PresentationAll right. So we'll get kicked off here. Thank you, everyone, for joining us. My name is Keith Weiss. I run the U.S. software equity research franchise here at Morgan Stanley. And very pleased to have with us from Shopify, CFO, Jeff Hoffmeister. Jeff, thank you for joining us.Keith WeissMorgan Stanley, Research Division So super exciting time at Shopify. I feel like it's always super exciting time at Shopify. A lot of stuff to talk about. I'm actually going to start at the bottom of my question ...

Summary of Shopify Conference Call Company Overview - **Company**: Shopify - **Participants**: Jeff Hoffmeister (CFO), Tyler Radke (MD & Senior Equity Research Analyst - Software) Key Points Company Performance and Strategy - Shopify has focused on improving free cash flow and cash flow margins since the CFO joined, emphasizing the health of the business and future investments [3][4][6] - The company has made strategic changes, including exiting the logistics business and enhancing operational efficiency [5][6] - Shopify's revenue growth was reported at 31% last quarter, with strong performance across various merchant sizes in both Europe and the U.S. [9][12][13] Market Trends and E-commerce Environment - Shopify has observed strong GMV (Gross Merchandise Volume) growth rates, particularly in Europe, where growth rates are 4 to 5 times higher than the overall e-commerce growth rates [14][15] - The company is actively helping merchants adapt to changes in the e-commerce landscape, including tariff impacts and de minimis exemptions [19][21] International Expansion - International markets, particularly Europe, represent a significant growth opportunity, accounting for roughly 25% of Shopify's business [31][56] - Shopify has introduced new products and payment solutions in various European countries, enhancing its market presence [32][33] Merchant Solutions and Product Innovation - Merchant Solutions, including payments, tax, and installments, are key growth drivers for Shopify [54][60] - The company is focusing on B2B opportunities and expanding its enterprise solutions, which have seen increased adoption among larger merchants [57][66] AI and Technology Integration - Shopify is leveraging AI to enhance merchant support and operational efficiency, with initiatives like Sidekick aimed at providing personalized assistance to merchants [45][48][75] - The integration of AI is seen as a way to maintain flat headcount while continuing to grow revenue [76][77] Financial Outlook and Efficiency - Shopify aims to maintain free cash flow margin improvements and is exploring further efficiency gains through technology and AI [75][76] - The company has not seen significant impacts from tariffs on its operations, and it continues to monitor trade routes and supply chain dynamics [22][24] Competitive Landscape - Shopify is positioning itself as a strong alternative to homegrown solutions and legacy systems, particularly in the enterprise space [68][69] - The company is focused on building partnerships and enhancing its platform capabilities to attract larger merchants [64][66] Additional Insights - Shopify's marketing strategy includes a diversified approach to lead generation, with a focus on real-time data analysis to optimize marketing spend [39][40] - The company is cautious about the evolving landscape of AI and its monetization strategies, focusing on integrating AI features into the platform rather than charging separately for them [48][49] This summary encapsulates the key insights and strategic directions discussed during the Shopify conference call, highlighting the company's performance, market trends, and future growth opportunities.

Financial Data and Key Metrics Changes - In Q1 2025, the company reported a non-GAAP operating income of $7.6 million, reflecting a margin improvement of 530 basis points year over year [10] - The annual revenue run rate (ARR) reached $351 million, a year-over-year increase of 3% [25] - Total revenue for the quarter was $82.4 million, also growing 3% year over year, with operating cash flow approximately $400,000, an improvement of nearly $4 million year over year [10][25] - Non-GAAP gross margin strengthened to 80.3%, up 240 basis points year over year, while non-GAAP operating income margin finished at 9.2%, up 530 basis points from Q1 2024 [25] Business Line Data and Key Metrics Changes - The company serves 5,825 enterprise accounts, with average revenue per enterprise account exceeding $45,000, a 9% increase year over year [25] - B2B continues to grow as a percentage of overall business, with new capabilities tailored to complex B2B needs being released [15][16] - In B2C, the company is focusing on operationally complex categories outside traditional sectors, achieving successful launches with brands like Euro Optic and Kittery Trading Post [17][18] Market Data and Key Metrics Changes - The company is closely monitoring global trade and tariff changes, which could impact customers operating across borders [28] - Partner and services revenue (PSR) constitutes approximately 25% of total revenues, driven by transaction volumes from technology partners [28] Company Strategy and Development Direction - The company has set three strategic priorities for 2025: accelerating revenue growth profitably, disciplined operational execution, and executing a go-to-market transformation plan [9] - Key initiatives include launching a self-serve version of MakeSwift and Feedonomics, and developing bundled solutions with partners [20][21] - AI is a major focus area, with plans to leverage AI for sales and support efficiency, as well as enhancing product data syndication [22][23] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that 2025 will be challenging but sees tremendous opportunities ahead [11] - The company is maintaining a cautious view on macroeconomic uncertainties and is prepared to provide flexible solutions to customers [28][29] - Guidance for Q2 expects revenue between $82.5 million and $83.5 million, with a full-year revenue guidance range widened to $335 million to $351 million [30] Other Important Information - The company has reduced its net debt position to $32.2 million, a 59% decrease year over year [26] - The leadership team has been strengthened with new hires in key positions, enhancing product and engineering capabilities [14] Q&A Session Summary Question: Can you discuss the encouraging signs mentioned regarding the pipeline? - Management noted a significant increase in the size of the pipeline, particularly in B2B, and highlighted the completion of the leadership team as a positive internal indicator [35] Question: How flexible is the company regarding investment levels in light of macro changes? - Management indicated a cautious approach to spending while maintaining the ability to invest in high ROI areas, particularly in AI [39][40] Question: What is the status of the payment strategy and its integration with existing partners? - The company aims to provide optionality to customers, with Klarna becoming a preferred partner and plans for an integrated payment solution expected in early 2026 [54][56] Question: How does the company handle potential downgrades in subscription tiers due to GMV changes? - Management explained that their pricing model is based on order volume, which moderates the impact of sudden changes in GMV, making revenue more predictable [60][61] Question: What is the profile of the new sales representatives added? - The company is focusing on hiring experienced sales representatives while also bringing in younger talent, with an expected onboarding period of about six months [66][70] Question: What needs to happen for the company to reach the high end of its guidance? - Management indicated that continued pipeline growth and effective marketing investments are crucial, while avoiding recessionary pressures is also important [48][49]