billion in cumulative GMV since its launch in 2017. The increasing complexity that comes with selling everywhere makes Shopify and our suite of solutions even more valuable. As a result, merchants are making greater use of our merchant solutions. Shopify Capital is a great example. We funded more merchants than ever this past quarter and directed more capital to them than ever, a record $363 million. This is 137% more funding than in last year's second quarter and represents record growth for us in capital, bringing us to over $2.3 billion in cumulative capital funded since we launched it in 2016. Not only does ShopFlight Capital help fuel our merchants' growth, Our data tells us that merchants that accept capital stay with Shopify longer as they succeed on the platform and take more of Shopify's other solutions, namely Shopify shipping, apps, themes, and domains. And maybe most importantly, extending capital when their business needs it reinforces the trusted relationship that we have with our merchants, one that goes beyond what they have with their bank or any other vendor. When we talk about Shopify's flywheel, this is exactly what we mean. Shopify Shipping and Shopify Fulfillment Network complete the cart-to-door experience for our merchants' buyers. In Q2, label volume for Shopify Shipping increased quarter-over-quarter, and we focused on transitioning merchants who are a good fit from Shopify Shipping to Shopify Fulfillment Network to benefit from our full-service fulfillment offering. Merchants and their buyers are also making use of our newer merchant solutions. In June, we made our Buy Now, Pay Later product Shop Pay installments available to all eligible merchants in the u.s with the product automatically enabled for new merchants signing up for shopify payments and simple self-serve onboarding available to existing merchants while early gmv transacting through shop pay installments more than tripled in q2 over the prior quarter as more buyers are using our product to check out we are pretty excited about the potential here over the long term and More merchants are signing on to Shopify Balance, which is an early access until later this year. Shopify Plus had another great quarter as large brands continue to turn to Shopify Plus to help make the complex simple. In Q2, more merchants on standard plans upgraded to Shopify Plus and more international brands joined Shopify Plus to grow their businesses. The list of brands that launched on Shopify Plus recently is stellar. Global entertainment platform, Netflix, luxury fashion designer, Diane von Furstenberg, world-renowned winery, Robert Mondavi, people footwear from well-known shoe company, Aldo, global fashion brand and a huge personal favorite of mine, James Purse, indie and vintage clothing retailer, Modcloth, famous coffee brands, Stumptown Coffee and Pete's Coffee, children's clothing brand, Justice, and more CPG brands from Nestle and McCormick. Shopify is leveraging the entire ecosystem to create a global retail operating system for the future of commerce. More than 22,000 viewers tuned in to this year's virtually held developer-focused partner conference, Shopify Unite, where we announced major upgrades to our platform on which we are building the internet's commerce infrastructure. These include Online Store 2.0, a flexible, and customizable storefront so our merchants can build their stores quickly without touching code while giving max code access to developers, allowing them to extend and customize both the storefront and the checkout. Powerful new APIs and developer tooling that gives our partners and merchants more creative control without sacrificing speed or scalability. A faster and more powerful checkout designed to give each individual shop the ability to handle as much sales volume as we served across all of Shopify at the peak of Black Friday, Cyber Monday in 2020. And a scalable payments platform enabling partners to build third-party payment gateways as apps. We also announced a 0% rev share for app and theme store developers on their first million dollars of revenue annually starting in Q3 2021. making it even more attractive for tech talent to want to build the future of commerce with Shopify. Our teams at Shopify have been heads down innovating over the past year to bring the platform updates announced at Shopify Unite to life. Their incredible work has formed an even stronger commerce infrastructure for developers to build on. We look forward to seeing the hard problems they will help us solve for our merchants. As we double down on our efforts to make Shopify the best place to build, our partner ecosystem continues to grow. In Q2, the number of partners sending business to us continued to expand, as over 46,000 partners referred at least one merchant to Shopify over the past 12 months, up 53% year over year. As the post-pandemic future emerges, it is clear that retail has changed forever. Shopify is making sure those changes are for the better. Entrepreneurship remains strong, and opportunities to thrive in a modern retail era with the right tools are boundless.

Thanks, Harley. Merchant success combined with sustained e-commerce tailwinds and strong execution by Shopify contributed to a fantastic second quarter. Revenue in our second quarter was up 57% year-over-year to $1.1 billion, marking the first time Shopify exceeded $1 billion in a single quarter. This was driven by strong performance from both our subscription solutions and merchant solutions segments. Subscription solutions revenue increased 70% over the same period last year to $334.2 million, largely due to strong growth in monthly recurring revenue. MRR growth accelerated to 67% year-over-year to $95.1 million as more merchants joined the platform and the number of retail locations using POS Pro increased. Remember, MRR in the second quarter of last year was impacted by the 90-day free trial on standard plans offered until May 31st. and that we experienced a double cohort effect in our third quarter last year as users from the 90-day free trial and 14-day free trial converted into paying merchants in that quarter. Compared with Q1, MRR added in Q2 was more normalized as economies reopened. Shopify Plus contributed $25.2 million, or 26% of MRR, compared with 29% in Q2 of 2020, when standard merchant MRR was impacted by the extended free trial I just mentioned. While Shopify Plus MRR grew significantly this past quarter, non-Plus MRR grew faster. benefiting from a significantly higher number of merchants on standard plans joining the platform in 2020 and new incremental revenue from our Shopify POS Pro subscription offering over the same period last year. Merchant Solutions revenue grew 52% over Q2 2020 to $785.2 million. This growth was driven primarily by GMV expansion, which was up 40% year over year, to a record $42.2 billion. The strong growth in merchant sales, combined with increased GMV penetration of Shopify payments, merchant adoption of Shopify capital and shipping, and partner-related revenue, compared with the same period last year, drove revenue from these solutions higher. $20.3 billion of GMV was processed on Shopify payments in Q2, up 51% versus the same quarter last year. Shopify payments penetration of GMV was 48% versus 45% in Q2 2020. This increase was driven by GMV penetration gains through online and retail POS channels, while Shopify Plus and international merchants expanded their share of GPV year over year. Merchant Solutions revenue also benefited from the recognition of revenue in Q2 associated with non-cash consideration or warrants we received from our strategic partnerships with Affirm and Global E, relating to performance obligations with respect to our shock pay installments and cross-border commerce offerings respectively. The warrants associated with these partnerships were valued at the start of the respective commercial contracts, are deferred, and then recognized into revenue ratably over the expected life of the contracts. While there are other revenue components to these products, the non-cash consideration component from those commercial agreements added approximately three percentage points to our year-on-year merchant solutions revenue growth. Adjusted gross profit dollars grew 64% over last year's second quarter to $627 million, an outpaced revenue growth primarily due to the larger mix of subscription solutions gross profit relative to last year's mix, which was suppressed by the extended free trial. The combined strength in revenue, improved margin profile, and lower overall op-ex spend as a percent of revenue contributed to strong adjusted operating earnings in Q2 compared to the same period last year. Adjusted operating income was $236.8 million in the second quarter compared with adjusted operating income of $113.7 million in the second quarter of 2020 as our revenue growth outpaced growth in spend. Adjusted net income for the quarter was $284.6 million, or $2.24 per diluted share, compared with adjusted net income of $129.4 million, or $1.05 per diluted share in last year's second quarter. Adjusted net income in Q2 2021 excludes a $778 million unrealized net gain on our equity investments, including Global E, which we wrote up to its fair value upon and subsequent to the company's IPO. Finally, our cash, cash equivalents, and marketable securities balance was $7.76 billion on June 30th, compared with $6.39 billion at year end. Our healthy balance sheet gives us optionality that we believe increases our competitive advantage. To retain its financial flexibility, we filed yesterday to increase the registered room on our base shelf prospectus. With so many merchants now building their businesses on Shopify, our job is to make entrepreneurship easier and help our merchants succeed. This is reflected in our three key areas of investment in 2021, Shopify fulfillment network, shop, and international expansion. First, we're heads down building the foundation of Shopify's fulfillment network so that our merchants can access simple, fast, and affordable fulfillment. In Q2, we introduced features that help merchants manage and organize the products fulfilled by our network via the merchant admin and improve shipping speed and accuracy. We also added the ability for merchants to manage preferences, like staff notifications. Our focus remains on building a product that offers merchants a delightful experience and optimizes our network of nodes and partners. Six River Systems, which had another strong quarter, continued to deploy its fulfillment technology into our partner nodes and customer warehouses, increasing the efficiency of their fulfillment operations. Our second key area of investment is shop. As Harley outlined, we continue to invest in developing new features that add value to our merchants and give buyers a great mobile shopping experience. Our third key area of investment is international expansion. We introduced new retail POS hardware that is integrated with Shopify payments in the UK and Ireland in Q1 and in Australia in May. This is helpful to gross payments volume as POS pro locations and POS GMV trend upward, and more importantly, helpful to merchants who are benefiting from our leading POS capabilities. We plan to expand our integrated POS offering to additional regions in the coming months. As we expand our commercial efforts into regions, we are localizing our support efforts alongside them. That merchants are able to reach a human who can help them navigate an issue or lead them to the best next steps is an important differentiator for us. And when our support team is armed with data superpowers and speaking our merchants' language, merchants everywhere can go farther faster. And a quick note on our equity holdings in companies like GlobalE, Affirm, and others. We remained active in Q2 pursuing partnerships that position us to work with innovative teams that can help us solve hard problems for our merchants and to continue building the future of commerce. Turning to our outlook, our outlook for the remainder of 2021 is consistent with our assumptions in February. We've seen an improvement in the overall economic environment through the first half of this year. consumer spending beginning to rotate back to services and offline retail, and e-commerce growing at a more normalized pace relative to 2020. In view of these factors and Shopify's performance year to date, we continue to expect to grow revenue rapidly in 2021, but at a lower rate than in 2020. For the full year 2021, we continue to expect the following. Subscription Solutions revenue growth to be driven by more merchants around the world joining the platform and a number lower than the record in 2020, but higher than any year prior to 2020. The growth rates of subscription solutions and merchant solutions revenues to be more similar to each other than in the recent past, as we do not expect the surge in GMV that drove merchant solutions in 2020 to repeat. And merchant solutions revenue growth to be driven by continued GMV growth from existing merchants new merchants joining the platform, and expanded adoption of Shopify's growing menu of merchant solutions, including established offerings such as Shopify Payments, Shopify Shipping, and Shopify Capital, both geographically and as merchants grow into them, while newer solutions such as Shopify Fulfillment Network and Six River Systems contribute nascent but incremental revenue in their early stages. We expect that the first quarter will likely still contribute the smallest share of full year revenue and the fourth quarter the largest, and that the revenue spread will be more evenly distributed across the four quarters than it has been historically. We continue to expect rapid growth in gross profit dollars in 2021 and plan to continue reinvesting back into our business as aggressively as we can, with the year-over-year growth in operating expenses accelerating in Q3 and again in Q4. Hiring momentum picked up in our second quarter as we nearly doubled the number of new hires joining Shopify quarter over quarter, bringing on more engineers and commercial talent to support our growth initiatives. In addition to increasing our commercial talent, we expect to ramp up our go-to-market programs and events in the second half of 2021 as regions reopen. Finally, we expect stock-based compensation and related payroll taxes to be $425 million and amortization of acquired intangibles to be $21 million for 2021. Due to the sustained momentum of digital commerce trends in the first half of 2021, combined with the US stimulus distributed in March and April this year, Shopify generated higher than anticipated revenue while incurring lower than planned OpEx spend as a percent of revenue in the first half of 2021. As a result, we now expect full year 2021 adjusted operating income to be above the level we achieved in 2020. In closing, Shopify is investing in the future of commerce, and we're taking a multi-pronged approach, leveraging technology and talent. By building the commerce infrastructure of the internet, innovating new and improved products, and expanding our relationships with a diverse community of partners, we are creating a global retail operating system that will help our merchants succeed in the years ahead and make commerce better for everyone. I'll now turn the call back to Katie.