Katie Keita - Head, IR Tobi Lütke - Founder and CEO Harley Finkelstein - COO Russ Jones - CFO

Kevin Krishnaratne - Paradigm Capital Monika Garg - Pacific Crest Securities Jesse Hulsing - Goldman Sachs Kenneth Wong - Citi Michael Nemeroff - Credit Suisse Terry Tillman - Raymond James Gus Papageorgiou - Macquarie Ivan Holman - Morgan Stanley James Cakmak - Monness Crespi Hardt Ross MacMillan - RBC Capital Markets Tom Forte - Maxim Group Brad Sills - Bank of America Todd Coupland - CIBC Eyal Ofir - Dundee Capital

Good morning. My name is Denise and I will be your conference operator today. At this time, I would like to welcome everyone to the Shopify’s Q3 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noises. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Shopify’s Head of Investor Relations, Katie Keita. Please go ahead.

Good morning. Thank you all for joining us for Shopify’s third quarter 2016 conference call. On today’s call is Tobi Lütke, Shopify’s Founder and CEO. Then we will be hearing from Harley Finkelstein, our COO and then Russ Jones, our CFO will review our third quarter results and our expectations for the rest of the year. Then, we will open it up for your questions. And now for the most reverting part of today’s call. During today’s discussion, we will make forward-looking statements which are based on current assumptions and are 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. And information about these risks and uncertainties is contained in our press release this morning as well as in our filings with securities regulators in both Canada and the United States. Also, our commentary today will include adjusted financial measures which are non-GAAP measures and should be considered as a supplement to and not a substitute for our GAAP financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website. And finally, note that we report in USD, so all amounts discussed today are in U.S. dollars unless otherwise indicated. And with that, I will turn the call over to Tobi. Tobi Lütke: Thanks Katie. Good morning, everyone and thanks for joining us today. Before I get started, I’d like to welcome Gail Goodman to our Board of Directors. Gail was always full of fantastic advises over the years when we interacted and talked about Shopify, and she has built one of the SaaS [ph] companies where I have always admired most. I’m really looking forward to working with her more closely. And because Russ and Harley are here to talk about the things that make headlines, like revenue growth and new brands joining Shopify Plus, I would like to use my time on this call to talk about the things that sort fly under radar but which are actually very important parts of implementing our strategy. So, since our IPO 18 months ago, we’ve been pretty clear about the strategy. We focused on entrepreneurs, and by making hard decisions that facilitate their success, a lot of good things follow. Today, I want to talk about three of those things we shipped in this quarter. And I think most will make a big difference for our merchants. It’s no secret that we are spending a lot of time on mobile and usually in apps. And to have merchants take full advantage of these trends, last quarter, we shipped mobile Shopify, Sell on Messenger and Apple Pay. First, we launched our new mobile Shopify app, this was in September. With it, merchants can now do much more than they ever could on their phones. They can now start a business directly on mobile Shopify, view financial reports, communicate across the team members with our timeline feature and get insights on how to grow their business through our home cards. These new mobile apps are marketing [ph] for us. We build them from a ground app to be more than just simple companion apps. They’re important and full featured as our web interfaces. This means that anyone can now start and run entire new online business from their pockets, which I think is really good. Second, this past quarter, we took our integration with Facebook Messenger beyond customer service and order notifications and built ability to sell directly on messenger. Messenger as a channel is unique. When we integrated messenger on to the Shopify platform about six ago, we gave our merchants ability to connect directly and personally with the customers. Since then, tens of thousands of merchants have started actively using the messenger channel. Such conversations are form within which commerce can happen really naturally. In many ways, this conversational commerce captures what we miss about inputs in buying and selling, having cell on hand to answer questions and guide us through the purchasing process. Finally, Apple Pay on the web went live for Shopify merchants in September. I talked on our last call about the difference this would make for conversion rates, and that’s exactly what’s happening. Our merchants are seeing up to twice as many conversation on mobile than without Apple Pay. This shift of payments to Apple Pay is powerful for commerce, but it’s just one, but there will be alternatives for online transactions. Too long distance actions have been unnecessarily hurdle to ecommerce adoption. As desired it is, commerce on the internet has always been an afterthought. What I mean is this: Web browsers had exactly zero handful features for ecommerce. They could play music, random graphics, random music invitations and other niche features that they couldn’t like that they had but they couldn’t transfer money. You can see the facts of this history everywhere. Look at the publishing industry and all the pay wallets that they have to put as an afterthought. Every online store had to invent its own checkout and ask for credit card and address over and over again. We believe commerce is one of the primary uses of the internet. And we’re working hard convincing social platforms, web browsers and messengers and even operating system vendors to adopt transaction program into their systems to make it easier and more secure for everyone. We work with them to make it happen and support it with our collective merchants. Because commerce online essentially has been an afterthought, it’s been kept kind of small. Even though that people are increasingly spending their online minutes on platforms to support it, we’ve seen new momentum for ecommerce. The momentum will not be limited for apps; we believe commerce over web browsers will also benefit due to Apple Pay and others soon to follow, partly thanks to the efforts of the WCC standards body which we are actively involved with. Our thesis is that commerce per hour is going to be higher than people engage with platforms that support commerce natively. This is what we see happening with Apple Pay and it’s still early days. The good news is that Shopify merchants should always be amongst the first to benefit from any of these moves, given our focus on the future and our strong desire for enterprise. With that I’ll turn the call over to Harley.

Thanks Tobi. Good morning, everyone and thanks for joining us on our call this morning. I’m excited to talk about this past quarter as we added a record number of new referral partners to our program, a record number of new merchants to Shopify Plus, and our Shopify Plus partner program is off to a great start. First, I want to talk about our most recent acquisition. We now have some incredible new talent at Shopify Plus with the acquisition of Boltmade, a Waterloo based software development agency we had the pleasure of getting to know over the past year. This acquisition brings a strong group of designers and developers that we expect will play a large role in building out Shopify Plus and help world-class brands offer exceptional retail experiences to their customers. The Boltmade team is already up and running in our Waterloo offices. In terms of to our partner ecosystem, we continue to expand this incredible community globally. This past quarter, these partners not only referred a record number of new merchants to Shopify but the merchants that they brought on joined at higher value plans than in previous quarters. This is due in part to the new Shopify Plus focused partner program that we launched in June. We initially launched that program with more than 40 partners and experts, and we now have grown to more than twice that number today. We really understand how important our partners are to our ecosystem and we are always looking for ways to further engage them and further support them. Not only do we have a dedicated team of region specific partner managers, we also provide a host of programs, meet-ups and education each quarter to support their growth. This past quarter, we went a step further and expanded our Shopify Partner Accelerator program from New York, to now include Montreal, London and Austin. This partnership with WeWork gives our network of developers and designers office space to grow their businesses. It’s an incredible opportunity for our partners and we’re excited to be part of their journey. This is the one of many things we do to keep building out a acknowledgeable, loyal and highly effective network of Shopify centered professionals. It is important not to overlook the value that our third party app developers bring to Shopify. These partners extend the functionality of what the Shopify platform can deliver beyond the core mission critical ecommerce capabilities. The average monthly spend per merchant on apps has grown consistently over the past couple of years, which tells us merchants are driving greater value from app ecosystem. This is isn’t because we’re offering more apps but because we continually strive to lead merchants to the apps that will make them more effective and successful in running their businesses. Since launching Shopify Plus almost two years ago about half of the Shopify Plus merchants have been homegrown businesses that started on Shopify, and this is something that we are very proud of. This quarter, while the number of upgrades at Shopify Plus continued to increase, notably more than half of the new Shopify Plus merchants were brand new to Shopify. This is a result of a number of new growth initiatives, including our new Shopify Plus partner program and our most recent marketing campaign for Plus which successfully help merchants to migrate to us form legacy ecommerce platforms. The Shopify Plus program itself is expanding nicely with GMV and revenue from Shopify Plus merchants growing even faster than overall Shopify GMV revenue. Our expanded team of sales trackers was a strong source of new merchants with many of the recent additions to the sales team now fully ramped up. Their efforts along with those of our partners, brought us some recognizable brands in the quarter, including the Game Of Thrones store from Penguin Random House, the American Kennel Club, T-Mobile, CrossFit, Seth Godin, Macy’s cosmetic brand, Bluemercury, Lady Gaga, and one of my wife’s favorite shops Fretsy. [Ph] We also signed a global agreement with Nestle that makes it easy for any of their 200 plus brands to spin up a store on Shopify Plus quickly and easily. As an update to our Amazon channel integration, we moved into bid [ph] in Q3 and will be making it publicly available to our merchants in late Q4. This integration is a great example of how we’re helping merchants expand their audience directly through Shopify’s platform. Regarding shipping, we established a solid foundation for Shopify Shipping in its first 12 months with one in five of our U.S. based merchants using it. And more recently, we expanded Shopify Shipping with the addition of Canada Post in September of this year. Even with all our success to-date for Shopify Plus and our partner ecosystem, we feel like we’re just getting started. We continue to expand the capabilities of our platform through our partners and feel strongly that the vast majority of the opportunities for us and for them lies ahead. This is what makes Shopify so great, for merchants, partners and employees alike. So, a quick thank you to all of you who are building alongside us and taking our mission of making commerce better to hearts. With that I will turn the call over to Russ to finish up. Russ?

Thanks Harley. We’re pleased to report another strong quarter all around where we again delivered rapid growth, continued leverage and steady progress on our strategic and product initiatives. Starting with revenue, we grew revenue in the third 89% over Q3 of last year to $99.6 million, split approximately equally between Subscription Solutions and Merchant Solutions. Subscription Solutions revenue grew 69% to $49.8 million due to the continued expansion of the monthly recurring revenue, which stood at $16.3 million on September 30th. This represents an increase in MRR of 67% over last year’s third quarter as new merchants continue to join the platform. We surpassed 325,000 merchants in the quarter. MRR per merchant also went up as more merchants either joined on or upgraded to higher price plans in the quarter. Merchant Solutions revenue grew 114% to $49.7 million in the quarter. About 100% growth in GMV to $3.8 billion of which $1.5 billion was processed on Shopify Payments accounted for the majority of this revenue increase. Revenue from Shopify Shipping and Shopify Capital also contributed to the growth. In the 12 months since launch, Shopify Shipping’s penetration has established a solid foundation with approximately 20% of U.S. merchants using it. Shopify Capital also reached an important milestone recently surpassing $20 million in cash advance since inception. At the quarter end, this number stood at $15.5 million with the sharp increase since the of Q3 likely due to merchants prepared for the holiday season. Approximately 70% of merchants that are fully remitted and advanced have opted for a second one, indicating the central role of Shopify can play in facilitating our merchants’ growth that might otherwise be crippled by traditional working capital financing constraints. Our agreement signed in September with Export Development Canada will help us expand this program, while maintaining appropriate levels of risk. Gross margins improved year-on-year for both Subscription Solutions and Merchant Solutions, which was aided by shipping in capital as these incremental revenue streams are recorded on a net basis. The continued result of these improvements was an acceleration in the growth of gross margin dollars to 82% from 77% in Q3 of last year. Adjusted operating expenses as a percentage of revenue came down both year-on-year and quarter-on-quarter. Overall adjusted operating expenses as a percentage of revenue declined to 55% versus 58% in Q3 of 2015 and 57% in Q2 of 2016. As a result of our improved performance and leverage, our adjusted operating loss for the quarter was $2.2 million or 2% of revenue, compared with an adjusted operating loss of $2 million or 4% of revenue for the third quarter of last year. The adjusted net loss for Q3 was $1.8 million compared with $2.4 million for Q3 a year ago. On a per share basis, this was $0.02 for Q3 of this year, an improvement from the $0.03 loss for Q3 of last year. We ended the quarter with a $400 million in cash, cash equivalents, and marketable securities with our successful follow-on offering in August adding net cash of approximately $224 million to the Company. Looking at the three major investment areas we outlined at the start of this year staring with Plus. Some of the biggest investments in Plus this year are the new Waterloo office; the establishment of the Plus partner program, hiring and marketing programs and the acquisition of Boltmade. R&D spending in Q4 will reflect the impact of this acquisition with further strength into the Plus product development team. As we said last quarter, we continue to evaluate our datacenter infrastructure options with the plan for this year to only increase the capacity of our existing ones to meet the demands for the holiday season. On the merchant and partner engagement front, we are wrapping up our retail tour in the UK, which we coordinated with the launch of our EMV reader there in Q3. With this in mind turning to the 2016 outlook, we now expect to report full year 2016 revenue in the range of $379 million to $381 million. Given the improved operating leverage in Q3 and the stronger revenue outlook for the full year, we expect to report a full year adjusted operating loss in the range of $12 million to $14 million. This excludes stock-based compensation expense and related payroll taxes of $26 million, which are $1 million higher than our previous forecast due to the impact of the higher share price on our employee equity grants as well as the acquisition of Boltmade. This means that for the fourth quarter, we expect to achieve our first $100 million quarter which we came close to in Q3. We expect revenue in the range of $120 million to $122 million and adjusted operating loss in the $1 million to $3 million, which reflects the Boltmade acquisition and excludes the $9 million of expected stock-based compensation expenses and related payroll taxes. We’ll talk about our outlook for 2017 with our fourth quarter report in February but I’ll share a few closing thoughts and how we see the future shaping up. Certain industry trends have been very favorable for us. We see continued strong demand by merchants looking to leverage our multichannel commerce platform. On top of this, there has been, and we expect to continue to see very rapid growth trends in online retail, which has driven GMV per merchant higher quarter-after-quarter. While these provide reliable tailwinds for continued strong growth, we believe the primary reason we will continue to gain share of this growing pie is as both Tobi and Harley referenced our strategic focus on merchant success. This means continually reevaluating the platform capabilities necessary for merchants to strive at every stage of growth and also investing in the partnerships and projects that we believe will help future proof their success. Although these will require investments, some with longer payback periods than other, we continue to feel comfortable with our profitability target for the fourth quarter of 2017. With that, I’ll turn it back to Katie to start the Q&A.

Thank you, Russ. Because we have so many listeners wanting to ask a question, in order for everyone to get a question in, we ask that questioners limit themselves to one question. So with that, Denise, could we please open the line for questions?

[Operator Instructions] Your first question comes from Kevin Krishnaratne with Paradigm Capital. Your line is open.

Good morning. Question for you, great numbers; wondering if you could speak to trends on ARPU and subscription revenue. It’s looks like the revenue -- subscription revenue promotion is going up nicely. I’m wondering based your comments, in the quarter there have been notable impacts from Plus; is that from uptake of more apps or would that be simply from merchants upgrading into a higher tiered plans? Thanks you.

This is Russ. It’s really all those factors. As Harley mentioned, Q3 was a record quarter for new Plus merchants coming to the platform. In addition to that, we’re seeing with the higher pricing and the advance program, some merchants coming and picking our plan as well and then, just in general, lots of new merchants. In the quarter, we’ve also seen the revenue from the sale of apps themes and domains little bit stronger as well.

Your next question comes from Monika Garg with Pacific Crest Securities. Your line is open.

Russ, on the yearly guidance, revenue guidance, you’re raising midpoint $15 million but operating loss is going lower by only $1 million. So, maybe reasons why we’re not seeing more leverage? And then Boltmade, how much is operating expense it is adding in Q4? Thank you.

I think consistent with what we said in the past, we’re still in a fairly heavy investment mode, Q4 in particular. We need to make sure that we have all the infrastructure and the people in place to support the merchants through that holiday period. The main change from our previous guidance is the Boltmade acquisition which will result in about $1 million and $1.5 million of expense hit in Q4.

Your next question comes from Jesse Hulsing with Goldman Sachs. Your line is open.

I have two quick questions on Plus. First, you mentioned your team is becoming ramped to productivity. I’m curious what’s your forward hiring plans are for Plus. And then second, when you look at the legacy platforms that have been share donors to Plus over the quarter or the last couple of quarters, I’m wondering, if there is anyone that stands out? Thank you.

It’s Harley, I will take this question. So, I’ll start with the second question, just about legacy platforms. We did have a marketing campaign going for majority of Q3 that really targeted Magento migrations, and so that was really the primary focus of that campaign. Although we’re now expanding our migration campaign to include some other legacy platforms, it is really the initial one who’s geared towards Magento. One the first question about how many sales people do we have, certainly that sales team continues to grow. We also now have a better sense of how long it takes to fully onboard a sales person, so they get to capacity fairly quickly. So, you will see that team continue to grow but currently, it’s just around 30 people on the sales team.

Your next question comes from Kenneth Wong with Citi. Your line is open.

I’m just wondering, have you guys taken a look into your customer metrics heading into holiday season, just wanted to get a sense of how it might compare to last year since I think last year was a little softer, not necessarily for you guys but just retail in general. So, just wanted to see what the macro and retail backdrop is heading into the busy season?

Yes. I mean, we’re seeing very good growth in GMV. Again, in Q3, we doubled year-over-year. Interestingly enough the GMV for Q3 was greater than the total amount that we did in 2014. And so, we continue to see a very strong growth of our merchant base. So, I mean with 325,000 merchants now on the platform, it’s difficult to predict the exact number but definitely nothing that we are seeing would indicate a slowdown there.

Your next question comes from Michael Nemeroff with Credit Suisse. Your line is open.

I’m just curious, Russ, the payments penetration spiked this quarter. I’m wondering what caused that. And then just also, when I look out in Q4 for merchant adds, last year was a fairly strong quarter of merchant net adds. Do you think that the merchant adds in Q4 of this year could outperform what you did last year or is there something special about last Q4? Thanks.

So, I will take the first question on payments penetration rate. I mean, we’ve had now more merchants being added in all the core geographies that we have payments. And so penetration continues to move up in the North American market. UK, now, we are at around 75% of the merchants using Shopify Payments. In Australia, which we launched in Q4 of last year, we’re already now at roughly 60%. So that penetration is really just as these are available in our key markets and we’re on-boarding lots of new merchants, we will see that number to continue to grow. In terms of the merchant adds, I think it will again be strong in Q4. The thing to be a little bit careful of there is during the year we just announced when we achieved milestones and then we provide a more indicative number at the end of the year. And so, depending on when we pass the particular milestone within a quarter, the Q4 number could look larger or smaller based on that.

Your next question comes from Gil Luria with Wedbush Securities. Your line is open. Your next question comes from Terry Tillman with Raymond James. Your line is open.

I got one question, six parts. I’m kidding, Katie. My question relates to the Plus business. I mean, can you all quantify a little bit more in terms of how material it is now? And related to this, as you’re having partners, whether they are referral partners or actually agency partners that sell it, is that actually allowing you to not have to invest as much in direct sales recourses for that Plus business?

On a relative basis, Plus in terms of the merchant count is a small piece of our 325,000 merchants but in terms of the MRR that we drive from them and the GMV that they process to the platform, certainly a higher impact on that. I think on the partners’ side in lot of cases, we still will work with that partner as we want to get them up to speed and it does reduce the amount of effort on our part. But we’re still in the early stage of that partner program. And so defiantly, still some effort require there. But a lot of these partners are same partners that would have may be years ago got them up on Magento and now they have moved to the Shopify platform. And so, it really is going to help us ramp that program.

Your next question comes from Gus Papageorgiou with Macquarie. Your line is open.

Just by my calculations here, it looks like the average revenue per merchant in the quarter was up about 28% year-over-year. I’m wondering is that a fair representation of what’s going for your average customer or is it that there is a cluster of customers that are doing really well and -- a bunch of it and everybody else is suffering. And if you have time for a second question, I’m wondering if you could quantify, how much of your customer base came from Amazon’s web stores, how significant was that? Thanks.

I’ll let Harley take the Amazon question. In terms of your first one, it’s really the whole merchant base continues to perform. I mean, one of the key elements of our business model is one, the subscriptions piece; and then secondly, once we have those merchants, we can gain a greater share of their wallets. So, whether it’s payments where in the quarter we process $1.5 billion worth of payment, whether it’s shipping, whether it’s capital or cash advances, all of those add to that. And so, I think that’s really the strength of Shopify.

It’s Harley, I will take the Amazon migration question. So, as you know now that migration is over and we’ve received all the merchants we could from Amazon. As a percentage of total merchants on our platform, it is of course a very small percentage. But what it did do is did two things. It was an endorsement to the industry that Amazon thought us we were great product, which was fantastic; we also go merchants onto Shopify that may have not otherwise came onto Shopify as well. But as a percentage of total, 325,000 merchants is fairly small.

And would it have influence to Q4 adds last year?

It really took place this year. So, I mean once the original announcement, we started to get merchants right way. And it should also be noted that we -- as part of our partnership with Amazon, they will continue refer us other merchants as well.

Your next question comes from Brian Essex with Morgan Stanley. Your line is open.

This is Ivan Holman pinch hitting for Brian. Thanks for taking the question. Could you help us understand what the uptake of Shopify Capital is; are we seeing a meaningful contribution there as enter the holiday season? And how do you anticipate it will impact your balance sheet and how do you decide how much risk to take on? Thank you.

It’s a good question. In part because of a successful follow-on offering, I think we can do a little bit more on Shopify Capital with our own balance sheet. The addition of the insurance by EDC allows us also to ensure that we are not taking unduly risk on that that side of it. I think what you’ve seen as we talked about even since the end of Q3 is a lot of additional cash advances were provided to the merchants. The key for us on the Shopify Capital is not so much that we can make a good return on that; obviously that’s an important piece of it, it’s more of that for lot of these merchants, it’s difficult to get working capital financing. And so, we’re meeting a real need there. Those merchants there then growing their businesses which makes them stickier on the platform. And because they are using Shopify Payments and in lot of cases now Shopify Shipping, we also partake in that as well.

Your next question comes from James Cakmak with Monness Crespi Hardt. Your line is open.

As you guys ramp up your efforts in Plus, how should we think about the metrics? Will there be kind of a change in the growth profiles across the merchant base and MRR base as we put what seems like to a lot more emphasis on Plus, so potentially slowdown in the customer account number but I’ve taken MRR? And then secondly and just real quick on the follow-on offering, could you just talk about how you are thinking about it, you mentioned the Shopify Capital was just -- how we should think about using that?

In terms of our core metrics, I don’t see Plus really changing that. Really the ones that we care most about is the MRR; obviously having a Plus merchant at a much higher price point helps to grow that MRR number. And then because of the nature of these large brands, the GMV which is our other key metric will see growing as well. And so, I think what you will see is good growth there in part due by adding some of these larger merchants. In terms of the follow-on, it was designed to strengthen our balance sheet, which is a good use of that cash is for the merchant cash advances, but it also gives us flexibility to do acquisitions similar to the Boltmade one that we did in the quarter and the Kit one earlier this year. So, we’re constantly looking at the sort of founder-led companies that have a great team that can help advance our roadmap.

Your next question comes from Richard Davis with Canaccord. Your line is open.

It’s [indiscernible]. So, not sure if this is better for Russ or Harley, but we occasionally get questions around customer churn just given your SMB core and this is generally a higher churn market. I know this is a bit of misleading metric for you guys as you have some really small customers. But I guess my question is, is there certain GMV threshold that a merchant gets to where you see a step function improvement in retention and then anyway you kind of approximate what percent of your 325,000 customers are over that threshold?

Yes, I mean for a lot of merchants, they just like the platform as their sort of web presence as well. So, I wouldn’t say that there is any threshold that -- the thing we find is if there is going to be people leaving the platform, generally it’s because they are closing their business. And that happens within that sort of first three to six months period. Once you as a merchant start getting some sales and so time to that first sale is something that we are always looking at how do we improve that for the -- or help the merchant to improve that, the churn potential goes down significantly.

Your next question comes from Ross MacMillan with RBC Capital Markets. Your line is open.

Hey, Russ, I was just curious, the Merchant Solutions, gross margin was actually down sequentially. And I would have thought that as Capital and Shipping pick up in the mix that that would have driven a higher gross margin. Was there anything to say there as to why it was down sequentially? And then just one quick follow-on, we noticed in the filing that your marketing dollars spend on AdWords and social actually has been down sequentially for the last couple of quarters. And I just wondered if that was seasonal or whether there was any shift in spend as you begin to drive more investment into partner programs or similar? Thanks.

I would say in terms of your second part on the advertisement, we continue to invest in acquiring more merchants that’s kind of the key for us, particularly since we can then partake and have greater wallet share. I would say in Q1, the new [ph] program is one that drove up some of the spend there. So that didn’t happen in Q2 and Q3. So that would be my only sort of rational there versus deliberately us cutting back on the spending. And I’m sorry, can you repeat your first question?

Just on the gross margins for Merchant Solutions, those were down sequentially, be it being going up since the third quarter of last year sequentially. And I would have thought that maybe as the net revenue line items i.e. Shipping and Capital expand in the mix that we would have seen Merchant Solutions gross margins up sequentially but they were actually down sequentially. I was just wondering, if there is any color as to why?

Yes. I mean, there is some real tailwind that will help that margin, as you mentioned Shipping and Capital are our key parts of that. The other one is internationally we do get a higher margin on the payments business. And so, as the UK and Australia continue to ramp and now we’ve launched in Ireland that will help there. In terms of the headwind, we’re getting a little bit more aggressive to get Plus merchants on Shopify Payments and for these larger merchants, we have larger volume. It is more competitive but it’s something in that we think is the right thing in terms of the gross profit dollars. So, you may see quarter-to-quarter little bit of fluctuation as the opportunity and get some Plus merchants on there is something that we target.

Your next question comes from Tom Forte with Maxim Group. Your line is open.

On social, how should investors think about the adoption rates for consumers when it comes to the buy buttons on social networks and how has that progress to date? And do you see any catalysts for that in the future such as improving take rates for mobile payments and what other catalysts could there be to drive adoption for the buy buttons in social? Thank you. Tobi Lütke: So, the main reason why Katie for like us one question only is, because I sort of have one of those one question brains. So, I will try my best to take that from the top. I think generally what you’re looking for is like how we’re feeling about social and buy buttons and all those kind of things. They are growing, like every one of these channels we launched have been growing faster than the online store between catching up, in some cases like completely admittedly but some small numbers, especially when you compare them against other [ph] platform. But we mostly compare ourselves as trend line and both are doing fantastic. So zooming it out a little bit, the amazing thing that’s going on, on the platform, I think this is kind of the more important point. The amazing thing that’s going on in like year and a half ago -- many of you known the platform, a year and half ago throughout the industry, almost everyone who fits the profile of our customers chose a channel for their business, like that shows a go to market strategy for the products, and that this completely removed that choice. And it’s now I’m going to go Facebook; I’m going to do Instagram; I’m going to get there go, because why not, and then I also will have my left side. And I think this has been leading a significant percentage of the people on the platform to success. So because it’s -- every product has kind of a different sort of native idiomatic place for where and how to connect the specific customers. Again, as I said, the messenger platform is just really, really promising. I don’t think like have it completely figured out and we -- I mean not just Shopify but also Facebook and like the people will make these platforms. But it’s such a powerful idea because in a lot of ways, the development of the internet actually took away the sort of going into a store, having a conversation with the shopkeeper who understands the product and then making purchasing decisions, like all of the messaging platform efforts are doing -- we are actually reintroducing the thing we took away from people. And there is no need to validate a demand for this, everyone intuitively understands that this is people want to do it. We’re just sort of negotiating exactly what form this is going to take. And so, I’m really happy; I’m looking at all these platforms. There is a torn of our customer base now selling across multiple channels as a percentage as we are talking. And so things are looking -- I’m really, really thrilled with what’s going on there.

Your next question comes from Brad Sills with Bank of America. Your line is open.

Just one on the app store; could you provide a little color please on which categories you are seeing more traction? And if any of those categories would make sense for at some point Shopify to offer in the platform itself?

So, in terms of core functionality that we would do ourselves, Shopify’s core offering will always do what most people need most of the time. But that definition is dynamic. For example, years ago, there would have been apps in the app store that allowed you to mobile optimize your sites; today mobile is just something that needs to get baked into the core functionality of Shopify because it’s such a main stay feature for our merchants. So, we’re constantly reevaluating what the product needs. But the idea really is that the core offerings most people need most of the time and everything else you are able to get by the app store. In terms of the first part of question around app categories, if you look at the app store today, the categories are vast. It ranges everything from shipping to analytics to things like marketing and it really does depend on the particular need with the particular merchant. So, there, obviously when you are just getting started, you may be playing around with a bunch of marketing apps and eventually once you have an email list or list of customers, you may decide to use email marketing which comes sort of after that. You really don’t need analytics and more reporting once those apps -- once you start selling at scale. And so, it really depends on the period of time and where the merchant is in their own lifecycle. And that’s the reason why we need to offer apps that really do -- are really important for particular merchant’s needs and not something that is a one type fits to all.

Your last question comes from Todd Coupland with CIBC. Your line is open.

I wanted to ask about Nestle. I thought it was interesting you’ve added a enterprise there. Are you able to expand into other large enterprises as something we should expect in the coming quarters?

Hey there, it’s Harley. I’ll answer that question. The way things work with Nestle and what we’ve been seeing is that one of these large brands, one of these multinationals comes to us because they need to get something up and running fairly fast, but it has to be robust and has to be easy to customize. And so, they will start with some sort of smaller store with Shopify Plus. What tends to happen is they enjoy the experience so much, they tend to bring on more of those stores, more of their other properties as well. In the Nestle, they just had a great experience at Shopify Plus unlike anything they’ve encountered from any other enterprise platform in the past. And so, they wanted to make it really easy and extremely fast to get in other brands up. Nestle is a great one of course because as I mentioned in my opening remarks, they have more than 200 brands. So, this sort of model is something we’re experimenting with Nestle but certainly something that I suspect may happen with other big brands as well.

We do have one more question from Eyal Ofir with Dundee Capital. Your line is open.

Just a quick question for you on the Apple Pay take up. It looks like you guys have seen pretty good take up from the merchant base. I’m just wondering from natural merchants solutions standpoint, how should we think about from a revenue for Shopify?

That’s the nice thing about Apply Pay as Tobi mentioned, the conversation rate is higher and it also is much quicker to complete the transaction, when the customer has Apple Pay. From the Shopify platform, that’s just like any other credit card come into the platform and so if that merchant is on Shopify Payments, which the majority of them are, then we see that like any other revenue.

Okay. So, you don’t have to split that piece or portion of this with Apply Pay instead of I guess your other third party suppliers?

That’s right. So, all of the -- from our point of view, it’s like any other credit card transaction.

There are no further questions at this time. I’ll turn the call back over to Katie Keita.

Thanks Denise. Thanks everybody for dialing in today. We have a few closing remarks from Tobi. Tobi Lütke: Thanks for joining us again. I think we demonstrated again that -- we released to lot of products, we’re thinking a lot about what things will become important in the future in our industry, increasing the -- of course we’re trying to influence it, because I think we have a little bit of a clearer vision for where all things have to go, just sort of move of getting transactions built into operating systems that we use every day and how much, like we’ve been pointing out, how much of afterthought commerce has been on the internet. It’s something that has been very clear to us for a long time but it’s actually fairly surprising to people than I mention it to them first time. And so, this is sort of a role we want to play, be like step by step, bit by bit. We’re going to make it so that in 5 to 10 years everyone is going to ask why we’re paying this way beginning of a decade, why did we not develop all these things, which are clearly used every day by hundreds of maybe billions of people; why they are not there from the beginning. So, that’s the direction we’re looking towards. In a more immediate sort of short term, we’re going to go into Black Friday, Cyber Monday time of the year, which is of course a big deal in the North American market which is still very large percentage of our customer base. It’s fun like we all get together and take rooms and look at massive screens of this telemetry data. It looks sort of like a company getting together for like an nerdy version of Super Bowl, if you will. And we make sure everything is going to run really well and everything is fast and people are going to have good sales and that’s sort of the next thing on the plate for us. And we’ll speak again I guess next quarter. Thank you.

This concludes today’s conference call. You may now disconnect.