Shopify : Condensed Consolidated Balance Sheets - Form 6-K
July 27, 2022 at 07:14 am EDT
Share
Shopify Inc.
Condensed Consolidated Balance Sheets
(unaudited)
Expressed in US $000's except share amounts
As at
June 30, 2022
December 31, 2021
Note
$
$
Assets
Current assets
Cash and cash equivalents
4
3,350,781
2,502,992
Marketable securities
4
3,604,010
5,265,101
Trade and other receivables, net
5
238,723
192,209
Merchant cash advances, loans and related receivables, net
6
537,790
470,722
Income taxes receivable
15
13,213
5,023
Other current assets
113,247
103,273
7,857,764
8,539,320
Long-term assets
Property and equipment, net
114,207
105,526
Right-of-use assets, net
7
224,555
196,388
Intangible assets, net
133,129
138,496
Deferred tax assets
15
44,763
48,369
Equity and other investments ($1,016,122 and $3,412,166, carried at fair value)
4
1,993,867
3,955,545
Goodwill
8
379,345
356,528
2,889,866
4,800,852
Total assets
10,747,630
13,340,172
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities
419,408
456,688
Income taxes payable
15
4,125
13,505
Deferred revenue
5
254,007
216,792
Lease liabilities
7
25,668
15,748
703,208
702,733
Long-term liabilities
Deferred revenue
5
159,405
162,932
Lease liabilities
7
254,417
246,776
Convertible senior notes
9
912,137
910,963
Deferred tax liabilities
15
1,335
183,427
1,327,294
1,504,098
Commitments and contingencies
7, 11
Shareholders' equity
Common stock, unlimited Class A subordinate voting shares authorized, 1,180,931,290 and 1,139,544,920, issued and outstanding; unlimited Class B restricted voting shares authorized, 81,933,630 and 119,426,670 issued and outstanding; 1 Founder share authorized, 1 and nil issued and outstanding (1)(2)
13
8,244,560
8,040,099
Additional paid-in capital
221,858
161,074
Accumulated other comprehensive loss
14
(9,117)
(5,974)
Retained earnings
259,827
2,938,142
Total shareholders' equity
8,717,128
11,133,341
Total liabilities and shareholders' equity
10,747,630
13,340,172
(1) Prior period share amounts have been adjusted to reflect the ten-for-one share split ("Share Split") effected in June 2022. See Note 13 for details.
(2) As a result of the implementation of the updated governance structure in June 2022, Class B multiple voting shares are now described as Class B restricted voting shares.
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Shopify Inc.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(unaudited)
Expressed in US $000's, except share and per share amounts
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Note
$
$
$
$
Revenues
Subscription solutions
366,443
334,237
711,204
654,918
Merchant solutions
928,620
785,208
1,787,482
1,453,174
1,295,063
1,119,445
2,498,686
2,108,092
Cost of revenues
Subscription solutions
85,238
63,027
162,783
121,409
Merchant solutions
554,183
435,558
1,042,624
807,107
639,421
498,585
1,205,407
928,516
Gross profit
655,642
620,860
1,293,279
1,179,576
Operating expenses
Sales and marketing
326,902
201,910
630,273
388,133
Research and development
346,667
183,557
650,328
359,443
General and administrative
129,901
77,966
237,989
145,068
Transaction and loan losses
42,380
17,986
62,873
28,592
Total operating expenses
845,850
481,419
1,581,463
921,236
(Loss) income from operations
(190,208)
139,441
(288,184)
258,340
Other (expense) income, net
Interest income
12,505
3,092
18,694
5,922
Interest expense
9
(869)
(870)
(1,743)
(1,743)
Net realized gain on equity and other investments
4
1,461
-
123,783
-
Net unrealized (loss) gain on equity and other investments
4
(1,018,478)
777,749
(2,695,920)
2,028,693
Foreign exchange loss
(2,661)
(97)
(7,737)
(2,353)
Total other (expense) income, net
(1,008,042)
779,874
(2,562,923)
2,030,519
(Loss) income before income taxes
(1,198,250)
919,315
(2,851,107)
2,288,859
(Provision for) recovery of income taxes
15
(5,657)
(40,222)
172,792
(151,321)
Net (loss) income
(1,203,907)
879,093
(2,678,315)
2,137,538
Net (loss) income per share attributable to shareholders(1):
Basic
16
$
(0.95)
$
0.71
$
(2.12)
$
1.73
Diluted
16
$
(0.95)
$
0.69
$
(2.12)
$
1.68
Weighted average shares used to compute net (loss) income per share attributable to shareholders(1):
Basic
16
1,262,011,665
1,245,475,010
1,261,069,535
1,238,991,770
Diluted
16
1,262,011,665
1,274,750,630
1,261,069,535
1,270,753,524
Other comprehensive loss
Unrealized loss on cash flow hedges
14
(11,774)
(3,733)
(3,084)
(7,439)
Tax effect on unrealized loss on cash flow hedges
14
2,244
990
(59)
1,972
Total other comprehensive loss
(9,530)
(2,743)
(3,143)
(5,467)
Comprehensive (loss) income
(1,213,437)
876,350
(2,681,458)
2,132,071
(1) Prior period share and per share amounts have been adjusted to reflect the Share Split effected in June 2022. See Note 13 for details.
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Shopify Inc.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
Expressed in US $000's except share amounts
Common Stock
Additional
Paid-In Capital
$
Accumulated Other Comprehensive Income
$
Retained Earnings
$
Total
$
Note
Shares(1)
Amount
$
As at December 31, 2020
1,225,288,710
6,115,232
261,436
8,770
15,285
6,400,723
Adjustment related to the adoption of ASU 2020-06, Debt
-
-
(158,810)
-
8,198
(150,612)
As at January 1, 2021
1,225,288,710
6,115,232
102,626
8,770
23,483
6,250,111
Exercise of stock options
3,497,300
35,681
(12,756)
-
-
22,925
Stock-based compensation
-
-
69,156
-
-
69,156
Vesting of restricted share units
2,687,110
66,113
(66,113)
-
-
-
Issuance of Class A subordinate voting shares, net of offering costs of $7,742, net of tax of $2,790
13
11,800,000
1,543,958
-
-
-
1,543,958
Net income and comprehensive income for the period
-
-
-
(2,724)
1,258,445
1,255,721
As at March 31, 2021
1,243,273,120
7,760,984
92,913
6,046
1,281,928
9,141,871
Exercise of stock options
2,689,580
31,828
(11,463)
-
-
20,365
Stock-based compensation
-
-
81,958
-
-
81,958
Vesting of restricted share units
1,671,700
45,012
(45,012)
-
-
-
Net income and comprehensive income for the period
-
-
-
(2,743)
879,093
876,350
As at June 30, 2021
1,247,634,400
7,837,824
118,396
3,303
2,161,021
10,120,544
(1) Prior period share amounts have been adjusted to reflect the Share Split effected in June 2022. See Note 13 for details.
4
Shopify Inc.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
Expressed in US $000's except share amounts
Common Stock
Additional
Paid-In Capital
$
Accumulated Other Comprehensive Income (Loss)
$
Retained Earnings
$
Total
$
Shares(1)
Amount
$
As at December 31, 2021
1,258,971,590
8,040,099
161,074
(5,974)
2,938,142
11,133,341
Exercise of stock options
1,055,130
10,707
(4,421)
-
-
6,286
Stock-based compensation
-
-
117,989
-
-
117,989
Vesting of restricted share units
1,339,300
100,072
(100,072)
-
-
-
Net loss and comprehensive loss for the period
-
-
-
6,387
(1,474,408)
(1,468,021)
As at March 31, 2022
1,261,366,020
8,150,878
174,570
413
1,463,734
9,789,595
Exercise of stock options
316,540
3,085
(1,534)
-
-
1,551
Stock-based compensation
-
-
139,419
-
-
139,419
Vesting of restricted share units
1,182,360
90,597
(90,597)
-
-
-
Issuance of the Founder share
1
-
-
-
-
-
Net loss and comprehensive loss for the period
-
-
-
(9,530)
(1,203,907)
(1,213,437)
As at June 30, 2022
1,262,864,921
8,244,560
221,858
(9,117)
259,827
8,717,128
(1) Prior period share amounts have been adjusted to reflect the Share Split effected in June 2022. See Note 13 for details.
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Shopify Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Expressed in US $000's
Six months ended
June 30, 2022
June 30, 2021
Note
$
$
Cash flows from operating activities
Net (loss) income for the period
(2,678,315)
2,137,538
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Amortization and depreciation
33,073
30,463
Stock-based compensation
257,408
151,114
Amortization of debt offering costs
9
1,174
1,171
Provision for transaction and loan losses
32,073
14,855
Deferred income tax (recovery) expense
(180,405)
128,344
Revenue related to non-cash consideration
5
(53,665)
(18,121)
Net loss (gain) on equity and other investments
4
2,612,133
(2,028,693)
Unrealized foreign exchange loss
15,940
1,451
Changes in operating assets and liabilities:
Trade and other receivables
(55,657)
(27,406)
Merchant cash advances, loans and related receivables
(97,290)
(188,083)
Other current assets
(10,891)
(16,497)
Non-cash consideration received in exchange for services
5
(76,726)
(192,300)
Accounts payable and accrued liabilities
(39,095)
(10,162)
Income taxes receivable and payable
(19,049)
6,753
Deferred revenue
87,353
207,787
Lease assets and liabilities
(5,788)
3,890
Net cash (used in) provided by operating activities
(177,727)
202,104
Cash flows from investing activities
Purchase of marketable securities
(2,033,099)
(4,149,857)
Maturity of marketable securities
3,689,564
2,437,951
Purchase of equity and other investments
4
(569,649)
(401,874)
Acquisitions of property and equipment
(28,489)
(13,451)
Acquisition of businesses, net of cash acquired
(30,008)
-
Net cash provided by (used in) investing activities
1,028,319
(2,127,231)
Cash flows from financing activities
Proceeds from public equity offerings, net of issuance costs
13
-
1,541,168
Proceeds from the exercise of stock options
7,837
43,290
Net cash provided by financing activities
7,837
1,584,458
Effect of foreign exchange on cash and cash equivalents
(10,640)
1,742
Net increase (decrease) in cash and cash equivalents
847,789
(338,927)
Cash and cash equivalents - Beginning of Period
2,502,992
2,703,597
Cash and cash equivalents - End of Period
3,350,781
2,364,670
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities included in cash flows from operating activities
18,288
13,253
Lease liabilities arising from obtaining right-of-use assets
40,887
12,207
Acquired property and equipment remaining unpaid
6,950
2,264
Cash paid for income taxes, net
25,332
15,838
Cash paid for interest
575
712
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
1.Nature of Business
Shopify Inc. ("Shopify" or the "Company") was incorporated as a Canadian corporation on September 28, 2004. Shopify is a leading provider of essential internet infrastructure for commerce, offering trusted tools to start, grow, market, and manage a retail business of any size. Shopify makes commerce better for everyone with a platform and services that are engineered for simplicity and reliability, while delivering a better shopping experience for consumers everywhere. The Company's software enables merchants to run their business across all of their sales channels, including web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces. The Shopify platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, fulfill and ship orders, build customer relationships, source products, leverage analytics and reporting, and access financing, all from one integrated back office.
Founded in Ottawa, Canada, the Company's principal place of business is the internet.
2.Basis of Presentation and Consolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and its directly and indirectly held wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.
These unaudited condensed consolidated financial statements of the Company have been presented in United States dollars ("USD") and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), including the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of its financial position, results of operations and comprehensive (loss) income, changes in shareholders' equity and cash flows for the interim periods. The financial statements should be read in conjunction with the audited consolidated financial statement and notes thereto for the year ended December 31, 2021. The condensed consolidated balance sheet at December 31, 2021 was derived from the audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.
The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the full fiscal year.
3.Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies during the three and six months ended June 30, 2022, as compared to the significant accounting policies described in the Company's annual consolidated financial statements for the year ended December 31, 2021.
Use of Estimates
The preparation of consolidated financial statements, in accordance with U.S. GAAP, requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the estimates made by management. Significant estimates, judgments and assumptions in these condensed consolidated financial statements include: key judgments related to revenue recognition in determining whether the Company is the principal or an agent to the arrangements with merchants; estimates of expected credit losses related to financial assets measured at amortized cost, including contract balances and merchant cash advances and loans; inputs used to fair
7
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
value acquired intangible assets; inputs used to fair value equity and other investments in private companies and debt securities, as well as estimates and judgments involved in applying the measurement alternative, including the Company's assessment to evaluate whether an investment is impaired through analyzing market conditions, business results and other qualitative measures and to measure the amount of that impairment, when applicable, by developing certain key assumptions, including revenue growth rates, revenue multiples based on market comparables and a discount for lack of marketability; probabilities of achieving performance milestones associated with non-cash revenue consideration from strategic partnerships; estimates involved in evaluating the recoverability of the Company's right-of-use assets and leasehold improvements, including, but not limited to, the estimated useful lives of right-of-use assets and leasehold improvements; the incremental borrowing rate applied to lease payments; and the probability and amount of loss contingencies.
Concentration of Credit Risk
The Company's cash and cash equivalents, marketable securities, trade and other receivables, merchant cash advances, loans and related receivables, equity and other investments, debt securities and foreign exchange derivative products subject the Company to concentrations of credit risk. Management mitigates this risk associated with cash and cash equivalents by making deposits and entering into foreign exchange derivative products only with large banks and financial institutions that are considered to be highly creditworthy. Management mitigates the risks associated with marketable securities by adhering to its investment policy, which stipulates minimum rating requirements, maximum investment exposures and maximum maturities. Due to the Company's diversified merchant base, there is no particular concentration of credit risk related to the Company's trade and other receivables and merchant cash advances and loans receivable. Trade and other receivables and merchant cash advances and loans receivable are monitored on an ongoing basis to ensure timely collection of amounts. The Company notes that its exposure to collectibility risk by customers impacted by the Russian invasion of Ukraine is financially immaterial. The Company has mitigated some of the risks associated with Shopify Capital by opening insurance policies with Export Development Canada ("EDC"), a wholly-owned corporation of the Government of Canada, who is AAA rated as at June 30, 2022. The Company's policies cover certain merchant cash advances and loans, subject under certain policies to minimum claim requirements and regional restrictions. The Company pays EDC a monthly premium based on total eligible dollars advanced, and records this as general and administrative expense in the condensed consolidated statements of operations and comprehensive (loss) income. All policies include a deductible set at either a specified dollar loss threshold or calculated as a percentage of eligible advances issued. After considering the Company's deductible and the insurer's maximum liability under the policies, the majority of the Company's gross outstanding balance of merchant cash advances and loans as at June 30, 2022 is covered. The receivable related to insurance recoveries, if any, is included in the merchant cash advances, loans and related receivables balance. The Company mitigates the risks associated with its equity and other investments and debt securities through its diligence process performed prior to investing. The Company has a high concentration of credit risk associated with a small number of equity and other investments that are impacted by fluctuations in their fair values or by observable changes or impairments. There are no receivables from individual merchants accounting for 10% or more of revenues or receivables.
Foreign Exchange Risk
The Company's results of operations and foreign currency assets and liabilities are exposed to foreign currency fluctuations.
While the majority of the Company's revenues, cost of revenues, and operating expenses are denominated in USD, a significant portion are denominated in foreign currencies. Due to offering Shopify Payments, subscriptions, and other billings to select countries in local currency, a significant proportion of revenue transactions are denominated in British pound sterling ("GBP"), Euros ("EUR"), and Canadian dollars ("CAD"). Furthermore, as the Company's operations continue to be heavily weighted in CAD and as
8
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
operations continue to expand internationally, a significant proportion of operating expenses are also incurred in these foreign currencies.
The following table summarizes the effects on revenues, cost of revenues, operating expenses, and (loss) income from operations of a 10% strengthening(1) of all foreign currencies the Company transacts in versus the USD without considering the impact of the Company's hedging activities and factoring in any potential changes in demand for the Company's solutions as a result of fluctuations in exchange rates:
Six months ended
June 30, 2022
June 30, 2021
GAAP Amounts As Reported
$
Exchange Rate Effect (2)
$
At 10% Stronger Rates (3)
$
GAAP Amounts As Reported
$
Exchange Rate Effect (2)
$
At 10% Stronger Rates (3)
$
Revenues
2,498,686
31,920
2,530,606
2,108,092
27,287
2,135,379
Cost of revenues
(1,205,407)
(22,773)
(1,228,180)
(928,516)
(18,559)
(947,075)
Operating expenses
(1,581,463)
(54,867)
(1,636,330)
(921,236)
(38,118)
(959,354)
(Loss) income from operations
(288,184)
(45,720)
(333,904)
258,340
(29,390)
228,950
(1) A 10% weakening of the foreign currencies versus the USD would have an equal and opposite impact on the Company's revenues, cost of revenues, operating expenses and (loss) income from operations as presented in the table.
(2) Represents the increase or decrease in GAAP amounts reported resulting from a 10% strengthening in foreign exchange rates relative to the USD.
(3) Represents the outcome that would have resulted had the foreign exchange rates relative to the USD in those periods been 10% stronger than they actually were, excluding the impact of our hedging program and without factoring in any potential changes in demand for the Company's solutions as a result of changes in exchange rates.
Although foreign currency fluctuations associated with revenues and costs may partially offset one another in earnings, the Company uses foreign exchange derivative products to mitigate a portion of the remaining exposure of foreign currency fluctuations as discussed in note 4. By their nature, derivative financial instruments involve risk, including the credit risk of non-performance by counterparties.
9
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
4.Financial Instruments
Debt Securities
The Company holds certain debt securities that are classified as held-to-maturity at the time of purchase as the Company has both the positive intent and ability to hold to maturity. The fair value of corporate bonds was based upon Level 2 inputs, which included period-end mid-market quotations for each underlying contract as calculated by the financial institution with which the Company has transacted. The quotations are based on bid/ask quotations and represent the discounted future settlement amounts based on current market rates.
The Company also holds debt securities in the form of convertible notes in private companies presented within equity and other investments on the condensed consolidated balance sheets. These debt securities are classified as available-for-sale for which the Company has elected to apply the fair value option. The fair values were determined based on binomial pricing models for which the Company was required to develop its own assumptions, including the underlying entities' valuations.
The following tables summarize debt securities by significant investment classification:
As at June 30, 2022
Carrying Value
Cash Equivalents
Marketable Securities
Equity and Other Investments
Fair Value
Level 1:
U.S. term deposits
-
740,000
-
742,323
U.S. federal bonds and agency securities
-
610,346
-
608,826
Canadian federal bonds and agency securities
72,819
690,116
50,000
813,056
Corporate bonds and commercial paper
190,238
-
-
190,238
263,057
2,040,462
50,000
2,354,443
Level 2:
Corporate bonds and commercial paper
-
1,563,548
-
1,563,059
Level 3:
Convertible notes in private companies
-
-
215,400
215,400
263,057
3,604,010
265,400
4,132,902
The fair values of marketable securities above include accrued interest of $8,173, which is excluded from the carrying amounts. The accrued interest is included in trade and other receivables in the condensed consolidated balance sheets. Additional accrued interest of $8,080 recognized on the convertible notes in private companies is included in the carrying amount and fair value above.
10
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
As at December 31, 2021
Carrying Value
Cash Equivalents
Marketable Securities
Equity and Other Investments
Fair Value
Level 1:
Corporate bonds and commercial paper
267,953
-
-
268,090
U.S. term deposits
-
900,000
-
901,689
U.S. federal bonds and agency securities
-
680,436
-
681,629
Canadian federal bonds and agency securities
50,138
1,215,646
-
1,268,139
318,091
2,796,082
-
3,119,547
Level 2:
Corporate bonds and commercial paper
-
2,469,019
-
2,475,051
Level 3:
Convertible notes in private companies
-
-
205,878
205,878
318,091
5,265,101
205,878
5,800,476
The fair values above include accrued interest of $13,067, which is excluded from the carrying amounts. The accrued interest is included in trade and other receivables in the condensed consolidated balance sheets. Additional accrued interest of $4,000 recognized on the convertible notes in private companies is included in the carrying amount and fair value above.
All cash equivalents and marketable securities mature within one year of the condensed consolidated balance sheet date.
In the three and six months ended June 30, 2022, unrealized losses associated with the Company's convertible notes in private companies of $21,244 and $31,058, respectively, were recorded within "net unrealized (loss) gain on equity and other investments" in the condensed consolidated statement of operations and comprehensive (loss) income. Additionally, interest income of $2,167 and $4,207 was recorded within "interest income" in the condensed consolidated statement of operations and comprehensive (loss) income.
Equity Investments with Readily Determinable Fair Values
The Company holds equity investments in public companies that were obtained through a combination of direct investment and strategic partnerships.
Equity investments with readily determinable fair values are comprised of:
June 30, 2022
December 31, 2021
Level 1
Level 3
Total
Level 1
Level 3
Total
Affirm Holdings, Inc.
$
366,575
$
-
$
366,575
$
2,041,126
$
-
$
2,041,126
Global-E Online Ltd.
331,336
99,317
430,653
741,775
423,387
1,165,162
Other
3,494
-
3,494
-
-
-
$
701,405
$
99,317
$
800,722
$
2,782,901
$
423,387
$
3,206,288
In the three and six months ended June 30, 2022, $46,916 and $134,956, respectively, were transferred from Level 3 to Level 1 due to the vesting of warrants associated with an investment in a strategic partnership (June 30, 2021 - $nil and $nil). The equity investments categorized as Level 3 in the fair value hierarchy represent Global-E unvested warrants that require the application of a discount for lack of marketability which was 13% at June 30, 2022 (December 31, 2021 - 15%).
11
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
Adjustments related to equity and other investments with readily determinable fair values for the three and six months ended June 30, 2022 and 2021 were as follows:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Balance, beginning of the period
1,659,840
1,435,446
3,206,288
-
Adjustments related to equity and other investments with readily determinable fair values:
Investments received not tied to services(1)
-
-
105,268
-
Investments received as non-cash consideration in exchange for services
-
-
29,577
-
Purchases of equity and other investments
14
-
42
-
Net unrealized (losses) gains
(859,132)
746,219
(2,540,453)
2,023,513
Transfers from measurement alternative (2)(3)
-
192,378
-
350,530
Balance, end of the period
800,722
2,374,043
800,722
2,374,043
(1) During the six months ended June 30, 2022, certain private investments were acquired by third-party investors resulting in the deemed sale of equity and other investments in the period and the receipt of shares in certain public companies. Any resulting realized gains or losses were presented as "net realized gain on equity and other investments" in the condensed consolidated statement of operations and comprehensive (loss) income.
(2) Effective January 13, 2021, the Company's investment in Affirm no longer qualified for the use of the measurement alternative as the fair value of the investment became readily determinable.
(3) Effective May 12, 2021, the Company's investment in Global-E no longer qualified for the use of the measurement alternative as the fair value of the investment became readily determinable.
Equity Investments without Readily Determinable Fair Values
The carrying value of equity investments in private companies without readily determinable fair values are:
June 30, 2022
December 31, 2021
$
$
Total initial value
1,047,790
539,221
Cumulative gross unrealized gains
43,983
38,880
Cumulative gross unrealized losses and impairment
(164,028)
(34,722)
Total carrying value of equity and other investments without readily determinable fair values (1)
927,745
543,379
(1) As at June 30, 2022, two investments in private companies represent $674,328 (December 31, 2021 - $348,278) of the total carrying value of equity and other investments without readily determinable fair values.
12
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
Adjustments related to equity and other investments without readily determinable fair values for the three and six months ended June 30, 2022 and 2021 were as follows:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Balance, beginning of the period
1,035,157
195,504
543,379
173,454
Adjustments related to equity and other investments without readily determinable fair values:
Purchases of equity and other investments
30,690
387,622
483,107
594,174
Investments received as non-cash consideration in exchange for services
-
-
47,149
-
Gross unrealized gains
4,204
31,530
9,896
31,902
Sales of equity and other investments(1)
-
-
(13,480)
-
Transfers to readily determinable fair values (2)(3)
-
(192,378)
-
(350,530)
Gross unrealized losses and impairments(4)
(142,306)
-
(142,306)
(26,722)
Balance, end of the period
927,745
422,278
927,745
422,278
(1) During the six months ended June 30, 2022, certain private investments were acquired by third-party investors resulting in the deemed sale of equity and other investments in the period. Any resulting realized gains or losses were presented as "net realized gain on equity and other investments" in the condensed consolidated statement of operations and comprehensive (loss) income.
(2) Effective January 13, 2021, the Company's investment in Affirm no longer qualified for the use of the measurement alternative as the fair value of the investment became readily determinable.
(3) Effective May 12, 2021, the Company's investment in Global-E no longer qualified for the use of the measurement alternative as the fair value of the investment became readily determinable.
(4) The Company applied certain valuation methods based on information available, including the market approach and option pricing models in order to quantify the level of impairment. This required the Company to develop certain key assumptions, including revenue growth rates, revenue multiples based on market comparables and a discount for lack of marketability. Non-public information, made available to the Company from investee companies, was supplemented with estimates such as volatility, expected time to liquidity and the rights and obligations of the securities the Company holds.
As at June 30, 2022, included in the total $927,745 of equity and other investments without readily determinable fair values, $402,366 was remeasured at fair value and was classified within Level 3 of the fair value measurement hierarchy on a non-recurring basis.
Derivative Instruments and Hedging
As at June 30, 2022, the Company held foreign exchange forward contracts and options for USD, GBP and CAD with a total notional value of $632,334 (December 31, 2021 - $586,547), to fund a portion of its operations. The foreign exchange forward contracts and options have maturities of twelve months or less. The fair value of foreign exchange forward contracts and options was based upon Level 2 inputs, which included period-end mid-market quotations for each underlying contract as calculated by the financial institution with which the Company has transacted. The quotations are based on bid/ask quotations and represent the discounted future settlement amounts based on current market rates.
Derivative Instruments Designated as Hedges
The Company has a hedging program to mitigate the impact of foreign currency fluctuations on future cash flows and earnings. Under this program, the Company has entered into foreign exchange forward contracts and options with certain financial institutions and designated those hedges as cash flow hedges. The Company is hedging cash flows associated with payroll and facility costs.
13
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
The fair values of outstanding derivative instruments were as follows:
June 30, 2022
December 31, 2021
$
$
Level 2:
Foreign exchange forward contracts and options assets (classified in other current assets)
2,008
1,824
Foreign exchange forward contract liabilities (classified in accounts payable and accrued liabilities)
7,103
5,926
Unrealized gains and unrealized losses related to changes in the fair value of foreign exchange forward contracts and options designated as cash flow hedges were as follows:
June 30, 2022
June 30, 2021
$
$
Unrealized gains
298
10,404
Unrealized losses
(7,103)
(1,503)
Total net unrealized (losses) gains
(6,805)
8,901
These unrealized gains and losses were included in accumulated other comprehensive income (loss), other current assets, and accounts payable and accrued liabilities on the condensed consolidated balance sheet. These amounts are expected to be reclassified into earnings over the next twelve months.
Realized losses and realized gains related to the maturity of foreign exchange forward contracts and options designated as cash flow hedges were as follows:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Realized (losses) gains in cost of revenues
(178)
453
(272)
852
Realized (losses) gains in operating expenses
(3,415)
8,872
(6,379)
17,627
(3,593)
9,325
(6,651)
18,479
Derivatives Instruments Not Designated as Hedges
During the first quarter of 2022, the Company entered into a commodity swap contract with a producer to fund renewable energy production and to obtain renewable energy certificates. The contract guarantees the producer a minimum price per megawatt hour with any differences between market prices and this minimum price being settled in cash between the producer and the Company on a monthly basis. The Company's maximum commitment over the life of the 10 year contract is $11,617.
14
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
5.Contract Balances
When revenue is recognized, the Company records a receivable that is included in trade and other receivables on the condensed consolidated balance sheet. Trade receivables and unbilled revenues, net of allowance for credit losses, were as follows:
June 30, 2022
December 31, 2021
January 1, 2021
$
$
$
Unbilled revenues, net
91,360
86,795
50,073
Indirect taxes receivable
76,504
39,142
45,961
Trade receivables, net
49,111
40,342
13,449
Other receivables
13,575
12,863
3,706
Accrued interest
8,173
13,067
7,563
238,723
192,209
120,752
Unbilled revenues represent amounts not yet billed to merchants related to subscription fees for Plus merchants, transaction fees and shipping and fulfillment charges, as at the condensed consolidated balance sheet date.
The allowance for credit losses reflects the Company's best estimate of probable losses inherent in the unbilled revenues and trade receivables accounts. The Company determined the provision based on known troubled accounts, historical experience, supportable forecasts of collectibility and other currently available evidence.
Activity in the allowance for credit losses was as follows:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Allowance, beginning of the period
7,031
8,380
6,944
6,041
Provision for credit losses related to uncollectible receivables
3,231
1,480
4,580
5,133
Write-offs
(1,406)
(3,435)
(2,668)
(4,749)
Allowance, end of the period
8,856
6,425
8,856
6,425
15
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
Changes in total deferred revenue were as follows:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Balance, beginning of the period
434,283
137,142
379,724
128,815
Deferral of revenue
69,622
233,853
168,459
260,754
Recognition of deferred revenue
(90,493)
(52,514)
(134,771)
(71,088)
Balance, end of the period
413,412
318,481
413,412
318,481
Current portion
254,007
183,160
Long term portion
159,405
135,321
413,412
318,481
The opening balances of total current and long-term deferred revenue were $107,809 and $21,006, respectively, as of January 1, 2021.
As at June 30, 2022, the long-term deferred revenue, excluding non-cash consideration received, will be recognized ratably over the remaining terms of the contracts with the customers, which range from 2 to 5 years.
The Company has received non-cash consideration in the form of equity investments in exchange for services to be rendered as part of strategic partnerships. As the Company is required to provide referral services and other services to support the partners' merchant offerings over the period of the performance obligations, revenue is deferred and recognized over time on a ratable basis over the expected terms of the contracts. Within total deferred revenue outlined above, non-cash consideration represents a significant portion of the balance as at June 30, 2022. The table below summarizes the gross changes in deferred revenue associated with this non-cash consideration received for the three and six months ended June 30, 2022 and 2021.
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Balance, beginning of the period
281,219
18,865
230,574
20,896
Non-cash consideration received in exchange for services
-
192,300
76,726
192,300
Revenue recognized related to non-cash consideration
(27,584)
(16,090)
(53,665)
(18,121)
Balance, end of the period
253,635
195,075
253,635
195,075
Current portion
110,639
72,278
Long term portion
142,996
122,797
253,635
195,075
The Company will recognize this revenue ratably over the remaining terms of the respective strategic partnership service agreements, which range from 3 to 7 years.
16
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
6.Merchant Cash Advances, Loans and Related Receivables
June 30, 2022
December 31, 2021
January 1, 2021
$
$
$
Merchant cash advances receivable, gross
444,395
439,289
218,840
Related receivables
-
-
819
Allowance for credit losses related to uncollectible merchant cash advances receivable
(46,784)
(38,264)
(15,816)
Loans receivable, gross
149,025
72,751
43,644
Allowance for credit losses related to uncollectible loans receivable
(8,846)
(3,054)
(2,764)
Merchant cash advances, loans and related receivables, net
537,790
470,722
244,723
Merchant Cash Advances
The following table summarizes the activities of the Company's allowance for credit losses related to uncollectible merchant cash advances receivable:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Allowance, beginning of the period
41,765
18,920
38,264
15,816
Provision for credit losses related to uncollectible merchant cash advances receivable
13,023
9,702
22,755
15,425
Merchant cash advances receivable charged off, net of recoveries
(8,004)
(2,052)
(14,235)
(4,671)
Allowance, end of the period
46,784
26,570
46,784
26,570
Loans
The following table summarizes the activities of the Company's allowance for credit losses related to uncollectible loans receivable:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Allowance, beginning of the period
3,986
2,744
3,054
2,764
Provision for credit losses related to uncollectible loans receivable
5,701
984
7,467
1,208
Loans receivable charged off, net of recoveries
(841)
(381)
(1,675)
(625)
Allowance, end of the period
8,846
3,347
8,846
3,347
The following table presents the delinquency status of the principal amount of merchant loans by year of origination. The delinquency status is determined based on the number of days past the expected or contractual repayment date for which the Company anticipates to receive the amounts outstanding. The "current" category represents balances that are within 29 days of the contractual repayment dates, or within 29 days of the expected repayment date.
17
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
June 30, 2022
Year of origination
2022
2021
Total
Percent
Current
$
135,274
$
7,438
$
142,712
95.8
%
30-59 Days
1,025
381
1,406
0.9
%
60-89 Days
284
561
845
0.6
%
90-179 Days
820
510
1,330
0.9
%
180+ Days
1,320
1,412
2,732
1.8
%
Total
$
138,723
$
10,302
$
149,025
100.0
%
December 31, 2021
Year of origination
2021
2020
Total
Percent
Current
$
69,350
$
-
$
69,350
95.3
%
30-59 Days
1,114
-
1,114
1.5
%
60-89 Days
419
-
419
0.6
%
90-179 Days
576
-
576
0.8
%
180+ Days
1,292
-
1,292
1.8
%
Total
$
72,751
$
-
$
72,751
100.0
%
The Company maintains an internal monitoring list related to its outstanding loans. A merchant's ability and willingness to repay the financing receivables outstanding under the program is analyzed for a variety of factors that include, but are not limited to: current or expected age of the financing, merchant subscription or financing status, merchant GMV trends and other changes to merchant credit profiles. The Company charges off receivables outstanding under the program when the merchant receivable is included on its internal monitoring list for a period of 90 consecutive days.
For certain Shopify Capital loans, there is a fixed maximum repayment term. For certain other Shopify Capital loans, the Company calculates an expected repayment date. Using the merchant's contractual or expected repayment date, the Company calculates an effective interest rate based on the merchant's expected future payment volume to determine how much of a merchant's repayment to recognize as revenue and how much to apply against the merchant's receivable balance. In the three and six months ended June 30, 2022, $8,797 and $14,705 (June 30, 2021 - $4,928 and $8,643), respectively, of revenue recognized as merchant solutions revenue required the application of an effective interest rate, per ASC 310.
7.Leases
The Company has office, commercial and warehouse leases in Canada, the United States, Singapore, Ireland and other countries in Europe and Asia. These leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 10 years. All of the Company's leases are operating leases.
18
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
The components of lease expense were as follows:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Operating lease expense
6,082
5,218
11,379
10,721
Variable lease expense, including non-lease components
3,686
2,910
5,974
6,172
Total lease expense
9,768
8,128
17,353
16,893
As at June 30, 2022, the weighted average remaining lease term is 11 years and the weighted average discount rate is 3.1% (December 31, 2021 - 11 years and 3.3%, respectively).
During the three and six months ended June 30, 2022, the Company terminated portions of leased office space consisting of leases recognized on the condensed consolidated balance sheet as well as future committed lease space. The terminations resulted in gains of $800 and $2,324, respectively, which is recorded as an offset within the total lease expense disclosed above.
Net sublease income for the three and six months ended June 30, 2022 was $811 and $1,550 (June 30, 2021 - $326 and $326), which is recorded as an offset within the total lease expense disclosed above.
Maturities of lease liabilities as at June 30, 2022 were as follows:
Fiscal Year
Offices
$
Warehouses and Commercial Spaces
$
Total
$
Remainder of 2022
26,122
1,536
27,658
2023
36,696
5,319
42,015
2024
46,502
5,196
51,698
2025
50,237
4,887
55,124
2026
51,300
4,575
55,875
Thereafter
285,368
50,721
336,089
Total future minimum payments
496,225
72,234
568,459
Minimum payments related to variable lease payments, including non-lease components
(201,818)
(37,480)
(239,298)
Imputed interest
(44,675)
(4,401)
(49,076)
Total lease liabilities
249,732
30,353
280,085
Operating lease maturity amounts included in the table above do not include sublease proceeds expected to be received under our various sublease agreements with third parties. Under the agreements initiated with third parties, the Company expects to receive sublease proceeds of $1,653 in the remainder of 2022 and $18,458 thereafter.
8.Goodwill
The Company's goodwill relates to acquisitions of various companies including, but not limited to, 6 River Systems, Inc. ("6RS") which was acquired on October 17, 2019 and Donde Fashion, Inc. ("Donde") which was acquired on July 20, 2021.
19
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
No goodwill impairment was recognized in the three and six months ended June 30, 2022 or in the year ended December 31, 2021.
The gross changes in the carrying amount of goodwill as of June 30, 2022 and December 31, 2021 are as follows:
June 30, 2022
December 31, 2021
$
$
Balance, beginning of the period
356,528
311,865
Acquisition of Donde
-
37,567
Other acquisitions(1)
22,817
7,096
Balance, end of the period
379,345
356,528
(1) During the six months ended June 30, 2022 and the year ended December 31, 2021, the Company completed individually immaterial acquisitions that resulted in Goodwill being recognized.
9.Convertible Senior Notes
In September 2020, the Company issued $920,000 aggregate principal amount of 0.125% convertible senior notes due 2025 (the "Notes"). The net proceeds from the issuance of the Notes were $907,950 after deducting underwriting fees and offering costs.
The interest on the Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021. The Notes will mature on November 1, 2025, unless earlier redeemed or repurchased by the Company or converted pursuant to their terms.
The Notes have a conversion rate of 6.9440 Class A subordinate voting shares per one thousand dollars of principal amount of Notes, which is equivalent to a conversion price of approximately $144.01 per share, adjusted to give effect to the Share Split. The conversion rate is subject to adjustment following the occurrence of certain specified events, as set out or defined in the supplemental indenture governing the Notes. In addition, upon the occurrence of a make-whole fundamental change prior to the maturity date or upon our issuance of a notice of redemption, as set out or defined in the supplemental indenture governing the Notes, the Company will, in certain circumstances, increase the conversion rate by a number of additional Class A subordinate voting shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
The Company accounts for the Notes as a single unit of account on the balance sheet. The carrying value of the liability is represented by the face amount of the Notes, less total offering costs, plus any amortization of offering costs. Total offering costs upon issuance of the Notes were $12,050 and are amortized to interest expense using the effective interest rate method over the contractual term of the Notes. Interest expense is recognized at an annual effective interest rate of 0.38% over the contractual term of the Notes.
The net carrying amount of the outstanding Notes was as follows:
June 30, 2022
December 31, 2021
$
$
Principal
920,000
920,000
Unamortized offering costs
(7,863)
(9,037)
Net carrying amount
912,137
910,963
20
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
The following table sets forth the interest expense recognized related to the outstanding Notes:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Contractual interest expense
281
284
569
572
Amortization of offering costs
588
586
1,174
1,171
Total interest expense related to the outstanding Notes
869
870
1,743
1,743
As at June 30, 2022, the estimated fair value of the Notes was approximately $772,092 (December 31, 2021 - $1,165,410). The estimated fair value was determined based on the last executed trade for the Notes of the reporting period in an over-the-counter market, which is considered as Level 2 in the fair value hierarchy.
10.Credit Facility
The Company has a revolving credit facility with Royal Bank of Canada for $8,000 CAD. The credit facility bears interest at the Royal Bank Prime Rate plus 0.30%. As at June 30, 2022 and December 31, 2021, the effective rate was 4.00% and 2.75%, respectively, and no cash amounts were drawn under this credit facility.
11.Commitments and Contingencies
Unconditional Purchase Obligations
The Company has entered into agreements where it commits to certain usage levels related to third-party services. The amount of the minimum fixed and determinable portion of the unconditional purchase obligations over the next five years, as at June 30, 2022, was $52,958.
Litigation and Loss Contingencies
From time to time, the Company may become a party to litigation and subject to claims incidental to the ordinary course of business, including intellectual property claims, labour and employment claims and threatened claims, breach of contract claims, tax and other matters.
On December 1, 2021, five publishers of educational materials and two of their respective parent companies ("the Plaintiffs") filed a claim against the Company in the U.S. District Court for the Eastern District of Virginia for contributory and vicarious copyright infringement and contributory trademark infringement. The Plaintiffs allege that certain merchants who use the Company's platform and services are engaged in the sale of pirated digital textbooks in violation of the Plaintiffs' rights, and that the Company has not taken legally adequate steps to curb this alleged infringement. The Plaintiffs seek statutory damages for the alleged copyright infringement. Shopify filed its answer to the plaintiffs' complaint on January 28, 2022. Shopify is unable to predict the ultimate resolution of the matter including the likelihood or magnitude of a possible eventual loss, if any, at this time. Shopify intends to defend the case.
21
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
12.Related Parties
In January 2022, the Company entered a strategic partnership with a private company totaling $97,149, which is comprised of a $50,000 cash investment in the private company and the receipt of $47,149 in non-cash consideration to provide services for a duration of three years. A member of the Company's board of directors also serves as a director on the board of the aforementioned private company. For the three and six months ended June 30, 2022, the Company recognized revenue of $3,892 and $6,883, respectively, from the private company.
13.Shareholders' Equity
Founder Share
On June 7, 2022, the Company's shareholders approved an update to the Company's governance structure pursuant to a plan of arrangement under the Canada Business Corporations Act (the "Arrangement"). Under the terms of the Arrangement, on June 9, 2022 the Company created a new class of share, designated as the Founder share, and issued such Founder share to Tobias Lütke. The Founder share provides Mr. Lütke with a variable number of votes that, when combined with the Class B multiple voting shares (which are now described as Class B restricted voting shares as a result of the Company's updated governance structure) beneficially owned by him, his immediate family and his affiliates, will represent 40% of the aggregate voting power attached to all of the Company's outstanding shares.
Share Split
On June 7, 2022, the Company's shareholders approved a ten-for-one split of the Company's Class A subordinate voting shares and Class B restricted voting shares. Each shareholder of record on June 22, 2022 received nine additional Class A subordinate voting shares and Class B restricted voting shares, as applicable, for every one share held, distributed after close of trading on June 28, 2022. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Share Split.
Public Offerings
In February 2021, the Company completed a public offering in which it issued and sold 11,800,000 Class A subordinate voting shares at a public offering price of $131.50 per share, adjusted to give effect to the Share Split. The Company received total net proceeds of $1,541,168 after deducting offering fees and expenses of $10,532.
Common Stock Authorized
The Company is authorized to issue an unlimited number of Class A subordinate voting shares, an unlimited number of Class B restricted voting shares and one Founder share. The Class A subordinate voting shares have one vote per share, the Class B restricted voting shares have 10 votes per share and the Founder share has a variable number of votes per share. The Class B restricted voting shares are convertible into Class A subordinate voting shares on a one-for-one basis at the option of the holder. Class B restricted voting shares will also automatically convert into Class A subordinate voting shares in certain other circumstances. The Founder share cannot convert into either Class A subordinate voting shares or Class B restricted voting shares.
Preferred Shares
The Company is authorized to issue an unlimited number of preferred shares issuable in series. Each series of preferred shares shall consist of such number of shares and having such rights, privileges, restrictions and conditions as may be determined by the Company's Board of Directors prior to the issuance thereof.
22
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
Holders of preferred shares, except as otherwise provided in the terms specific to a series of preferred shares or as required by law, will not be entitled to vote at meetings of holders of shares.
Stock-Based Compensation
As at June 30, 2022 there were 297,690,882 shares reserved for issuance under the Company's Stock Option Plan and Long Term Incentive Plan.
The following table summarizes the stock option and Restricted Share Unit ("RSU") award activities under the Company's share-based compensation plans for the six months ended June 30, 2022:
Shares Subject to Options Outstanding
Outstanding RSUs
Number of Options (1)
Weighted Average Exercise Price
$
Remaining Contractual Term (in years)
Aggregate Intrinsic Value (2)
$
Weighted Average Grant Date Fair Value
$
Outstanding RSUs
Weighted Average Grant Date Fair Value
$
December 31, 2021
11,538,665
34.52
5.67
1,190,972
-
8,438,183
107.63
Stock options granted
2,232,050
64.92
-
-
29.24
-
-
Stock options exercised
(1,371,670)
5.71
-
-
-
-
-
Stock options forfeited
(344,290)
82.10
-
-
-
-
-
RSUs granted
-
-
-
-
-
12,443,410
51.80
RSUs settled
-
-
-
-
-
(2,521,660)
75.61
RSUs forfeited
-
-
-
-
-
(1,106,642)
95.09
June 30, 2022
12,054,755
42.13
6.23
159,728
-
17,253,291
72.84
Stock options exercisable as of June 30, 2022
8,038,043
20.62
4.85
156,871
(1) As at June 30, 2022 1,857,510 of the outstanding stock options were granted under the Company's Legacy Option Plan and are exercisable for Class B restricted voting shares, 10,002,852 of the outstanding stock options were granted under the Company's Stock Option Plan and are exercisable for Class A subordinate voting shares, and 194,393 of the outstanding stock options were granted under the 6 River Systems 2016 Amended and Restated Stock Option and Grant Plan and are exercisable for Class A subordinate voting shares.
(2) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company's Class A subordinate voting shares as of June 30, 2022 and December 31, 2021.
As at June 30, 2022 the Company had issued 9,729 Deferred Share Units under its Long Term Incentive Plan.
In connection with the acquisition of 6RS, 1,220,800 Class A subordinate voting shares were issued with trading restrictions, adjusted to give effect to the Share Split. The restrictions on these shares are lifted over time and are being accounted for as stock-based compensation as the vesting is contingent on continued employment and therefore related to post-combination services. As at June 30, 2022, 610,400 of the Class A subordinate voting shares remained restricted.
23
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
The following table illustrates the classification of stock-based compensation expense in the condensed consolidated statements of operations and comprehensive (loss) income, which includes both stock-based compensation and restricted share-based compensation expense.
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Cost of revenues
2,359
1,637
4,426
3,152
Sales and marketing
17,173
9,671
31,896
18,524
Research and development
97,572
48,747
180,036
93,036
General and administrative
22,315
21,903
41,050
36,402
139,419
81,958
257,408
151,114
14.Changes in Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), which is reported as a component of shareholders' equity, for the six months ended June 30, 2022 and 2021:
Accumulated Other Comprehensive Income (Loss)
Six months ended
June 30, 2022
June 30, 2021
$
$
Balance, beginning of the period
(5,974)
8,770
Other comprehensive (loss) income before reclassifications
(9,735)
11,040
Loss (gain) on cash flow hedges reclassified from accumulated other comprehensive income (loss) to earnings were as follows:
Cost of revenues
272
(852)
Sales and marketing
1,595
(4,734)
Research and development
3,150
(10,111)
General and administrative
1,634
(2,782)
Tax effect on unrealized loss (gain) on cash flow hedges
(59)
1,972
Other comprehensive loss, net of tax
(3,143)
(5,467)
Balance, end of the period
(9,117)
3,303
15.Income Taxes
The Company's provision for, or recovery of, income taxes is determined by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period.
The Company updates its estimate of the annual effective tax rate each quarter and makes cumulative adjustments if its estimated annual tax rate changes. The Company's effective tax rate may be subject to fluctuation during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of forecasted pre-tax earnings in the various jurisdictions in which the Company operates, valuation allowances against deferred tax assets, the recognition and derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.
24
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
The Company had a provision for income taxes of $5,657 in the three months ended June 30, 2022, on account of earnings in jurisdictions outside of North America. The Company had a recovery of income taxes of $172,792 in the six months ended June 30, 2022 primarily as a result of the unrealized loss on equity and other investments.
During the three months ended March 31, 2022, the Company recorded a valuation allowance in Canada against its net deferred income tax assets, which arose due to the overall unrealized loss on the Company's equity and other investments.
The Company had a provision for income taxes of $40,222 and $151,321 in the three and six months ended June 30, 2021, respectively, as a result of the unrealized gain on equity and other investments, ongoing operations, other discrete items, primarily related to tax benefits for share-based compensation, the Company's ability to carry-back losses to prior years in Canada, and the recognition of deferred tax assets in Canada.
25
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
16.Net Income per Share
The Company applies the two-class method to calculate its basic and diluted net income per share as Class A subordinate voting shares and Class B restricted voting shares are participating securities with equal participation rights and are entitled to receive dividends on a share for share basis.
The following table summarizes the reconciliation of the basic weighted average number of shares outstanding and the diluted weighted average number of shares outstanding:
Three months ended
Six months ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Numerator:
Net (loss) income
$
(1,203,907)
$
879,093
$
(2,678,315)
$
2,137,538
After tax effect of debt interest(1)
-
639
-
1,281
Net (loss) income after tax effected debt interest
$
(1,203,907)
$
879,732
$
(2,678,315)
$
2,138,819
Denominator(2):
Basic weighted average number of shares outstanding
1,262,011,665
1,245,475,010
1,261,069,535
1,238,991,770
Weighted average effect of dilutive securities:
Stock options
-
17,700,442
-
19,194,116
Restricted share units
-
5,177,738
-
6,170,304
Convertible senior notes
-
6,388,480
-
6,388,480
Deferred share units
-
8,960
-
8,854
Diluted weighted average number of shares
1,262,011,665
1,274,750,630
1,261,069,535
1,270,753,524
Net (loss) income per share(2):
Basic
$
(0.95)
$
0.71
$
(2.12)
$
1.73
Diluted
$
(0.95)
$
0.69
$
(2.12)
$
1.68
Common stock equivalents excluded from income per diluted share because they are anti-dilutive(2):
Stock options
12,054,755
16,906
12,054,755
19,445
Restricted share units
17,253,291
8,992
17,253,291
9,344
Convertible senior notes
6,388,480
-
6,388,480
-
Deferred share units
9,729
-
9,729
-
35,706,255
25,898
35,706,255
28,789
(1) When the Notes are dilutive, the after tax effect of debt interest is added back to net income to calculate diluted net income per share.
(2) Prior period share and per share amounts have been adjusted to reflect the Share Split effected in June 2022. See Note 13 for details.
26
Shopify Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Expressed in US $000's except share and per share amounts
17.Subsequent Events
Deliverr Acquisition
On July 8, 2022, the Company completed the acquisition of 100 percent of the outstanding shares of Deliverr, Inc. ("Deliverr"), a company based in San Francisco, California, that provides fulfillment services to ecommerce retailers. By adding Deliverr's software, which includes machine learning and optimization technology, the Company intends to accelerate the development of Shopify Fulfillment Network. The transaction was valued at approximately $2,100,000, consisting of approximately $1,700,000 in net cash and $400,000 in Shopify Class A subordinate voting shares. Of the Shopify Class A subordinate voting shares, a portion will be allocated to the purchase price of the acquisition and a portion will be accounted for as stock-based compensation as it relates to post-combination services.
Equity Investment in Private Company
Consistent with the Company's ongoing strategic investments, the Company agreed to invest $100,000 in a private company. The investment is expected to close in the third quarter of 2022.
27
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Shopify Inc. published this content on 27 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 July 2022 11:13:09 UTC.
Shopify Inc. (Shopify) is a Canada-based global commerce company. The Company provides essential Internet infrastructure for commerce, offering tools to start, grow, market and manage a retail business of any size. It provides platforms and services that are engineered and delivers a shopping experience for consumers online, in store and everywhere in between. Its software enables merchants to run their business across all of their sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces. The Company's Shopify platform provides merchants with a single view of their business across all of their sales channels and enables them to manage products and inventory, process orders and payments, fulfill and ship orders, build customer relationships, source products, leverage analytics and reporting, and access financing, all from one integrated back office. The Shopify's platform operates across 175 countries.