Q1 2024 Shopify Inc Earnings Call

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Carrie Gillard: Good morning, and thank you for joining Shopify's first quarter 2024 conference call. Harley Finkelstein, Shopify Vice President, and Jeff Hoffmeister, our CFO, are with us today.

Good morning, and thank you for joining shopify as first quarter 'twenty 'twenty four conference call.

Unknown Executive: So I think, I mean, people are coming to want to use ShopPay because, frankly, even the mere presence of ShopPay on the checkout, even if it's not used, results in a 5% higher conversion. It's become a really bad idea for any brand or any retailer on the planet to not use it. And so we like the fact that people are coming to us specifically for ShopPay. Again, it allows us to begin a business relationship with brands that, maybe, historically we had not otherwise spoken to.

Harley Finkelstein shop, Vice President and Jeff Hoffmeister, our CFO are with US today. 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.

Carrie Gillard: After their prepared remarks, we will open the call 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.

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 the U S and Canadian regulators will also speak to adjusted financial measures, which are non-GAAP and not a substitute for GAAP financial measures reconciliations between the two are in the tables at the end of our press.

Carrie Gillard: We'll also speak to adjusted financial measures, which are non-GAAP and not a substitute for GAAP financial measures. Reconciliations between the two are in the tables at the end of our 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'll turn the call over to Harley.

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'll turn the call over to Harley.

Unknown Executive: But we're going to continue to make ShopPay the default checkout on the internet. And we do that because it's faster, it reduces friction, and ultimately, it drives greater adoption by both merchants. And ultimately, for more buyers, which means merchants want it. But we think we're really excited about it. We are very focused on making it easier to checkout with ShopPay and extend it to way more surfaces. And the pipeline for ShopPay is something that is new but very, very exciting.

Harley Finkelstein: Thanks, Carrie. And good morning, everyone. The start of 2024 has been very strong for Shopify, with more and more merchants thriving on our platform. This is the strongest version of Shopify yet. We're helping millions of merchants around the world to both start and scale their businesses. For four straight quarters, we have demonstrated our ability to drive results at scale, growing revenue over 25% in floating logistics. And as we have proven over the last two decades, the more hard problems we solve for merchants, the more we add to our flywheel, and the better off commerce is for everyone today, tomorrow, and for many years to come. We've talked a lot about this new shape of Shopify and how it's enabling us to drive greater growth and profitability at a larger scale. And It's working.

Unknown Executive: And our last question will come from Samad Samana at Jeffries.

Harley Finkelstein: Thanks, Gary and good morning, everyone. The start of 2024 has been very strong for shopify with more and more merchants thriving on our platform.

Harley Finkelstein: This is the strongest version of Shopify, yet, we're helping millions of merchants around the world to both start and scale their businesses for.

Unknown Executive: So I wanted to ask a question maybe on the point of sale GMB and point of sale MRR. Jeff, I know you guys gave offline revenue targets last year at the annual sale, which is really helpful. Could you give us any sense of maybe what the MRR contribution from point of sale is and maybe how you're expecting the overall point of sale growth this year? And then, not to make this a multi-parter, but just trying to understand maybe what the GPB per offline merchant dynamics are versus online. Thanks again for squeezing in. I appreciate it.

Unknown Executive: Yeah, of course. A couple of things on that, Samad.

Harley Finkelstein: For four straight quarters, we've demonstrated our ability to drive results at scale growing revenue over 25%, excluding logistics and as we've proven over the last two decades, the more heart problems, we solve for merchants the more we add to our flywheel and the better off Congresses for everyone today Tomorrow and for many years to come.

Unknown Executive: In terms of some of the growth rates and some of the sizing that we talked about at the investor day regarding retail point of sale, that is consistent in terms of how that business is performing. As strong as our core business is performing, the offline piece continues to perform at an even higher level. So that is something, obviously, which from our vantage point is a great thing.

Harley Finkelstein: We've talked a lot about this new shape of shopify, and how it's enabling us to drive greater growth and profitability at a larger scale and its working the penetration of payments is on the rise, we're making significant strides in our offline and enterprise sectors. Our efforts towards international growth are yielding positive results and our attach rate is expanding.

Harley Finkelstein: The penetration of payments is on the rise. We're making significant strides in our offline and enterprise sectors. Our efforts towards international growth are yielding positive results, and our attach rate is expanding. Our operating discipline has been a key factor in the success, ensuring that we maintain efficiency, invest from our position of strength, and deliver value at every turn.

Unknown Executive: It's a testament to a lot of merchants, Harley talked a little bit about, especially some of the larger multi-location retail merchants that are using point of sale more and more. And it's also helpful from their vantage point to use our platform, because obviously they can look at one tech stack and basically say, all right, I have the best technology, the best tech stack on the online side. And we continue to expand the countries that we're in with point of sale. So that being said, we don't in terms of the attach rate; we just don't have the number of just in terms of sheer numbers.

Unknown Executive: We don't have the same number of offerings for point of sale that we also have online, but that's also an opportunity because we're going to be able to migrate more and more functionality to the point of sale. And so, over time, the attach rate and some of the opportunities overall are going to increase. As I believe you know, the point of sale, the retail piece for us, is primarily a payments piece.

Unknown Executive: And then there's obviously the subscription element to that. Those two make up a significant majority of the revenues that we get from retail. Unfortunately, we're not breaking out as it relates to the percentage of MRR, which is exactly retail. But you can expect, as we do again, the kind of continuation of the trend as I alluded to before. So it's doing really well, and it's a function of all the things both Harley and I have covered. So with that, maybe Harley, I'll turn it back to you.

Harley Finkelstein: Yeah, let me just close out before we finish this call. Because I just want to say one thing that I think may be getting lost here, but it's really important. We just delivered 29% pro forma revenue growth and 12% free cash flow margins. Now for Q2, our outlook points to free cash flow margins similar to the 12% we achieved in Q1. And that combined with pro forma revenue growth in the low to mid 20s.

Harley Finkelstein: Our operating discipline has been a key factor in our success, ensuring that we maintain efficiency invest from a position of strength and deliver value at every turn.

Harley Finkelstein: Shopify has always been high volume, high velocity when it comes to building and shipping products. In the span of just two years, we've rolled out more than 400 new features and updates to our platform, setting a pace that demonstrates our leadership in building for the future. During that time, we launched what we call additions twice a year, changing how we present and unveil Shopify's program.

Harley Finkelstein: I mean, this business can do something very rare and unique relative to almost every single company on the planet. We can deliver growth and margins, all while creating and leaning into opportunities that enhance our growth in the future. And so I just think it's important to say that the strength of this business means we can accomplish all three of those things and build a much stronger company in the long term. This is what the best companies do.

Harley Finkelstein: Shopify has always been high volume high velocity when it comes to building and shipping products.

Harley Finkelstein: And I think this is how you achieve long-term sustainable growth. And I've never been more excited about Shopify or our business. And I've never been more proud to work with this world-class team. I think this is the best version of Shopify ever. And thank you so much for joining us today.

Unknown Executive: This concludes our first quarter 2024 conference call.

Harley Finkelstein: In the span of just two years, we've rolled out more than 400, new features and updates to our platform setting a pace that demonstrates our leadership in building for the future in that time, we've launched what we call editions twice a year changing how we present and unveil shopify progress. These biannual moments have not only increased engagement product adoption and visibility with our <unk>.

Harley Finkelstein: These biannual moments have not only increased engagement, product adoption, and visibility with our merchants and partners but also reinforced our leadership in commerce. In fact, in our recent Q1 edition, 62% of businesses who installed Shopify subscriptions had never previously installed a subscription app on Shopify, demonstrating the impact these key storytelling moments can have on driving adoption. We're dedicated to continually creating great software that allows brands to start and scale, finding their desired features quickly and intuitively, as if each feature had been integrated from the start.

Harley Finkelstein: Merchants and partners, but also reinforced our leadership in commerce in fact in a recent Q1 addition, 62% of businesses, who installed sharply subscriptions had never previously installed a subscription app on shopify demonstrating the impact. These key storytelling moment can have on driving adoption.

Harley Finkelstein: We're dedicated to continually creating great software that allows brands to start and scale fighting their desired features quickly and intuitively as of each feature had been integrated from the start.

Harley Finkelstein: From foundational elements like expansion of variant limits to 2,000 and the rollout of our web performance dashboard, which can improve a store's search rankings and boost conversion, to new AI-enabled editing tools and, within point of sale, the launch of email capture at offline checkout, we are relentlessly working to reduce friction and make it easier for merchants to run and manage their business. Our additions have become key milestones for Shopify and the innovation engine we are powering at scale, not only extending our reach to a broader audience but also redefining how our ecosystem engages and builds with it.

Harley Finkelstein: From foundational elements like expansion of variant limits to 2000, and the rollout of our web performance dashboard, which can improve storage search rankings and boost conversion to new AI enabled editing tools and within point of sale. The launch of E mail capture at offline checkout, we are relentlessly working to reduce friction and making it easier for merchants to run and manage their <unk>.

Harley Finkelstein: Business.

Harley Finkelstein: Our additions have become key milestones for shopify and the innovation engine, we are powering at scale not only extending our reach to a broader audience, but also redefining how our ecosystem engages and builds with us touching briefly on AI, our unique position enables us to tap into the immense potential of AI for entrepreneurship and our merchants.

Harley Finkelstein: Touching briefly on AI, our unique position enables us to tap into the immense potential of AI for entrepreneurship and our merchants. Currently, the most practical applications of AI are found in tools that simplify business operations and enhance productivity, all of which we've been developing deeper capabilities with our AI product suite, Shopify Magic. However, we also firmly believe that we're just scratching the surface of what's possible, as we're still in the nascent stages of understanding the vast potential that AI holds for businesses and commerce. Launched over a decade ago, our most scaled product is Shopify Payments. Its GMV penetration has steadily increased, reaching 58% in 2023, with Q1 achieving 60% GMV penetration.

Harley Finkelstein: Currently the most practical applications of AI are found in tools that simplified business operations and enhanced productivity all of which we've been developing deeper capabilities with our AI product suite Shopify Magic. However, we also firmly believe that we're just scratching the surface what's possible as we're still in the nascent stages of understanding the VAT.

Harley Finkelstein: As potential that AI hold for businesses and commerce.

Harley Finkelstein: Launch over a decade ago, our most scaled product is shopify payments, it's Jim the penetration has steadily increased reaching 58% in 2023 with Q1, achieving 60% Jimmy penetration, we expect it to continue to be a key contributor to our growth. Moving ahead are seamless integrated payment solution continues to be a key gateway for other.

Harley Finkelstein: We expect you to continue to be a key contributor to our growth moving ahead. Our seamless integrated payment solution continues to be a key gateway for other product offerings like Capital, Installments, and ShopPay, the world's highest converting accelerated checkout. In Q1, shop pay increased 56%, processing $14 billion in GMV, and accounting for 39% of our gross payments volume, as it continues to be the preferred choice for consumers seeking a fast, secure, and hassle-free checkout.

Harley Finkelstein: Product offerings like capital installments and shop pay the world's highest converting accelerated checkout.

Harley Finkelstein: In Q1 shop pay increased 56% processing $14 billion in G M B and accounting for 39% of our gross payments volume as it continues to be the preferred choice for consumers seeking a fast secure and hassle free checkout, ensuring that these checkups, our fast loading secure and complain can be complex with.

Harley Finkelstein: Ensuring that these checkouts are fast-loading, secure, and compliant can be complex, which is why Shopify works to make it simple. At Shopify, we stay ahead of what's next for our merchants. We inherently build in potential updates to compliance, including the latest PCI security standards for payments, so that merchants will be compliant with no additional work required.

Harley Finkelstein: Why shopify works to make it simple at Shopify, we stay ahead of what's next for our merchants, we inherently built in potential updates to compliance, including the latest PCI security standards for payments. So that merchants will be compliant with no additional work required shop.

Harley Finkelstein: Shopify Payments and our Accelerated Checkout will continue to play a vital role in the expansion of our unified commerce platform. As we continue to improve our features and global integrations and expand our offline and enterprise segments, we anticipate increased growth and adoption. This will be partially driven by the new avenues and flexibility provided by our Commerce Components offering. Notably, the internationally acclaimed fashion brand, Coach, recently committed to join Shopify via Commerce Components, intending to roll out Shopify off-platform across all of their U.S. and Canada outlet businesses in the coming months.

Harley Finkelstein: Shopify payments and our accelerated checkout will continue to play a vital role in the expansion of our unified Commerce platform as we continue to improve our features and global integrations and expand our offline and enterprise segments. We anticipate increased growth and adoption. This will be partially driven by the new avenues and flexibility provided by our commerce components offering.

Harley Finkelstein: Notably the international acclaimed fashion brand coach recently committed to join Shopify via Commerce components in turning to elect shop pay off platform across all of their U S and Canada outlet businesses in the coming months.

Harley Finkelstein: This mix of compose ability reliability and speed will further solidify the position of shopify payments as a crucial tool for merchants with Sharpei continuing to become the go to choice for quick secure and seamless checkout at scale.

Harley Finkelstein: This mix of compatibility, reliability, and speed will further solidify the position of Shopify payments as a crucial tool for merchants, with ShopPay continuing to become the go-to choice for quick, secure, and seamless checkout at scale. Moving on, to our channels and growth. More merchants are leveraging the value of Shopify point-of-sale, a true on-the-channel solution, as the number of locations using our new point-of-sale pro increased substantially over the prior year. Key feature enhancements like draft order functionality and fully customizable printed POS receipts can further advance our offering. As a result, more merchants, especially large, complex, multi-location merchants, are coming to Shopify. We saw location growth of 52% in the quarter for merchants with 20 or more locations.

Harley Finkelstein: Moving to our channels and growth drivers.

Harley Finkelstein: More merchants are leveraging the value of Shopify point of sale, a true omnichannel solution as the number of locations using our new point of sale pro increased substantially over the prior year key feature enhancements like draft order functionality and fully customizable printed P. O S receipts continue to advance our offering as a result more <unk>.

Harley Finkelstein: <unk>, especially large complex multilocation merchants are coming to shopify, we sell location growth of 52% in the quarter for merchants with 20 or more locations or.

Harley Finkelstein: Our increased investments in performance marketing for Shopify point of sale, as well as experimenting with other acquisition tactics, are yielding positive results. For example, Frank and Oak, a Montreal-born apparel brand, launched our point of sale in more than a dozen retail locations this past quarter, as did Michigan-based food company, Cherry Republic. In Q1, we saw growth across merchants, locations, and geographies, supporting our 32% offline GMV growth year over year as we continue to gain share.

Harley Finkelstein: Our increased investments in performance marketing for Shopify point of sale as well as experimenting with other acquisition tactics are yielding positive results for example, Franken oak, our Montreal, born apparel brand launch or point of sale in more than a dozen of our retail locations in this past quarter as did Michigan based food company Cherry Republic.

Harley Finkelstein: In Q1, we saw growth across merchants locations and geographies supporting our 32% offline GMB growth year over year as we continue to gain share.

Harley Finkelstein: Moving to B2B, Shopify has been making significant strides, with Q1 B2B GMV growing over 130% year-over-year after doubling in 2023. B2B merchants are loving the power of self-serve purchasing by customers, with a 7x increase in the number of orders coming in through the online store than a year ago. So why does this matter?

Harley Finkelstein: Moving to BTB Shopify has been making significant strides with Q1 b to B G. M V growing over 130% year over year after doubling in 2023 B to B merchants are loving the power of self serve purchasing by customers with a seven X increase in the number of orders coming in through the online store than a year ago. So why does this math.

Harley Finkelstein: Well, it means that there are fewer manual orders having to be entered by merchants using draft orders, which gives merchants back the value of time to focus on winning new business. B2B represents a significant growth opportunity for Shopify, allowing us to reach new verticals and cater to merchants focused on B2B transactions. We understand the specific needs of B2B businesses and are continually refining our platform to address those needs and boost efficiency and growth.

Harley Finkelstein: Well it means that there are fewer manual orders having to be entered by merchants using draft orders, which gives merchants back the value of time to focus on winning new business.

Harley Finkelstein: B to B represents a significant growth opportunity for shopify, allowing us to reach new verticals and cater to merchants focus on b to b transactions, we understand the specific needs of BTB businesses and are continually refining our platform to address those needs and boost efficiency and growth. For example, we've made it easier for existing customers, who previously man.

Harley Finkelstein: For example, we've made it easier for existing customers who previously managed B2B buyers through their DTC storefront and third-party apps to move their entire wholesale business to our B2B solution, a key feature for Plus Merchants and further validation of just how competitive our B2B offering is. Two days ago, Forrester's 2024 B2B Commerce Platform Wave Evaluation came out, and Shopify was placed in the leader category. This is our first appearance on a top two enterprise validation report for B2B, and a clear signal that Shopify is increasingly becoming a leader in unified commerce for online, offline, B2B, and everywhere in between. Moving to international, Q1 international GMV growth outpaced North America, with continued strength in Europe, posting Q1 GMV of 38%, marking our third consecutive quarter of GMV growth above 35%.

Harley Finkelstein: <unk> b to B buyers through their DTC storefront and third party apps to move their entire wholesale business to a b to b solution, a key feature for plus merchants.

Harley Finkelstein: Further validation of just how competitive our b to B offering is two days ago Foresters 'twenty 'twenty four BTB commerce platform wave evaluation came out and Shopify was placed in the leader category. This is her first appearance on a top two enterprise validation reports for B to B and a clear signal that shopify is increasingly becoming a leader in <unk>.

Harley Finkelstein: Unified Commerce for online offline b to B and everywhere in between moving to International Q1 International GMB growth outpaced North America with continued strength in Europe, posting Q1, GMB of 38%, marking our third consecutive quarter of GSV growth above 35% with.

Harley Finkelstein: With international making up less than 30% of our revenue base last year, the opportunity remains significant for us to equip merchants with the tools to make selling globally as easy as selling locally. Now, to do this, we are laser focused on building products and tools that cater to the unique needs and preferences of our international merchants. This quarter, we continued to make headway on our localization efforts in international markets with tools like shipping localized brochures in Japan, Spain, and Italy, helping our merchants ensure a tailored experience and expand their reach.

Harley Finkelstein: With international making up less than 30% of our revenue base last year, the opportunity remains significant for us to equip merchants with the tools to make selling globally as easiest selling locally now to do this we are laser focused on building products and tools that cater to the unique needs and preferences of our international merchants. This quarter, we continued to.

Harley Finkelstein: Make headway on our localization efforts in international markets with tools like shipping localized brochures in Japan, Spain, and Italy, helping our merchants ensure a tailored experience and expand their reach we've also been working to get more of our products into more countries. For example in Q1, we successfully launched our point is still go and point of sale terminals.

Harley Finkelstein: We've also been working to get more of our products into more countries. For example, in Q1, we successfully launched our point-of-sale Go and point-of-sale Terminal in Australia, further increasing the on-rems into Shopify in this key market. Enabling merchants to sell cross-border to buyers anywhere in the world has been a key focus for us. In Q1, we saw a 70% increase in our marketplace product over last year, which makes it easy for merchants to sell in local currencies.

Harley Finkelstein: In Australia further increasing the on ramps into shopify in this key market, enabling merchants to sell cross border to buyers anywhere in the world has been a key focus for us in Q1, we saw a 70% increase in our markets product over last year, which makes it easy for merchants to sell in local currencies. We are further simplifying international expansion.

Harley Finkelstein: We are further simplifying international expansion with MarketsPro, our native all-in-one cross-border merchant of record offering, which became generally accessible in the U.S. in September of 2023. Brands are leveraging MarketsPro to enter global markets within days and see immediate increases in their global sales. Take Chicago-based apparel company Suitshop, which grew international orders by 600% since using AdoptiMarkets Pro. Or New York-based skincare brand Beekman 1802, which experienced 137% international sales growth in 6 months.

Harley Finkelstein: With markets Pro our native all in one cross border merchant of record offering which became generally accessible in the U S. In September of 2023.

Harley Finkelstein: Brands are leveraging markets Proto enter global markets within days and see immediate increases in their global sales take Chicago based apparel company suite shop, which grew international orders by 600% since adopting markets pro or Newark, based skincare brands Beekman, 18, O, two which experienced 137% international sales growth in six.

Harley Finkelstein: Months, and with cross border Jim V up 15% in Q1, representing roughly 14% of total JV, we will continue to enable greater cross border transactions for our merchants.

Harley Finkelstein: And with cross-border GMV up 15% in Q1, representing roughly 14% of total GMV, we will continue to enable greater cross-border transactions for our customers. As we mentioned on the last call, we continue to aggressively pursue enterprise brands in 2024, and we are seeing results. Whether it's key events like NRF and ShopTalk, our engagements with the larger brands are increasing every single quarter, with our plus and enterprise GMB growth continuing to outpace overall GMB growth. Additionally, following our leadership rankings in IDC and Gartner last year, an independent study recently validated that Shopify's total cost of ownership is up to 36% better than competitors in the enterprise space. This study proves that our unified commerce platform offers exceptional value and cost savings that only Shopify can offer. And in turn, we pass on the economies of scale we capture to our merchants, saving them money.

Harley Finkelstein: As we mentioned on the last call. We continued to aggressively pursue enterprise brands in 2024, and we are seeing results, whether it's key events like interest and Shoptalk our engagements with the larger brands are escalating every single quarter with our plus an enterprise GMB growth continuing to outpace overall Jimmy growth. Additionally.

Harley Finkelstein: Following her leadership rankings in IDC and Gartner last year, an independent study recently validated that Shopify is total cost of ownership is up to 36% better than competitors in the enterprise space.

Harley Finkelstein: This study proves that our unified commerce platform offers exceptional value and cost savings that only shopify can offer and in turn we pass on the economies of scale, we capture to our merchants saving them money.

Harley Finkelstein: What we are hearing from our conversations with enterprise-level brands is that there are really two primary reasons that are driving their decision to move to Shopify. First is the exceptional value of Shopify, the powerful and reliable infrastructure, and the cutting-edge products that offer composability and choice, making the total cost of ownership hard to pass up. And second, Shopify's core value proposition of innovation, scale, and ease of launch. Let me dive into that last point about ease of launch, as it's really important.

Harley Finkelstein: What we were hearing from our conversations with enterprise level brands is that there are really two primary reasons that are driving their decision to move to shopify first is the exceptional value of shopify, the powerful and reliable infrastructure and the cutting edge products that offer compose ability and choice, making the total cost of ownership hard to pass up and second <unk>.

Harley Finkelstein: <unk> core value proposition of innovation scale and ease of launch let me dive into that last point about ease of launch is it's really important while shopify moves fast and certainly faster than the competition, making the decision to re platform is incredibly hard and larger brands can typically take anywhere from 12 to 18 months to completely migrate over but that is.

Harley Finkelstein: While Shopify moves fast, and certainly faster than the competition, making the decision to replatform is incredibly hard, and larger brands can typically take anywhere from 12 to 18 months to completely migrate over. But that is not always the case, especially when it comes to shopping. Takeoverstock.com, the well-known online discount retailer. We had them up and running in under 100 days, which, considering the size and complexity, is nothing short of amazing. That's what we do at Shopify. On the flip side, we recently signed BarkBox, a leading subscription service for dog products with over 2 million subscribers.

Harley Finkelstein: Not always the case, especially when it comes to Shopify take overstock dot com, the well known online discount retailer, we had them up and running in under 100 days, which considering the size and complexity is nothing short of amazing that's what we do at Shopify.

Harley Finkelstein: On the flip side, we recently signed bark box, a leading subscription service for dog products with over 2 million subscribers. They recently made the decision to migrate all of their business to shopify their debut on our platform is anticipated for 2025 and will be the largest subscription merchant to join shopify to date, while timelines to market vary the main point is that.

Harley Finkelstein: They recently made a decision to migrate all of their business to Shopify. Their debut on our platform is anticipated in 2025 and will be the largest subscription merchant to join Shopify to date. While timelines to market vary, the main point is that we are winning businesses and migrations with larger, more complex brands. The launch of these brands and the work we are doing today is building a sustainable foundation that will continue to deliver growth for years to come.

Harley Finkelstein: We are winning businesses and migrations with larger more complex brands. The launch of these brands and the work. We are doing today is building a sustainable foundation that will continue to deliver growth for years to come.

Harley Finkelstein: Beyond the two brands I just mentioned, we are seeing more high-volume merchants sign up and launch with Shopify across the board, adding more companies across verticals, industries, and geographies to further energize our flywheel. Brands like consumer packaged goods companies Harry's and Pretty Litter, fashion apparel brands like Laura Canada and Intersport, Fitness and Wellness Companies, Juice Plus, Balance of Nature, and SoulCycle. Home Goods Retailer, RUGS USA, Consumer Electronics Company, Skullcandy, Manufacturer of Cleaning Equipment, Karcher, Health and Beauty Brand, FragranceNet.com, and Celebrity Brands like Serena Williams Beauty Brand, Winn Beauty, Beyonce's Hair Care Brand, Sacred, and Dwayne The Rock Johnson Skin Care Line, Papatewi.

Harley Finkelstein: Beyond the two brands I just mentioned, we are seeing more high volume merchants sign up and launch with shopify across the board, adding more companies across verticals industries and geographies to further energize, our flywheel brands like consumer packaged good companies Harry's and pretty litter.

Harley Finkelstein: Fashion apparel brands, like Laura, Canada, and inter sports.

Harley Finkelstein: Fitness and wellness companies juice, plus balance of nature and soul cycle.

Harley Finkelstein: Home goods retailer rugs USA.

Harley Finkelstein: Consumer electronics company skull candy manufacturer of cleaning equipment, Karcher health and beauty brand fragrance net dot com and celebrity brand like Serena Williams beauty brand when beauty beyond saves hair care brand sacred and Dwayne The rock Johnson skincare line pop at TUI.

Harley Finkelstein: The past years show that we can cater to both startups and large companies, and we continue to invest in both to expand our merchant base. Our business model focuses on accelerating the success of our merchants and driving long-term value rather than short-term gains. We are a product-led company, and we will invest in those products and strategies that ultimately offer greater value for our merchants and, thereby, for shoppers. We think about marketing the same way we think about products. Build great solutions. Use the best internally developed and externally available tools. Drive decision through data and be world class.

Harley Finkelstein: The past years show that we can cater to both start ups and large companies and we continue to invest in both to expand our merchant base. Our business model focuses on accelerating the success of our merchants and driving long term value rather than short term gains. We are a product led company and we will invest in those products and strategies that ultimately offer.

Harley Finkelstein: Greater value for our merchants and thereby for shopify.

Harley Finkelstein: We think about marketing the same way, we think about products build grid solutions use the best internally developed and externally available tools drive decision through data and be world class. Our goal is to always get the most out of every existing channel up to a guardrail limits and continually fine and experiment with new channels that.

Harley Finkelstein: Our goal is to always get the most out of every existing channel up to our guardrail limits and continually find and experiment with new channels. That is what we built our tools and our AI models to do, and we're using them to create some incredibly compelling opportunities. Let me give you a very recent example.

Harley Finkelstein: What we build our tools and our AI models to do and we're using them to create some incredibly compelling opportunities. Let me give you a very recent example at the end of last year and early into January we drove significant efficiency improvements in one of our primary channels in performance marketing where teams have created and leverage advanced models, using AI and machine learning.

Harley Finkelstein: At the end of last year and early into January, we drove significant efficiency improvements in one of our primary channels, performance marketing, where teams created and leveraged advanced models using AI and machine learning, which now allows us to target our audiences with unprecedented precision. Using these models and strategies, we drove a nearly 130% increase in merchant ads within our primary marketing channel from Q4 to Q1, while still remaining squarely within our payback guardrails.

Harley Finkelstein: <unk>, which now allows us to target our audiences with unprecedented precision using these models and strategies, we drove nearly 130% increase in merchant ads within our primary marketing channel from Q4 to Q1, while still remaining squarely within our payback guardrails.

Harley Finkelstein: Similar to how we build products, we continually assess emerging technologies and how we can leverage them to improve our own tools. We are also advancing our operational rigor, with our marketing data team using our tools to conduct data inspections at a faster velocity and more granular level than ever before. This agility allows us to quickly seize opportunities and boldly move forward when others may hesitate. These are two of our Shopify-wide principles, agility and finding the unobvious opportunities, And we know it's working.

Harley Finkelstein: Similar to how we build products, we continually assess emerging technology and how we can leverage them to improve our own tools. We're also advancing our operational rigor with our marketing data team using our tools to connect data inspections at a faster velocity and more granular level than ever before this agility allows us to quickly seize opportunities and boldly.

Harley Finkelstein: Move forward when others May hesitate. These are two of our shopify wide principles agility and finding the an obvious opportunities leading to those opportunities when others pull back even when and often especially because to others. They may appear an obvious and we know what's working back in Q3, 2022 as we mentioned.

Harley Finkelstein: Back in Q3 2022, as we mentioned in our July earnings that year, we began a wave of new marketing tool production and tightened our payback guardrails even further. Our initiatives have successfully driven significant improvements in both new merchant acquisition and CAC in core performance marketing, our largest component of marketing investment. Comparing Q3 2022 to Q1 2024, New Merchant Acquisition has grown 180% while CAC has improved almost 60%.

Harley Finkelstein: In our July earnings that year, we began a wave of new marketing tool production and tightened our payback guardrails, even further our initiatives have successfully driven significant improvements in both new merchant acquisition and CAC in core performance marketing, our largest component of marketing investment comparing Q3, 2022 to Q1 'twenty 'twenty four.

Harley Finkelstein: For new merchant acquisition has grown 180%, while CAC has improved almost 60% you can see why we are investing heavily in what we feel confident in our future and our growth in 2025 and beyond.

Harley Finkelstein: You can see why we are investing heavily and why we feel confident in our future and our growth in 2025 and beyond. You should expect us to approach every quarter with the same mental model, testing and opportunistically investing in areas where we know they will contribute well to our growth and stay within our guardrails. We intend to continue spending when marketing opportunities are within an average 18-month payback period, which we are finding a lot of right now, along with increasingly supporting longer-term initiatives such as expanding into international, enterprise, and point-of-sale.

Harley Finkelstein: You should expect us to approach every quarter with the same mental model testing and opportunistically investing into the areas, where we know it will contribute well to our growth and stay within our guardrails. We intend to continue spending when marketing opportunities are within an average 18 month payback period, which we're finding a lot of right now along with increasingly supporting.

Harley Finkelstein: Longer term initiatives, such as expanding into international enterprise and point of sale.

Harley Finkelstein: Right now, you are seeing the strongest version of Shopify in our history, and we see an excellent opportunity to further our lead in our established products and fuel the strong momentum of our emerging products. Today, we are building an even stronger Shopify. We know our team is one of our most valuable assets.

Harley Finkelstein: Right now you are seeing the strongest version of Shopify in our history and we've seen excellent opportunity to further our lead in our established products and fuel the strong momentum of our emerging products. Today, we are building, an even stronger shopify.

Harley Finkelstein: We know our team is one of our most valuable assets and given that it makes up over half of our cost base. We believe we've architected ourselves to be faster and more agile, which has enabled us to consistently deliver 25% revenue growth excluding logistics, all while keeping our head count flat for three straight quarters more importantly, bill.

Harley Finkelstein: And given that it makes up over half of our cost base, we believe we've architected ourselves to be faster and more agile, which has enabled us to consistently deliver 25% revenue growth, excluding logistics, all while keeping our headcount flat for three straight quarters. More importantly, because of the structure and the automation we have worked to put in place, we think we can continue to operate with very limited headcount growth while achieving a continued combination of consistent top-line growth and profitability.

Harley Finkelstein: Because of the structure and the automation we have worked to put in place. We think we can continue to operate against very limited head count growth, while achieving a continued combination of consistent topline growth and profitability as Kathy mentioned at our Investor day in December over the past 18 months, we've committed significant effort into building efficient infrastructure.

Harley Finkelstein: As Kaz mentioned at our Investor Day in December, over the past 18 months, we've committed significant effort to building efficient infrastructure and systems which are instrumental in streamlining our work and maintaining our high-velocity product release. We do this through our Shopify operating system, the foundation for every role and purpose at Shopify that uses data to help tell us how many resources we need for any project and the skill set or craft needed for the project.

Harley Finkelstein: In systems, which are instrumental in streamlining our work and maintaining our high velocity product releases, we do this through our Shopify operating system. The foundation for every role and purpose of Shopify that uses data to help tell us how many resources, we need for any project and the skill set or craft needed for the project essentially these systems and this <unk>.

Harley Finkelstein: Essentially, these systems and this infrastructure act as catalysts, enabling us to operate with increased efficiency and speed. So as we create a crafter's paradise, empowering teams to pursue their passions while having an incredible impact on our mission, we are doing it in a way that optimizes our talent and ensures we continue to make the most important thing, the most important thing. To close, we are proud of the strides we've made in Q1 and the execution we continue to deliver consistently quarter over quarter.

Harley Finkelstein: Infrastructure Act as catalysts, enabling us to operate with increased efficiency and speed.

Harley Finkelstein: So as we create a crafters paradise empowering teams to pursue their passions, we'll having an incredible impact on our mission we were doing it in a way that optimizes, our talent and ensures we continue to make the most important thing the most important thing.

Harley Finkelstein: To close we are proud of the strides we've made in Q1 and the execution, we continued to deliver consistently quarter over quarter. The strength of our business model the commitment of our team and our unwavering focus on serving our merchants has positioned us to lean into the opportunities. We see ahead and invest responsibly to sustain.

Harley Finkelstein: The strength of our business model, the commitment of our team, and our unwavering focus on serving our merchants has positioned us to lean into the opportunities we see ahead and invest responsibly to sustain our long-term growth objective. The best companies are built this way, staying grounded in their reason for being and committed to their mission. For Shopify, our team's dedication, coupled with our evolved marketing strategy, is reshaping the company and moving us forward. We look forward to sharing our journey with you in the quarters to come. And with that, I will turn the call over to Jay.

Harley Finkelstein: Our long term growth objectives.

Harley Finkelstein: The best companies are built this way staying grounded in our reason for being and committed to their mission for shopify, our team's dedication coupled with our evolved marketing strategy is reshaping the company and moving US forward, we look forward to sharing our journey with you in the quarters to come and with that let me turn the call over to Jeff.

Jay: Thanks, Harley. We have started off 2024 incredibly strong, building on our momentum from 2023. Let's launch into our Q1 results. GMV in Q1 was $60.9 billion, up 23% year-over-year. The strong Q1 GMV was driven by same-store sales growth of our existing merchants, continued growth in our merchant base globally, and strengthened EMEA, which grew 38% year-over-year from both strong same-store sales growth from our existing merchant base and new merchant acquisition, with same-store sales growth being the slightly larger contributor this quarter.

Jeff J. Hoffmeister: Thanks, Harley we have started off 2024 incredibly strong building on our momentum from 2023, let's launch into our Q1 results.

Jeff J. Hoffmeister: G N V. In Q1 was $60 9 billion up 23% year over year to strong Q on G. M. V was driven by same store sales growth of our existing merchants continued growth in our merchant base globally strengthen EMEA, which grew 38% year over year from both strong same store sales growth for Mark.

Jeff J. Hoffmeister: <unk> merchant base, and new merchant acquisition with same store sales growth being slightly larger contributor this quarter, and finally, 32% growth year over year, and our offline business driven primarily by larger retailers joining the platform.

Jay: And finally, 32% growth year over year in our offline business, driven primarily by larger retailers joining the platform. Revenue for the first quarter was 1.9 billion, 23% year over year, which equates to 29% year over year growth when excluding the logistics business. This represents the fourth consecutive quarter that our revenue growth has been greater than 25% on an organic basis, excluding logistics. The key drivers of this growth were the GMB strength just discussed.

Jeff J. Hoffmeister: Revenue for the first quarter was $1 9 billion up 23% year over year, which equates to 29% year over year growth when excluding the logistics businesses. This represents the fourth consecutive quarter that our revenue growth has been greater than 25% on an organic basis, excluding logistics.

Jeff J. Hoffmeister: The key drivers of this growth were the GMB strength just discussed.

Jay: Growth and Subscription Solutions revenue from both new merchant growth and the pricing increases on standard plans, and lastly, increased payments penetration, which hit 60% for Q1. Q1 Merchant Solutions revenue was $1.4 billion, increasing 20% year-over-year, fueled by growth in GMB, continued penetration of Shopify payments, continued growth of our scaled products, most notably Market, and growing adoption of our emerging products, including installments and shop cash. Those contributions were partially offset by the absence of logistics.

Jeff J. Hoffmeister: Growth in subscription solutions revenue from both new merchant growth and the pricing increases on standard plans, and lastly increased payments penetration, which at 60% for Q1.

Jeff J. Hoffmeister: Q1 merchant solutions revenue was $1 4 billion, increasing 20% year over year fueled by growth in G. M. D continue.

Jeff J. Hoffmeister: Continued penetration of shopify payments.

Jeff J. Hoffmeister: Continued growth of our scaled products, most notably markets.

Jeff J. Hoffmeister: And growing adoption of our emerging products, including installments and shop cash.

Jeff J. Hoffmeister: Those contributors were partially offset by the absence of the logistics business.

Jay: $36.2 billion of GMV was processed on Shopify payments in the first quarter, 32% higher than in the first quarter of 2023. The penetration rate of Shopify payments as a percentage of GMV was 60% compared to 56% in Q1 of 2020. Several factors powered the quarter's higher gross payments volume compared to the prior year, including the strong performance of those merchants utilizing Shopify Payments, an increasing percentage of which are Shopify Plus. Additionally, more merchants across the globe are adopting payments.

Jeff J. Hoffmeister: $36 2 billion of G. M. D was processed on shopify payments in the first quarter, 32% higher than in the first quarter of 2023.

Jeff J. Hoffmeister: The penetration rate of shopify payments as a percentage of G. M. D was 60% compared to 56% in Q1 of 2023.

Jeff J. Hoffmeister: Several factors powered the quarter's higher gross payments volume compared to the prior year, including the strong performance of those merchants utilizing shopify payments and increasing percentage of which our shopify plus.

Jeff J. Hoffmeister: More merchants across the globe adopting payments.

Jay: Greater penetration of shop pay, which was 39% of GPV in the quarter, and continued growth of our point of sale. These items were partially offset by the continued strength of our business in Europe, which was a larger percentage of GMV, but where we have a lower GPV penetration in the North. Subscription Solutions revenue was $511 million, up 34% over Q1 of 2023, with the two largest drivers being the impact of the pricing increases of our standard plans, which went into effect for existing merchants in the second quarter of 2023, and the growth in the number of merchant These two factors were roughly equally balanced contributors.

Jeff J. Hoffmeister: Later penetration of shop pay which was 39% of G. P V in the quarter and continued growth of our point of sale solution.

Jeff J. Hoffmeister: These items were partially offset by the continued strength of our business in Europe, which was a larger percentage of G. M D, but where we have a lower G. P V penetration in North America subscription.

Jeff J. Hoffmeister: Solutions revenue was $511 million up 34% over Q1 of 2023 with the two largest drivers being the impact from the pricing increases of our standard plans, which went into effect for existing merchants in the second quarter of 2023 and the growth in the number of merchants. These.

Jeff J. Hoffmeister: These two factors were roughly equally balanced contributors and increase in revenues from variable platform fees was also a contributor to the quarter.

Jay: An increase in revenues from variable platform fees was also a contributor to the quarter. As a reminder, existing Plus merchants had until the end of April to commit to their existing rates or be moved to a new pricing plan. As of today, the majority of our existing Plus merchants have chosen to commit to three-year contracts at existing 2023 rates, a clear testament to the exceptional value that we provide and the trust and confidence our merchants place in us to consistently deliver the solutions they need for their success.

Jeff J. Hoffmeister: As a reminder, existing plus merchants had until the end of April to commit to their existing rates or move to a new pricing plan as of today. The majority of our existing plus merchants have chosen who commit to three year contracts at existing 'twenty twenty-three rates, a clear testament to the exceptional value that we provide and the trust and confidence armor.

Jeff J. Hoffmeister: <unk> placed in us to consistently deliver the solutions they need for their success.

Jay: We expect more of the financial impact from these changes to occur in the second half of the year. However, we are not anticipating as much of a benefit from this pricing change as we did from the changes to standard pricing in 2023. MRR was 151 million, up 32% year over year. We saw growth year over year and MRR across each of the standard plus an offline point of sale. The strengths stem from increases in the number of merchants in each of these three categories combined with

Jeff J. Hoffmeister: We expect more of the financial impact from these changes to occur in the second half of the year.

Jeff J. Hoffmeister: We are not anticipating as much of a benefit from this pricing change as we did from the changes to standard pricing in 2023.

Jeff J. Hoffmeister: And morale was $151 million up 32% year over year, we saw growth year over year in MRO across each of standard plus an offline point of sale.

Jeff J. Hoffmeister: The strength stemmed from increases in the number of merchants in each of these three categories combined with for plus.

Jay: Growth from both new Shopify merchants joining and existing merchants upgrading from one of our standard plans of Plus, with Plus representing 32% of MRR for Q1 of this year. You should expect the Plus pricing changes to have more of an impact on our second quarter MRR as existing Plus merchants did not have to commit until after the end of Q1. For point of sale MRR, which was up 50% year over year, growth was driven by improvements in our go-to-market strategy and our new retail plan.

Jeff J. Hoffmeister: Growth from both new Shopify merchants, joining and existing merchants upgrading from one of our standard planes are plus with plus representing 32% of MRI for Q1 of this year.

Jeff J. Hoffmeister: You should expect the plus pricing changes to have more of an impact on our second quarter MLR as existing plus merchants did not have to commit until after the end of Q1.

Jay: For point of sale, MRI, <unk>, which was up 50% year over year growth was driven by improvements in our go to market strategy and our new retail plan.

Jay: And for Standard, the pricing change that we implemented last year. On a sequential quarter-over-quarter basis, MRR increased in plus, standard, and point-of-sale, primarily from growth in the number of merchants in each of these groups. It is important to note that we refined our MRR calculation for standard; we adjusted how we factor in merchants transitioning from a paid trial to full price status. Previously, we reflected in MRR the full price plan when the merchant's paid trial ended but before the first payment was received.

Jeff J. Hoffmeister: And for standard the pricing change that we implemented last year.

Jay: On a sequential quarter over quarter basis, MLR increased in plus standard and point of sale primarily from growth in the number of merchants in each of these groups.

Jay: It is important to note we refined our MLR calculation for standard we adjusted how we factor in merchants transitioning from a paid trial to full price status previously we reflected in MRO or the full price plan when the merchants paid trial ended but before the first payment was received now.

Jay: Now we do not capture in MRR the change in pricing until after we have received the first full price payment. We believe this approach better reflects the way we look at our business. The change does not impact us. In Q1, our attach rate was 3.06%, up from 3.04% in Q1 of 2023. Key drivers of a tax rate expansion in the quarter were the continued gains in GPV penetration and higher subscription revenues, largely offset by the logistics business in the prior year and lower non-cash revenues from strategic partnerships. Moving to gross profit, gross profit was 957 million for the quarter, up 33% year over year.

Jay: Now, we do not capture an MRI or the change in the pricing until after we've received the first full price payment we.

Jeff J. Hoffmeister: We believe this approach better reflects the way we look at our business to change does not impact revenue.

Jay: In Q1, our attach rate was 3.06%.

Jay: From 3.04% in Q1 of 2023.

Jay: Key drivers of attach rate expansion in the quarter were the continued gains in G PV penetration and higher subscription revenues largely offset by the logistics business in the prior year and lower noncash revenues from strategic partnerships.

Jay: Moving to gross profit gross profit was 957 million for the quarter up 33% year over year gross margin for subscription solutions was 81, 4% compared to 78.0% in Q1 of 2023, the increase stems from pricing changes on standard plans and to a lesser extent continue.

Jay: Gross margin for subscription solutions was 81.4% compared to 78.0% in Q1 of 2023. The increase stems from pricing changes on standard plans and, to a lesser extent, continued support and hosting efficiency. Gross margin for merchant solutions was 40.1% compared to 37.2% in Q1 of 2023. Our improvement in gross margin for merchant solutions was primarily due to the benefit from the absence of logistics.

Jay: Support and hosting efficiencies.

Jay: Gross margin for merchant solutions was 41% compared to 37, 2% in Q1 of 2023.

Jay: Our improvement in gross margin for merchant solutions was primarily due to the benefit from the absence of logistics, which was dilutive to margin when excluding the impact of logistics, our merchant solutions gross margin was down year over year, primarily from lower noncash revenues from certain partnerships and the continued growth.

Jay: Of our lower margin shopify payments business with these impacts partially offset by growth in products like shop cash installments.

Jay: [inaudible] with these impacts partially offset by growth in products like shop cash and. This brings our overall Q1 gross margin to 51.4% compared to 47.5% in the prior year. Operating expenses were $871 million for the quarter, in line with our expectations and representing 47% of revenue. Compared to Q1 of 2023, operating expenses of Q1 2024 were down 4%. The decline year over year was primarily due to the sale of the logistics business and lower headcount.

Jay: This brings our overall Q1 gross margin to 51.4% compared to 47, 5% in the prior year.

Jay: Operating expenses were 871 million for the quarter in line with our expectations and representing 47% of revenue compared to Q1 of 2023 operating expenses of Q1, 'twenty 'twenty four were down 4%.

Jay: The decline year over year was primarily due to the sale of the logistics business and lower head count.

Jay: Partially offset by increases in marketing spend. I know many of you look at operating expenses both pre and post stock-based comp. OPEX, excluding SBC and related payroll taxes, or adjusted OPEX for the quarter was 41% of revenue compared to 51% of revenue in Q1 2020. We continue to remain disciplined on headcount, with total headcount remaining essentially flat for the past three quarters, all while maintaining and, in fact, accelerating our product innovation capabilities and continuing the top line momentum of our business.

Jay: Partially offset by increases in marketing spend I.

Jay: I know many of you look at operating expenses, both pre and post stock based comp opex, excluding SBC and related payroll taxes or adjusted Opex for the quarter was 41% of revenue compared to 51% of revenues in Q1 2023.

Jay: We continue to remain disciplined on head count with total head count remained essentially flat for the past three quarters, all while maintaining and in fact accelerating our product innovation capabilities and continuing the top line momentum of our business.

Jay: How we leverage AI internally is an important element of how we are able to do that. And as an example, let's talk about how we are using AI in merchant support. A couple of data points for you. During Q1, over half of our merchant support interactions were assisted with AI and often fully resolved with the help of AI. AI has enabled 24 seven live support and eight additional languages that previously were offered only certain hours of the day.

Jay: How we leverage AI internally is an important element of how we were able to do that and as an example, let's talk about how we are using AI and merchant support.

Jay: A couple of data points for you during.

Jay: During Q1 over half of our merchant support interactions were assisted with AI and often fully resolved with the help of AI.

Jay: He has enabled 24 seven lives support in eight additional languages that previously were offered only certain hours of the day.

Jay: We have significantly enhanced the merchant experience. The average duration of support interactions has decreased, and the introduction of AI has helped reduce the reluctance that some merchants previously had toward asking questions that they might perceive as trivial or naive. Additionally, our support staff has experienced a significant reduction in the amount of toil that is part of their job.

Jay: We have significantly enhanced the merchant experience the average duration of support interactions has decreased and the introduction of AI has helped reduce the reluctance that some merchants previously had towards asking questions that they might perceive as trivial or naive.

Jay: Additionally, our support staff has experienced a significant reduction in the amount of toil that as part of their jobs.

Jay: We are improving the merchant support process and achieving much greater efficiency than ever before. Moving to operating income, for the quarter, operating income was $86 million, or approximately 5% of revenue compared to an operating loss of $193 million in Q1 of 2023.

Jay: We are improving the merchant support process and achieving much greater efficiency than ever before.

Jay: Moving to operating income for the quarter operating income was $86 million or approximately 5% of revenue compared to an operating loss of $193 million in Q1 of 2023 stock.

Jay: Stock base compensation for Q1 was $111 million, and capital expenditures were $6 million; free cash flow was $232 million, or 12% of revenue, doubling as a percentage of revenue versus Q1 2023 free cash flow margin of 6% Turning to our balance sheet, our cash and marketable securities balance was $5.2 billion as of March 31, and we had a net cash position of $4.3 billion after consideration of the outstanding convertible net. Before turning to our outlook, a few comments regarding the broader economy and the macroeconomic assumptions that underpin our Q2 expectations.

Jay: Stock based compensation for Q1 was $111 million and capital expenditures were $6 million for the quarter.

Jay: Free cash flow was $232 million or 12% of revenue doubling as a percentage of revenue versus Q1, 2023 free cash flow margin of 6%.

Jay: Turning to our balance sheet, our cash and marketable securities balance was $5 2 billion as of March 31st and we had a net cash position of $4 3 billion after consideration of the outstanding convertible notes.

Jay: Before turning to our outlook a few comments regarding the broader economy and the macroeconomic assumptions that underpin our Q2 expectations, we see consumer spend in North America remaining resilient, but we have factored in headwinds related to FX from the strong U S dollar and some softness in European consumer spending and our Q2 outlook, we have and expect to continue to up.

Jay: We see consumer spend in North America remaining resilient, but we have factored in headwinds related to FX from the strong U.S. dollar and some softness in European consumer spending in our Q2O. We have, and expect to continue to, outperform the e-commerce growth rates in North America and Europe. We otherwise assume that the macroeconomic environment remains consistent with current conditions. Keeping all this in mind, let's now turn to. Our expectations for the second quarter of 2024 are as follows.

Jay: Perform the e-commerce growth rates in North America and Europe.

Jay: Otherwise assume that the macroeconomic environment remains consistent with current conditions.

Jay: Keeping all this in mind, let's now turn to outlook.

Jay: Our expectations for the second quarter of 2024 are as follows.

Jay: First on revenue, we expect Q2 year over year revenue growth to be in the high teens on a gap basis, which equates to a year over year growth rate in the low to mid 20s when excluding the 300 to 400 basis point impact from the sale of our logistics business. An important dynamic to highlight is the impact of the standard and plus pricing changes and how they affect our growth rate for Q2 versus Q1. The impacts of the pricing changes in Standard and Plus will have a smaller combined benefit in Q2 versus Q1.

Jay: First on revenue, we expect Q2 year over year revenue growth to be in the high teens on a GAAP basis, which equates to a year over year growth rate in the low to mid twenties, when excluding the 300 to 400 basis point impact from the sale of our logistics business.

Jay: An important dynamic to highlight is the impact of the standard and plus pricing changes and how they affect our growth rate for Q2 versus Q1.

Jay: The impact of the pricing changes in standard and plus we'll have a smaller combined benefit in Q2 versus Q1.

Jay: In Q2, we began to lap the initial pricing changes on our standard plans that went into effect in April of 2023, resulting in a headwind to our revenue growth quarter over quarter. While the plus pricing billing cycle went into effect today for those existing merchants who did not sign up for the three-year contract, this uplift is expected to be minimal in Q2, given both the mid-quarter timing of the change and the fact that the majority of our merchants did choose to opt into three-year contracts at their existing 2023 price.

Jay: In Q2, we begin to lap the initial pricing changes on our standard plans that went into effect in April of 2023, resulting in a headwind to our revenue growth quarter over quarter.

Jay: While the plus pricing billing cycle went into effect today for those existing merchants, who did not sign up for the three year contract. This uplift is expected to be minimal in Q2, given both the mid quarter timing of the change and the fact that the majority of our merchants did choose to opt into three year contracts at their existing 2023 price.

Jay: Q2 will simply be a quarter where the lapping effect of the standard plan changes exceeds the initial benefit of the plus pricing changes. We remain resolutely confident in the great products and go-to-market initiatives fueling our continuous growth and our ability to further strengthen our position as a leader in unified commerce. We expect Q2 to be a continuation of our Strong Woman strategy.

Jay: Q2 will simply be a quarter, where the lapping effect of the standard plan changes exceeds the initial benefit of the plus pricing changes.

Jay: We remain resolutely confident in the great products and go to market initiatives fueling our continuous growth and our ability to further strengthen our position as a leader in unified Commerce, We expect Q2 to be a continuation of our strong momentum.

Jay: Q2 Gross Margin is expected to be down approximately 50 basis points from Q1 of 2024. The primary drivers of the decline quarter over quarter are the expected growth of our lower margin payments business and lower revenue contribution from a high margin non-cash partnership revenue agreement that will have fully amortized. Offsetting these factors are the expected positive impacts from the standard and plus pricing changes that I just referenced above and the benefit from shortening our trial length from three months down to one month.

Jay: Q2 gross margin is expected to be down approximately 50 basis points from Q1 of 'twenty 'twenty four.

Jay: The primary drivers of the decline quarter over quarter are the expected growth of our lower margin payments business and lower revenue contribution from our high margin noncash partnership revenue agreement that we will have fully amortized.

Jay: Offsetting these factors are the expected positive impacts from the standard and plus pricing changes that I, just referenced above and the benefit from shortening our trial lengths from three months down to one month.

Jay: Turning to operating expenses, we believe that our Q2 operating expense dollars on a gap basis will be up at a low to mid-single-digit percentage compared to our Q1 operating expenses of $871 million. As a percentage of revenue, we expect our Q2 GAAP operating expense dollars to be approximately 45 to 46 percent, implying a decrease of 100 to 200 basis points versus Q1. I previously have not been guiding toward operating expenses as a percentage of revenue.

Jay: Turning to operating expenses, we believe that our Q2 operating expense dollars on a GAAP basis will be up at a low to mid single digit percentage rate.

Jay: Compared to our Q1 operating expenses of $871 million.

Jay: As a percentage of revenue, we expect our Q2 GAAP operating expense dollars to be approximately 45% to 46%, implying a decrease of 100 to 200 basis points versus Q1.

Jay: I previously have not been guiding toward operating expense as a percentage of revenue Q2 will mark a full year. Since we began to operate in the new fitter faster shape of shopify as well as the sale of the majority of our logistics businesses.

Jay: Q2 will mark a full year since we began to operate in the new, fitter, faster shape of Shopify as well as a sale. Given these changes, the year-over-year comparability of operating expenses has been less telling over the past year, hence why I've been talking about sequential changes to OPEX dollars. Going forward, I plan to talk about operating expenses as a percentage of our revenue, as it better aligns with our goal of striking the optimal balance between growth and operational leverage to deliver improving profitability over time. For this quarter, I wanted to provide you both.

Jay: Given these changes the year over year comparability of operating expenses has been less telling over the past year, hence why I've been talking about sequential changes to opex dollars going forward I plan to talk about operating expenses as a percentage of our revenue as it better aligns with our goal of striking the optimal balance between growth and operational leverage to deliver improving.

Jay: Profitability overtime for this quarter I wanted to provide you both metrics for the second quarter. The two primary drivers of the operating expense dollar increase over Q1, our marketing spend and our summit event, which will happen at the end of June with summit being the primary driver of the increase.

Jay: For the second quarter, the two primary drivers of the operating expense dollar increase over Q1 are marketing spend and our summit event, which will happen at the end of June, with summit being the primary driver of the increase. Summit is our annual event where we engage in a collaborative week dedicated to aligning on the bold ideas that we have as a company. A spotlight on our mission, our product roadmap, and the mental models that we are using to build incredible things.

Jay: Summit is our annual event, where we engage in collaborative week dedicated to aligning on the bold ideas that we have as a company.

Jay: Bartlett on our mission, our product roadmap and the mental models that we are using to build incredible things.

Jay: We consider it a critical week for our product development efforts, company culture, and work with external developers. This will be our first completely in-person summit since 2018, and everyone is really looking forward to it. We highly value and remain committed to our remote-first culture and concurrently believe that getting teams together periodically is a critical, load-bearing element that enables our remote-first culture to thrive. This year's summit will be aggregating into one event what have been multiple discrete events in other years, including our three-day internal hack day event where we ask our teams to start new projects.

Jay: We considered a critical week for our product development efforts company culture and work with external developers.

Jay: This will be our first completely in person summit since 2018, and everyone is really looking forward to it.

Jay: We highly value and remain committed to our remote first culture and concurrently believe that getting teams together periodically is a critical load bearing element that enables our remote first culture to thrive.

Jay: This year's summit will be aggregated into one event what in other years is multiple discreet events, including our three day internal hack day of that where we ask our teams to start new projects or hack days of Kickstarted. Many key products and features like point of sale in the shop App.

Jay: Our Hack Days have kicked off many key products and features like Point of Sale and the Shop app. This week's work also includes a series of events for our external development partners, additions.dev, which includes hands-on technical walkthroughs and immersive work. Additions.dev gives us an opportunity to share our vision with our developer partners and get external feedback on our products and roadmap.

Jay: This week's work also includes a series of events for our external development partners additions Dot Dev.

Jay: Which includes hands on technical walk throughs, and immersive workshops additions at Dev gives us an opportunity to share our vision with our developer partners and get external feedback on our products and roadmap. It is one of the most highly anticipated events for developers within the shopify ecosystem, both internal and external and we consider it an investment in our team.

Jay: It is one of the most highly anticipated events for developers within the Shopify ecosystem, both internal and external, and we consider it an investment in our team, our product roadmap, and our partners. Regarding marketing, Harley shared with you some insights into our thinking and some of our recent success. We intend to continue to invest when opportunities are within an average 18-month payback period, and we are finding a lot of them right now, as well as supporting longer-term initiatives such as international, enterprise, and point of sale. Moving to Stock Place Compensation. Q2 SBC is expected to be $120 million, and Q2 capital expenditures are $5 million.

Jay: Our product roadmap and our partners.

Jay: Regarding marketing Harley shared with you some insights into our thinking in some of our recent successes there we intend to continue to invest when opportunities are within an average 18 month payback period, and we are finding a lot of them right now as well as supporting longer term initiatives, such as international enterprise and point of sale.

Jay: Moving to stock based compensation Q2 S. P. C is expected to be $120 million in Q2 capital expenditures 5 million.

Jay: Finally, on free cash flow. For Q2, we expect our free cash flow margin to be similar to Q1 of 2024. We have now delivered three consecutive quarters of double-digit free cash flow margin with no expectation for this trend to change. In summary, Q1 was a very strong start to the year. We continue to deliver on the product initiatives that we have laid out. Our merchants are performing well, and we continue to expand the value that we can provide our merchants.

Jay: Finally on free cash flow for Q2, we expect our free cash flow margin to be similar to Q1 of 'twenty 'twenty. Four we have now delivered three consecutive quarters of double digit free cash flow margin with no expectation for this trend to change.

Jay: In summary, Q1 was a very strong start to the year, we continued to deliver on their product initiatives that we've laid out our merchants are performing well and we continue to expand the value that we can provide our merchants.

Jay: We are making key investments in our future and continuing to build an even stronger Shopify, all while delivering a compelling mix of both growth and profitability. With that, I now turn the call back over to Carrie for your questions. Please use the raise hand feature in Zoom to ask your question. If you are dialing in by phone, you will need to press star 9 to join the queue.

Jay: We are making key investments in our future and continuing to build an even stronger shopify, all while delivering a compelling mix of both growth and profitability.

Jay: With that I'll now turn the call back over to Kerry for your questions.

Carrie Gillard: We will now open the call to your questions. Please use the raise hand feature in Zoom to ask your question. If you are dialing in by phone, you will need to press star nine to join the queue and star six to unmute yourself. We ask that you limit yourself to one question so we can try to get to as many questions as possible. Our first question comes from Trevor Young at Barker.

Speaker Change: We will now open the call for your questions. Please use the raise hand, featuring zoom to ask a question. If you are dialing in by phone you will need to press star nine to join the queue and star sector.

Jay: Okay.

Carrie Gillard: I ask that you limit yourself to one question. So we can try to get to as many questions as possible. Our first question comes from Trevor Young at Barclays.

Carrie Gillard: Okay.

Trevor Young: Great. Thanks.

Trevor Young: Just on the core standard MLR are only up slightly Q on Q can you just give us some color on why that was up maybe a smaller amount that we would've expected seasonally is that just a definitional change or is there something going on.

Trevor Young: Just in terms of merchant demand.

Unknown Executive: Yeah, no, that's just a definitional change. It would have been up 5% if you looked at it in terms of Q4 to Q1. And so it's just a function of that change. The merchant acquisition engine overall is doing really, really well right now.

Trevor Young: Yeah, I know, that's just a definitional change it would have been up 5% and if you look at it in terms of Q4 to Q1 and so it's a it's just a function of that change the merchant acquisition engine overall is doing really really well right now so there's nothing else to read into that.

Unknown Executive: So there's nothing else to read into that. Okay, thank you. Our next question will come from Matt Code at Autonomous. Matt, are you there?

Unknown Executive: Okay, thank you. Our next question will come from Matt Code at Autonomous.

Trevor Young: Thank you. Our next question will come from Matt Coad at autonomous.

Unknown Attendee: I am sorry about that, guys. I didn't click unmute. I just wanted to double click.

Unknown Executive: Matt are you there.

Speaker Change: I am sorry about that guys.

Unknown Executive: Quick on mute.

Trevor Young: So wanted to double click on sales and marketing expenses, So theyre, increasing again at a pretty fast clip you guys touched on that a little bit in your opening remarks, ICANN I just wanted to get some incremental color on how that's translating into merchant and bookings growth.

Matthew Pfau: And then any commentary you could provide on the 2024 cohort and how that's looking compared to 2023 it would be helpful.

Unknown Executive: Yeah, I think from a sales and marketing perspective, and let's just talk a little bit about how we think about our margins overall. I mean, our sales and marketing, as Harley talked about on the broader call, is going very, very well right now in terms of some of the things we've been doing recently to improve the tools and the methodologies we're using. And Harley went through some of those results, not only over the past few quarters, but also some things we've done over the past few months.

Matthew Pfau: Yeah, I think from a sales and marketing perspective, and let's just talk a little bit in terms of how we think about our margins overall I mean, our sales and marketing is hardly talked about in the broader call is.

Matthew Pfau: Going very very well right now in terms of some of the things we've been doing recently to improve the tools and the methodologies, we're using and Harley talked through some of those results not only over the past few quarters as well as some things you've done over the past few months.

Unknown Executive: As it relates to margins specifically, in terms of how we think about them, I'd go back to what we talked about in terms of free cash flow margins and the guidance I gave there. Let's effectively start with what we said as it relates to Q1 results and then, obviously, Q2. In Q1, we did 12% free cash flow margin on 29% pro forma revenue growth. I consider that a strong result.

Unknown Executive: As it relates to margin specifically in terms of how we think about it.

Unknown Executive: I'd go back to what we've talked about in terms of free cash flow margins.

Unknown Executive: And the guidance I gave there we are.

Unknown Executive: Effectively start with what we said and as it relates to Q1 results and then obviously Q to Q1, we did 12% free cash flow margins on 29% pro forma revenue growth when I consider that a strong result, and that also gets into an uptick from Q1, we had expected an uptick from Q1 and Q2 in terms of margin Q1 outperformance.

Unknown Executive: Formed which is great.

Unknown Executive: We did as we talked through some of the things that are hardly mentioned in his script around the payback periods and kind of when this is going to hit our topline. That's a key piece in terms of how you think about the merchant acquisition engine.

Unknown Executive: But also going back to just how we think about the margins our guidance for Q2 points to the free cash flow margins being similar to the 12% that we achieved in Q1 and that is combined with the pro forma revenue growth in the low to mid Twenty's. So the business can deliver both growth and margins all while we are concurrently, creating and leading into opportunities that enhance our growth. So we feel.

Unknown Executive: And that also gets into an uptick from Q1. We had expected an uptick from Q1 and Q2 in terms of margin. Q1 outperformed, which is great. So, the business can deliver both growth and margins all while we are concurrently creating and leading opportunities to enhance our growth. So, we feel really good about the strength of this business because it allows us to accomplish all three. And this marketing spend, for us, is an investment in our future and continuing to do all the things, which we think will continue to strengthen this business for the long term.

Unknown Executive: A really good about the strength of this business was it allows us to accomplish all three are in this marketing spend for US is an investment in our future and continuing to do all the things, which again, we think will continue to strengthen this business for the long term.

Unknown Executive: And Matt, let me just take a moment on the types of merchants that are coming to Shopify because that is really important to understand. You know, historically, I think it was fairly well known that in the SMB, direct-to-consumer segment, we were winning these merchants. But remember, not only do we continue to win those merchants, but now we're seeing different types of merchants too. I mean, you know, there's some talk about the state of the consumer. We think the consumer will remain resilient.

Speaker Change: And Matt Let me just take a moment just on the types of merchants are coming to shopify because that is really important understand historically I think it was fairly well known that in the SMB direct to consumer segment. We were we were winning these merchants, but remember not only do we continue to win those merchants, but now we're seeing different types of merchants to I mean, there's some talk around the state of the consumer we think this can.

Unknown Executive: Tumor remains resilient, we're seeing consumers buying their favorite brands, they love and fill affinity to those brands around shopify, but we also have other brands that have recently joined that are more or less discretionary I mean figs. For example are in hospitals all over the country Heinz Nestle Staples Barked box Butcher box. These are less discretionary brands also coming to shopify when you add to that.

Unknown Executive: We're seeing consumers buying their favorite brands that they love and feel affinity to. Those brands are on Shopify. But we also have other brands that have recently joined that are, you know, more, sorry, less discretionary. I mean, Figs, for example, are in hospitals all over the country.

Unknown Executive: Hynes, Nestle, Staples, BarkBox, and ButcherBox. These are less discretionary brands also coming to Shopify. When you add to that new brands that are coming for things like B2B, for example, which is growing beautifully in our view and will continue to grow as a huge opportunity there, or international merchants, you're seeing all these different on-ramps into Shopify all working really, really well. Now, to Jeff's point about, you know, the spend, one thing that's important to understand is we think about marketing the same way we think about

Unknown Executive: That new brands that are coming for things like <unk>. For example, which is growing is growing beautifully in our R&R view and will continue to grow huge opportunity there or international merchants, you're seeing all these different on ramps into shopify, all working really really well now to Jeff's point around the <unk>.

Unknown Executive: Spend one thing it's important understand as we think about marketing the same way, we think about products. We build great solutions, we use the best internally developed tools and we drive decisions through data and we can be agile at times and at times. It may seem counter cyclical, but what it really does is it means we can have we can we can drive sustained top line growth and be profitable, but all.

Unknown Executive: We build great solutions. We use the best internally developed tools, and we drive decisions through data. And we can be agile at times, and at times that may seem counter-cyclical. But what it really does is it means we can have, we can drive sustained top-line growth and be profitable. But all these different growth drivers, all these different on-ramps, lead to a much stronger business long-term with a variety of very, very strong different types of merchants. Thanks for your question, Matt. We'll now move on to Mark Hugodowicz at Centsure.

Unknown Executive: These different growth drivers all of these different on ramps lead to a much stronger business long term with a variety of very very strong different types of merchants.

Unknown Executive: Thanks for your question, Matt. We'll now move on to Mark Zubodowicz at Century.

Mark Hugodowicz: Thanks for your question, Matt well now move to Mark his outlets at benchmark.

Unknown Executive: Mark, are you there? Okay, we will put Mark back in the queue. Let's go instead to, "I'm here." Oh, there you are. Okay, great. Mark, go ahead. Sorry about that, Carrie. Thought I hit it. Harley, maybe just picking up on that last point.

Mark Hugodowicz: Mark are you there.

Speaker Change: Okay, we will put back back in the queue.

Speaker Change: Go instead to.

Mark Hugodowicz: I'm here.

Mark Hugodowicz: Okay, great sorry about that Gary.

Unknown Executive: Ed.

Speaker Change: Harley maybe just picking up on that last point.

Unknown Executive: You talked a little bit about vertical expansion there on the mercenary.

Unknown Executive: You talked a little bit about vertical expansion there on the merchant ad component, but maybe if you could talk about geography and sort of where you're seeing merchant ads from a geo perspective, sort of what the strategy is there, and how that payback period, I guess, fits into that 18 months. Is it higher in the US versus some of these other geos? Is that sort of an average 18-month payback? If you if you look across deals, that'd be helpful.

Unknown Executive: Component, but maybe if you could talk about geo and sort of where you're seeing merchant adds from a geo perspective sort of what the strategy is there and how that.

Speaker Change: Payback period, I guess fits.

Unknown Executive: <unk> fits into that 18 months is it hiring.

Unknown Executive: In U S versus some of these other geos that sort of an average 18 months payback.

Unknown Executive: And then just one other quick one, if I could just in terms of your audience scale, just in terms of advertising scale, broadly, just trying to get a sense of how your audience target numbers will look this year, compared to last year. Thank you.

Unknown Executive: If you if you look across Geos that'd be helpful.

Unknown Executive: And then just one other quick one if I could just in terms of your audience.

Unknown Executive: Scale just in terms of advertising scale broadly just trying to get a sense of how your audience target numbers will look this year scaling relative to last year. Thank you.

Unknown Executive: Yeah, let me start, Mark, with international. I mean, Shopify is no longer just for small businesses in North America. We are seeing great, really strong revenue growth across channels, cross-sell, regional, and Q1 international GMV growth at a pace faster than North America. In fact, in particular, Europe continues to lead our growth outside North America. I think Q1 GMV growth was like 38% in that region. That's the third consecutive quarter of growth above 35% there. So there's a lot out there.

Speaker Change: Yeah, Let me start Mark with International I mean shovel. He is no longer just for small business in North America. We are seeing great really strong revenue growth across channels cross sell regional.

Unknown Executive: And in Q1 International G NV growth outpace North America in fact in particular Europe continues to lead our growth outside North America, I think Q Q1, GMB growth was like 38% in that region. That's a third consecutive quarter of growth above 35%. There. So there's a lot. There's a lot of opportunity there I think we've captured less than 1% market share in global REIT.

Unknown Executive: There's a lot of opportunity there. I think we've captured less than 1% of the market share in global retail sales, even as our product and geographies have expanded. If you go back to 2015, we had five products in four countries. Today, we have more than 20 products in more than 30 countries, just on the merchant solution side. We have this massive opportunity ahead with about a $380 billion market opportunity when you just focus on our core geographies and where we operate today, which means we are significantly underpenetrated. And in particular, on the product expansion side, localization of products matters, and commercial initiatives matter. That means working with partners, working with app developers, and working with large SIs on the ground in these places. That really matters.

Unknown Executive: <unk> sales, even as our product and geographies have expanded if you go back to 2015, we had five products in four countries today, we have more than 20 products in more than 30 countries. Just on the on the merchant solutions side. We had this massive opportunity ahead with about a $380 billion market opportunity. When you just focus on our core geographies and where we operate.

Unknown Executive: Today, which means we are significantly under penetrated and in particular on the product expansion side localization of products matters commercial initiatives matter that means working with partners working with App developers working with large size on the ground in these places that really matters, but I think we will continue to focus on the success, we're seeing in Europe, and and Theres No reason for that.

Unknown Executive: But I think we will continue to focus on the success we're seeing in Europe, and there's no reason for that to be slowing down. And then, obviously, APAC and LATAM also provide some really incredible opportunities there. Let me also talk quickly about audiences, because I think it's important, obviously, we've been talking about advertising generally on Shopify, but audiences in particular is one that we're especially proud of. Look, this thing launched in 2022 May, it's now helping merchants get better results from digital ads, and the algorithms that this thing is getting better at every day help with finding high-intent customers.

Unknown Executive: Would be slowing down and then obviously APAC and Latam also provide some really incredible opportunities there.

Unknown Executive: And in some cases, we are leading, we are seeing this lead to up to 50% CAC improvements, so it is really important. It's also a key reason why merchants choose to upgrade to plus. We're now experimenting more; we just launched a free 45-day trial in April. So merchants who are not on Shopify Plus can actually experiment with it. Of course, the goal is to get them to upgrade, but also get them to start using it.

Speaker Change: Let me also talk quickly about audiences.

Unknown Executive: I think it's important obviously, we've been talking about advertising generally on shopify, but audiences. In particular is is one that where we're especially proud of this thing launched in 2022 may it's now helping merchants get better results from the digital ads. The algorithms that this thing is getting better every day helps with finding I intend.

Unknown Executive: Customers and in some cases, we are leading we are seen as a lead up to 50% CAC improvements. So it is really important. It's also a key reason why merchants choose to upgrade to plus we're now experimenting more we just launched a free 45 day trial in April some merchants, who are not in shopify plus can actually experiment with it of course the goal to get from the upgrade but I'll.

Unknown Executive: And then just in January, in the winter edition, we talked about stronger retargeting and benchmarks for ads, retarget twice as many potential buyers with much better custom retargeting boost lists, and new benchmarks for measuring ad performance. The audience product is something that we're really proud of, and I think you'll see us can just double down on it.

Unknown Executive: Get them to start using it and then just in January and the Winter edition, we talked about stronger re targeting and benchmarks for ads re target twice as many potential buyers with much better customer targeting bootless, new benchmarks for measuring AD performance. The audience. This product is something that we're really proud of and I think youll see us double down on it but advertising.

Unknown Executive: But advertising in general, I think what differentiates Shopify is our ability to interpret data, experiment, and then lean into where we see these opportunities. And everything I referenced in my prepared remarks speaks, I think, to our desire to be world class in every aspect of our business, including marketing for ourselves, and helping our merchants with marketing and audiences is a great example of that. The other one, of course, is shop campaigns, which were previously known as shop cash offers. These are in the very early stages of experimenting, but we're already seeing merchants and incredible brands use them and find increased revenue through much higher visibility, and much better conversions.

Unknown Executive: In General I think what differentiates shopify is our ability to interpret data experimented and lean into where we see these opportunities and everything I referenced in my prepared remarks speaks I think to our desire to be world class at every aspect of our business, including marketing for ourselves and helping our merchants with marketing and audiences is a great example of that the other one of course is shop campaigns.

Unknown Executive: Which previously known as trapped cash offers very early stage of experimenting but we're already seeing merchants an incredible brands use it in and find increase revenue through much higher visibility much better conversions and again the great part about things like audiences and shop campaigns is if you want to leverage these things as a brand or retailer merchant you have.

Unknown Executive: Have to be on Shopify.

Unknown Executive: Thanks, Mark. Our next question will come from Andrew Boone at JMP Securities.

Unknown Executive: And again, the great part about things like audiences and shop campaigns is that if you want to leverage these things as a brand or retailer merchant, you have to be on Shopify. Thanks, Mark. Our next question will come from Andrew Boone at JMP Security.

Unknown Executive: Thanks, Mike Our next question will come from Andrew Boone at JMP Securities.

Speaker Change: Thanks, so much for taking my question.

Unknown Executive: Jeff can you talk about the reaction to price increases you laid out pretty clearly, but how do we think about that flowing through the P&L in the back half of the year. Thanks, So much.

Unknown Executive: Yeah, thanks, Andrew. I have a couple of things I mentioned on the call and then a couple additional points. I did mention in my prepared remarks earlier that we've had a majority of the plus merchants commit to three-year contracts, which for us is really a testament to them looking at all the value we provide and saying this is something that I want to continue. This is a platform, this is a set of tools I want to continue to work with and commit to for a multi-year period, which is obviously a great testament to what we've been doing.

Andrew Boone: Yeah. Thanks, Andrew a couple of things I mentioned on the call and then a couple of additional points I did mention on my prepared remarks earlier that we are we've had a majority of the plus margins commit to three year contracts, which for US is really a testimony to them looking at all the value we provide and saying this is something that I want to continue this is a platform.

Unknown Executive: For them. This is a set of tools I want to continue to.

Unknown Executive: Work with and commit to for a multiyear period, which is which obviously is a great testimony to what we've been doing as you know similar to what we saw on the standard pricing changes, it's going to hit MRI first right. So we'll hit MRO are in Q2, because today is essentially today. This very day in fact is the first day of the billing cycle.

Unknown Executive: As you know, similar to what we saw with the standard pricing changes, it's going to hit MRR first, right? So we'll hit MRR in Q2 because today is, essentially, today, this very day, in fact, is the first day of the billing cycle. And so it will hit MRR in Q2. But it really won't hit revenue and, obviously, therefore margins until mostly in Q3. So this will be a little bit more of a back half phenomenon than anything else.

Unknown Executive: And so it went MRO are in Q2, it really won't hit revenue and obviously, therefore margins really until mostly in Q3. So this will be a little bit more of a back half phenomenon than anything else and it will track pretty similar just in terms of timing because we implemented both of these changes the standard in the plus it pretty much the same time of the year. So it will track in a similar manner.

Unknown Executive: And it will track pretty similarly just in terms of timing because we implemented both of these changes, the standard and the plus, at pretty much the same time of the year. So it will track in a similar manner. But again, just given the fact that the majority of the plus merchants have opted for three-year contracts, I don't think it will have as big of an impact as standard did for us last year. Okay, thank you for your question.

Unknown Executive: But again just given the fact that the majority of the plus merchants have opted into three year contracts I don't think it will have as big of an impact as standard did for us last year.

Unknown Executive: Okay, thank you for your question. Our next question comes from Mark Mahaney at Evercore ISI.

Unknown Executive: Okay. Thank you for your question. Our next question comes from Mark Mahaney at Evercore ISI.

Unknown Executive: Our next question comes from Mark Mahaney at Evercore ISI. Ian Peterson. Hi, this is Ian Peterson on behalf of Mark.

Ian Peterson: Ian Peterson.

Unknown Executive: This is Ian Peterson on for Mark.

Speaker Change: Can you help us unpack the Q2 guide a little bit more and the puts and takes in your high teens year over year revenue guide.

Mark Mahaney: Big as the FX headwind embedded in the guide.

Mark Mahaney: How should we think about the balance between subscription version versus merchant solutions in the quarter, given the price increases flowing through more enterprise customers coming online. Thanks.

Unknown Executive: Yeah, I'll go ahead and start on that one. Thanks, Ian.

Mark Mahaney: Yeah I'll go ahead and start on that one thanks, Ian so.

Ian Peterson: A reminder, that I want to go back to this is the largest impact I mentioned this in my comments earlier, the largest impact in comparison between Q1 and Q2 growth rates is this dynamic of the pricing changes and you really have Q2s. This quarter were effectively the year over year lift of the standard plan pricing changes is waning before you really get.

Ian Peterson: The ramp in terms of what we're seeing on the plus pricing and before that has really kicked in that is the biggest driver.

Ian Peterson: The other driver and really when you take that in isolation don't forget obviously, all the great things that we're doing in terms of what we're seeing Harley alluded to this in terms of the strength of all of other products. The merchant additions are strong across all of standard plus and point of sale as I talked about as it relates to them or our numbers payments enterprise plus point of sale BTB, either all going really really well.

Ian Peterson: So those are the key takeaways I did obviously as it relates to some of the broader economic factors that I mentioned in my in my comments earlier. There is some there is some impact from the strengthening of the U S dollar.

Ian Peterson: There is also actually when you look at the Q1 growth rate that had a year over year impact from leap year, which is roughly you just think about the number of days in a quarter is roughly 100 basis points tailwind to the to the growth rate. So if you want to quote normalized Q1 growth rates, that's something to keep in mind, and then Europe and most specifically the U K, where we are seeing.

Ian Peterson: In some economic slowdown as I mentioned earlier, but but please do keep this in perspective and as you go back to our annual report last year. You noted that we mentioned for 2023 EMEA as a whole was 18% of revenues for the year in the U K is just one piece of that and we've obviously and Harley mentioned in just a few moments ago.

Ian Peterson: We've obviously been talking in the past few quarters about the growth rates in the high Thirty's for EMEA.

Ian Peterson: So we have been doing exceptionally well there and we expect to continue to outgrow the market not only in Europe, but also more importantly, North America. So.

Unknown Executive: So a reminder that I want to go back to this is the largest impact. I mentioned this in my comments earlier; the largest impact in comparison between Q1 and Q2 growth rates is this dynamic of the pricing changes. And you really have Q2s this quarter where the effective year over year lift in the standard plan pricing changes is waning before you really get the ramp in terms of what we're seeing on the plus pricing and before that's really kicked in.

Ian Peterson: It is this pricing change impact, which is the biggest factor for Q2 and.

Ian Peterson: And again I think our merchant acquisition engine in our product suite are performing really well. So we feel good about the strength of the business right now.

Unknown Executive: And we've obviously, and Harley mentioned it just a few moments ago, we've obviously been talking in the past few quarters about growth rates in the high 30s for EMEA. So we have been doing exceptionally well there, and we expect to continue to outgrow the market, not only in Europe but also, more importantly, in North America. So it is this pricing change impact that is the biggest factor for Q2. And again, I think our merchant acquisition engine and our product suite are performing really well.

Ian Peterson: Thank you for your question.

Ian Peterson: Our next question will come from Michael Martin at Moffett Nathan.

Unknown Executive: That is the biggest driver. The other driver, and really, when you take that in isolation, don't forget, obviously, all the great things that we're doing in terms of what we're seeing, Harley alluded to this in terms of the strength of all of our other products, the merchant additions are strong across all of standard plus and point of sale, as I talked about, as it relates to MRR numbers, payments, enterprise plus point of sale, B2B, they So those are the key takeaways.

Speaker Change: Good morning, Thank you for the question.

Unknown Executive: I did, obviously, as it relates to some of the broader economic factors that I mentioned in my comments earlier, there is some impact from the strengthening of the U.S. dollar. There is also, actually, when you look at the Q1 growth rate, that had a year over year impact from leap year, which is roughly, just think about the number of days in a quarter. That is roughly 100 basis points of tailwind to the growth rate.

Unknown Executive: So if you want to, quote, normalize Q1 growth rates, that's something to keep in mind. And then Europe, and most specifically the UK, where we are seeing some economic slowdown, as I mentioned earlier, but please do keep this in perspective. And as you go back to our annual report last year, you will see that we mentioned for 2023, EMEA as a whole was 18% of revenues for the year, and the UK is just one piece of that.

Unknown Executive: The number one question, we get from investors is the impact that the growth in enterprise will have on the attach rate.

Unknown Executive: Just really tricky to try to forecast it from the outside.

Unknown Executive: Yeah.

Speaker Change: Probably not growing as quickly as some people might expect at the moment would just love to hear some more about the moving parts behind this as we see success in the enterprise.

Unknown Executive: How investors should think about the attach rate going forward. Thank you.

Unknown Executive: Michael I'll take that question, so first and foremost the enterprise is really continue to get some traction here with the way that we think about it is that.

Unknown Executive: There are a bunch of different ways of very large enterprises can use shopify and not every one of them. Once you know somewhat headless, Nick and use hydrogen or else and also remixed somewhat plus this one size fits all out of the box and those that don't want out of the box, we have CSS as well, but we're now offering something for every enterprise level brand that takes all of the value of plus.

Unknown Executive: And wraps into the needs of a very complex high volume brands I mentioned ever Lane previously mentioned coach on the call today, we're seeing more of these brands that historically didn't necessarily look to shopify come to US now to take one component. We believe over time, they will take more of those components now the the product attach rate is really important to us because it's a proxy for that.

Unknown Executive: We're adding from all of the products that we have whether it's something like capital or its payments or any of the other point of sale. For example, any of the other solutions that we think are really important for merchants to be utilizing to build their business.

Unknown Executive: But in the case of enterprise in particular, I think the reason that you're seeing overstock and park box, an inner sport and skull Candy all of these brands coming to US at this increased clip is because this is by far the best product and the total cost of ownership. We just had an independent study validate this the total cost of ownership for Shopify is enterprise offering is 36.

Unknown Executive: Percent better than competitors that is unbelievable I mean, the value to cost ratio is so far on the side of value here and Theyre suite choosing shop. It because it's a great product, it's a great value and we'll continue to see that as well now in terms of directly answering your question on the attach rate over time, what we do see is that more and more merchants take more of our solutions.

Unknown Executive: As they fully integrate into the platform. So think about these things like CSS and and hydrogen and plus as on ramps into the enterprise product, but once they're in the enterprise product, we have the opportunity to show them better value on things like payments for example, better value on things get them using audiences. For example, that's sort of the model here and when you add on top of that.

Unknown Executive: Much more aggressive go to market effort, which frankly is is we've been working on now for call. It 24 months, you're seeing the fruits of those labors and so I think you'll continue to see that as well, but over time, we like that the the product attach you can use to grow again, it's a proxy for the value we create for the people that use our <unk>.

Unknown Executive: <unk>.

Unknown Executive: So we feel good about the strength of the business right now. Thank you for your question. Our next question will come from Michael Morton at Moffitt Mason. Good morning. Thank you for the question. The number one question we get from investors is impact.

Unknown Executive: Okay. Thank you for your question. Our next question comes from Martin <unk> at a T D capital.

Unknown Executive: Good morning, Thanks for taking my questions.

Unknown Executive: Free cash flow margins has been greater than adjusted Op income margins last two quarters is that something we should expect will continue.

Michael Morton: Well, yeah from a free cash flow margin perspective versus operating income there is a few things in play but yeah in general its been and we expect it to continue to be a few points higher.

Michael Morton: So and that's just a function of how you think about our P&L and kind of how that flows through the through the P&L, but yes.

Unknown Executive: Our next question will come from Michael Morton at Moffitt Mason.

Michael Morton: Okay. Our next question will come from Andrew Baum at Wells Fargo.

Unknown Executive: Hey Michael, I'll take that question. So first and foremost, Enterprise is really committed to getting some traction here. The way that we think about it is that there are a bunch of different ways that very large enterprises can use Shopify. And not every one of them wants, you know, someone headless, and they can use hydrogen and also remix, someone plus this one size fits all out of the box. And those that don't want to go out of the box, we have CSS as well.

Michael Morton: Hey, Thanks for taking the question just wanted to unpack the shop pay growth.

Michael Morton: Re straight quarters over 50%.

Michael Morton: At Harley you mentioned the off platform opportunity and its interplay with commerce components really starting to show traction. So you get a sense on what the drivers of shop base growth are at this point and what does the pipeline look like for shop pay off platform as we get into the back half of this year.

Unknown Executive: Yeah I mean.

Unknown Executive: Simply put shop pays the highest converting sorry to check out on the internet it converts 36% better than competition and 15% more on average there is now a 150 million buyers of $150 million that have opted into sharpei and for Q1 alone. We facilitate a $14 billion of Jimmy that's a 56% year on year I think total cumulative it's about 140 billion.

Unknown Executive: So far so.

Unknown Executive: I think I mean people are coming to shop at one of your shop pay because frankly, even the mere presence of shop pay on the check it even if it's not us resulting in a 5% higher conversion, it's becoming a really bad idea for any brand or any retailer on the planet to not use it and so we like the fact that people are coming to us specifically for shop pay again it allows us to begin a business.

Unknown Executive: And ship with brands that maybe historically, we had not otherwise spoken too, but we're going to continue to make shopping the default check out on the internet and we do that because its faster it reduces friction and ultimately drives greater adoption by both merchants and ultimately for more buyers, which means it's it.

Unknown Executive: But we're now offering something for every enterprise-level brand that takes all the value of plus and wraps it into the needs of very complex, high-volume brands. You know, I mentioned Everlane previously, I mentioned Coach on the call today; we're seeing more of these brands that historically didn't necessarily look to Shopify come to us now to take one component. We believe over time, they will take more of those components. Now, product attachment is really important to us because it's a proxy for the value we're adding from all the products that we have, whether it's something like capital, or it's payments, or any of the other points of sale, for example, any of the other solutions that we think are really important for merchants to be using to build their business.

Unknown Executive: Merchants want it.

Unknown Executive: But it's we think we're really excited by it we're very focused on making it easier to check out of a shop pay in an extended two way more surfaces and I. The pipeline for shop pay is something that is new but very very exciting.

Unknown Executive: But in the case of Enterprise in particular, I think the reason that you're seeing Overstock and BarkBox and Innersport and Skullcandy, all these brands coming to us at this increased clip is because this is by far the best product and the total cost of ownership, we just had an independent study validate this, the total cost of ownership for Shopify's Enterprise offering is 36% better than competitors. That is unbelievable.

Unknown Executive: And our last question will come from Samad Samana Jefferies.

Unknown Executive: I mean, the value to cost ratio is so far on the side of value here, and they're choosing Shopify because it's a great product. It's a great value.

Speaker Change: Hi, Good morning, Thanks for squeezing me in I appreciate it so I wanted to ask a question maybe on the on that.

Unknown Executive: And we'll continue to see that as well. Now, in terms of directly answering your question on the attach rate, over time, what we do see is that more and more merchants adopt more of our solutions as they fully integrate into the platform. So think about these things like CSS and hydrogen and plus as ramps into the Enterprise product. But once they're in the Enterprise product, we have the opportunity to show them better value on things like payments, for example, better value on using audiences, for example. That's sort of the model here.

Unknown Executive: Point of sale GMB and point of sale MRI, Jeff I know you guys offline revenue targets last year at the analyst day, which is really helpful. Could you give us any sense of maybe what the <unk> contribution from point of sale is and maybe how you're expecting that overall point of sale growth. This year and then.

Unknown Executive: And when you add on top of that, a much more aggressive go-to-market effort, which frankly is what we've been working on now for 24 months, you're seeing the fruits of those labors. And so I think you'll continue to see that as well. But over time, we like that product attachment continues to grow. Again, it's a proxy for the value we create for the people that use Shopify. Okay, thank you for your question. Our next question comes from Martin Toner at ATB Capital.

Unknown Executive: Okay, thank you for your question. Our next question comes from Martin Toner at ATV Capital.

Unknown Executive: Well, yeah, from a free cash flow margin perspective versus operating income, there are a few things in play. But yeah, in general, it's been, and we expect it to continue to be, a few points higher. So I, and that's just a function of how you think about our P&L and kind of how that flows through the P&L. But yeah, Okay, our next question will come from Andrew Bauch at Wells Fargo. Hey, thanks for taking the question. I just wanted to unpack the shop pay.

Unknown Executive: Okay, our next question will come from Andrew Bauch at Wells Fargo.

Speaker Change: Got to make it a multi parter, but just trying to understand maybe what that <unk>.

Unknown Executive: Offline market dynamics are versus online. Thanks again for squeezing me in appreciate it.

Martin Toner: Yeah of course.

Martin Toner: A couple of things on that model.

Martin Toner: Terms of the some of the growth rates in some of the sizing that we talked about at the Investor day regarding retail point of sale.

Andrew Bauch: That is consistent in terms of how that business is performing as strong as our core business is performing the offline piece continues to perform at an even higher level. So that is something obviously, which from our vantage point is is a great thing and it's a testimony to a lot of merchants Harley you talked a little bit about especially some of the larger multilocation REIT.

Andrew Bauch: Tail merchants that are using point of sale more and more and it's also helpful for them their vantage point to use our platform as obviously they can look at one tech stack and basically say all right I have the best technology, the best textile on the online side and now I have the best on the offline side as well really all do that from one pane of glass one set of data analysis.

Unknown Executive: This et cetera, it's been a really really compelling.

Andrew Bauch: <unk> value proposition I guess for lack of a better way of saying it and so that's what's been one of the things that's been fueling the growth and we're doing a lot and we've talked to maybe a couple of quarters ago as it relates to things like installments, where we're taking them some odd from our core online business and adding them to the offline offering that we're giving to.

Andrew Bauch: To retailers and we continue to expand the countries that we're in with point of sale. So that being said we don't in terms of the attach rate. We just don't have the number of just in terms of sheer number. We don't have the same number of offerings for point of sale that we also have an online but that's also an opportunity because we're going to be able to migrate more and more functionality to the point of sale and so over time.

Andrew Bauch: The attach rate and some of the the.

Andrew Bauch: The opportunities overall are going to going to increase.

Andrew Bauch: As I believe you know the point of sale the retail piece for US is primarily a payments piece. There is obviously the subscription element to that those two make up the significant majority of the revenues that we get from from retail.

Andrew Bauch: Unfortunately, we're not breaking out as it relates to percentage of MRO or what is exactly retail, but you can expect as we again kind of continuation of the trend as I alluded to before so.

Andrew Bauch: It's doing really well.

Andrew Bauch: It's a function of all the things go poorly and I've covered so without maybe early I'll turn it back to you Yeah. Let me let me just close that before we finish the call because I just want to say one thing that I think may be getting lost here, but it's really important we just delivered 29% pro forma revenue growth and 12% free cash flow margins now for Q2, our outlet points, so free cash flow margins.

Andrew Bauch: Similar to the 12% we achieved in Q1 and that combined with pro forma revenue growth in the low to mid twenties. I mean, this business can do something very rare and unique relative to almost every single company on the planet, we can deliver growth and margins, all while creating and leaning into opportunities that enhance our growth in the future and so I just I think it is important to say like a strength of this biz.

Andrew Bauch: This means we can accomplish all three of those things and build a much stronger company longer term. This is what the best companies do and I think this is how you achieve long term drove durable growth.

Andrew Bauch: And I've never been more excited about shopify about our business and I've never been borne proud to work with this world class team I think this is the best version of Shopify EVAR and.

Andrew Bauch: And thank you so much for joining us today on the call.

Unknown Executive: year. Yeah, I mean, simply put, ShopPay is the highest converting seller to checkout on the internet. It converts 36% better than the competition and 15% more on average. There are now 150 million buyers, and 150 million that have opted into ShopPay. And for Q1 alone, we facilitated $14 billion of GMB. That's 56% year-on-year. I think total cumulative, it's about $140 billion so far.

Speaker Change: This concludes our first quarter 2024 conference call.

Andrew Bauch: Thank you.