Katie Keita - Director of IR Tobi Lütke - CEO Harley Finkelstein - COO Russ Jones - CFO

Darren Aftahi - Roth Ken Wong - Citigroup Michael Nemeroff - Credit Suisse Richard Davis - Canaccord Nikhil Thadani - Mackie Research Sam Kemp - Piper Jaffray Jesse Hulsing - Goldman Sachs Tom Forte - Maxim Group Monika Garg - Pacific Crest Securities Ross MacMillan - RBC Capital Markets Gus Papageorgiou - Macquarie Kevin Krishnaratne - Paradigm Capital Terry Tillman - Raymond James James Cakmak - Monness Crespi Hardt Brian Essex - Morgan Stanley Todd Coupland - CIBC Brad Sills - Bank of America Abhinav Kapur - BTIG Eyal Ofir - Dundee Capital

Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to the Shopify Q4 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Ms. Katie Keita, Director of Investor Relations you may begin your conference.

Thank you operator and good morning everyone. We are glad you can join us for Shopify’s fourth quarter 2016 conference call. Tobi Lütke, Shopify’s CEO will open today’s call, afterwards Harley Finkelstein, our Chief Operating Officer will discuss what is new and we are focused on with regard to partners and Shopify Plus. Then CFO, Russ Jones will review our fourth quarter results and our expectations for 2017. Then as usual, we will open it up for your questions. Note that we will make forward-looking statements on the call today these are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our statements. We undertake no obligation to update these statements except as required by law. Information about these risks and uncertainties is laid out in our press release this morning as well as in our filings with securities regulators in both Canada and the US. Also our commentary today will include adjusted financial measures which are non-GAAP measures. These 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 US dollars, so all amounts discussed are in USD unless otherwise indicated. And with that, I will turn the call over to Tobi. Tobi Lütke: Thanks Katie, and hello everyone. So looking our accomplishments in 2016, the list is pretty gratifying. We had our first partner conference which far exceeded our expectations not just in terms of people attending but also in terms of just connecting with people and educating. We added Facebook Messenger as a channel which lets merchants and their customers connect in a more conversational way which is something that e-commerce just didn't really have before. We added Apple Pay as an option for merchants to offer to your customers, it's roughly doubled its conversion rates on phones that’s enabled. And we launched a complete refresh of our mobile app which we saw tens of thousands of merchants start using and so running your entire business from your pocket is now something that a lot of merchants are doing. We also launched Shopify Capital, added Canada Post as a shipping partner, expanded Shopify payments into new countries and added several new channels most notably amongst those that Amazon channel. Our to-do list for 2017 is even longer than that. Luckily we have twice as many people working on the platform as he had last year. We expect great new releases by us all across the year, which will help make merchants more successful which is really what this company is all about. So let me turn it over to Harley and Ross, who can fill you in on the details.

Thanks Toby and hi everyone. Thanks for tuning in this morning as we take a few minutes to highlight a few things we've been working on and how these initiatives are creating value for our merchants, for our partners and for Shopify. We're often asked what's next, what aren’t we doing today that we could or should be doing. It's important to understand that as we continue to strengthen our platform or focus on what's best for most merchants most of the time. In other words, every time we launch something that lowers friction makes our merchants work easier or their outcome better we have created value. It is this hyper focus on the merchants entire retail operation that make Shopify truly unique. My DA origination and deciding on which sales channel sell their products as well as the ever growing to-do list after their business is launched. Merchants have the source store manage inventory. You’ve have to figure out the most effective way to spend marketing and advertising dollars. We have to learn the best way to engage or retain customers and offer superior experience whether it's in person or online. They also need to know about things like taxes and shipping and charge backs and so much more. It's not easy, early stage entrepreneurs soon discover that there's so much more to commerce than simply adding a buy button to a blog. It's far more complex which to us presents an incredible opportunity. In other words, we don't do these things because they're easy, we do them because they're hard. Our role is to reduce the slope of the learning curve and remove complexity for entrepreneurs. This is how we add value. This is how we make retail better for our merchants because what's good for merchants is good for us. The selling Amazon channel is a great example of this. We launched this channel publicly in December to more than 225,000 merchants on Shopify who are selling in US dollars and already thousands of our merchants have added products to Amazon. As you know there's currently no direct-to-shop by revenue today from this additional channel. We don't charge for it and the Amazon GMV does not get counted towards Shopify GMV rather the primary benefit of this integration is to merchants. They can now more easily connect to Amazon's vast audience which is buying intent. And of course with every new channel merchants get a broader view of their success across all channels and an integrated point for managing them more firmly establishing Shopify as the center of their entire business. One other and perhaps less visible benefit, this is our first large scale marketplace integration. This means that the work that went into the Amazon channel has paved the way for future development of other marketplace integrations. None of our current channels have ever required us to help our merchants look at their Shopify skews through taxonomy as stringent as Amazon's. So we acquired a lot of knowledge from this integration that can be leveraged in the future. Shipping also demonstrates our merchant centric philosophy. Earlier this month, we made carrier calculated shipping available to all merchants whether they're using Shopify shipping or not. In Q4, we saw merchant adoption Shopify shipping continue to expand in both the US and Canada and we expect this trend to continue as we add new features and new shipping partners. Beyond shipping, Shopify capital has now provided more than $35 million in merchant cash advances helping thousands of our merchants secure working capital quickly and easily which we're able to use to purchase more inventory, launch new marketing campaigns and accelerate their growth. A huge part of the value created for merchants comes from our partners and Q4 was our best ever for our partners. We had a record number of new partners join our partner program, a record number of partners prefers new merchants and a record number of new merchants referred by those partners. Over 11,000 partners referred as new merchants in 2016 and that program continues to grow. In addition, our merchants are buying more apps through app store which is good for their business, good for our third-party ecosystem and good for Shopify. Shopify Plus had another incredibly productive quarter, again setting a record in the number of new merchants sign on to Shopify Plus in Q4. And more importantly more than doubling the MRR coming to Shopify from Plus subscriptions over last year. Much of the rapid growth was driven by the new Shopify Plus partner program we established in Q2 which has welcomed some of the largest agency partners globally. Not only are we bringing on many new merchants onto Shopify Plus, but our existing Plus merchants continue to grow their businesses on our platform. If we look at the largest 20-plus shops who've been with Shopify for at least two years, on average these shops collectively sold 130% more this year than last year. With this incredible growth, the popularity of Shopify Plus should come as no surprise. We also had some really cool launches on Shopify Plus in Q4. One in particular is a Canadian Football League who launched a shop in November for Canada’s Grey Cup, which is kind of like the Super Bowl only more polite. The league set up real-time updates to the merchandising, so whenever a football player scored a touchdown that players jersey was immediately showcased on their online store. In case you missed it, the Ottawa Redblacks won the game. Other Plus clients that launched in the past few months include Bulova watches, Doctors Without Borders, [indiscernible] Zippo, the Fine Arts Museum of San Francisco and the Wall Street Journal. We also had some incredible events last quarter that showcase our in-store point of sale capabilities. Kylie Jenner and hip hop artist, The Weeknd both hosted wildly successful pop-up shops over the holidays all powered by Shopify’s point of sale. Shopify helped bring their vision to life for their millions of fans and offline retail proved to be an incredibly powerful sales channel for them. We're hosting another Kylie pop-up right now on Mercer Street in Manhattan for New York Fashion Week. Those of you who are in the neighborhood should soon buy and check it out. Overall, it's clear the investments we made in Shopify Plus in 2016 delivered amazing results. Shopify Plus signed over 1,500 new merchants bringing us to 2,500 merchants at the end of 2016. And of course we've been adding since then. We've added Shopify scripts, built a new partner program, moved into new offices, hired over 100 new people and added a development team from Boltmade. An important change for Shopify Plus in 2017 will be the transition from fixed to variable pricing which is a pretty natural evolution as Shopify Plus grows and accommodates a more diverse portfolio of merchants. What this means for our Shopify Plus merchants is better alignment between what they pay, their uses of the platform and the value they realize from Plus. And it was important to do this now ahead of the continued strong growth we are anticipating for Plus in 2017 and beyond. So all-in, a phenomenal year for Shopify all around and with more of the pieces in place and the investments we're making we're looking forward to even greater achievements in 2017. And with that I will turn the call over to Russ. Russ?

Thanks Harley, and thanks everyone. I'm happy to report we had a strong Q4 helped of course by holiday spending and retails continued shift to online. Before I take you through the numbers just to let you know I'm going to tweak the way we normally do this call and save you from listening to me read through every financial detail. Instead I'll just focus on the highlights so we can leave more time for your questions. Starting with revenue, in Q4, revenue grew 86% year-on-year to 130.4 million thanks to strength across the board. The monthly recurring revenue at quarter end grew 63% to 18.5 million. Gross merchandize volume grew 94% to 5.5 billion. Of this amount 39% or 2.2 billion was processed on Shopify Payments which compares with 1 billion or 37% of Q4 2015. Our merchant solutions take rate grew to 1.34% of GMV this past quarter from 1.25% in Q4 last year. This was due to increased penetration of Shopify Payments as well as increased adoption of Shopify Shipping and the introduction of Shopify Capital. Take rate as you know measures the degree to which we sharing our merchant’s success. And finally a record number of merchants joined Shopify in Q4 and we surpassed 375,000 merchants of which approximately 2,500 are Plus merchants. The drivers of new merchant adds in Q4 was consistent with prior quarters with organic, digital, marketing and partners all contributing to the growth. While we continually experiment with new ways to attract merchants, we’re also big beneficiaries of a larger trend towards multi channel commerce, well equipped for retail shift to mobile and social, and designed specifically for the millions of potential entrepreneurs looking to join today's gig economy. Gross margin dollars expanded by 87% in the quarter faster than revenue. A few factors helped here. In subscription solutions, we benefited from the impact of the higher Q4 volume on our infrastructure costs and a smaller amount of low theme margin revenues. In merchant solutions, Shopify Payments cost declined slightly as a percentage of revenue due to both operational improvements and the impact of additional geographies. We also benefit here from the introduction and growth of higher margin revenue stream such as shipping and capital. As a small housekeeping item, provisions for charge backs are now included in G&A instead of cost of revenue, which we believe more accurately reflects the nature of the cost and more closely aligns with industry standards. Our adjusted operating loss came in at less than 1% of revenue for the quarter at 800,000 compared with $1.3 million loss for Q4 of 2015 or 2% of revenue. The seasonally high revenue in the fourth quarter allowed for greater leverage on our adjusted operating expense which came in a 53% of revenue, a decline of 100 basis points from Q4 of 2015. Our adjusted net loss for the fourth quarter of 2016 was 0.4 million or $0.00 per share compared with 1.1 million or $0.01 per share for the fourth quarter of 2015. We invested heavily in 2016 and we saw some amazing results. We are entering 2017 with twice as many employees, thousands of additional partners and tens of thousands of new merchants, a stronger leadership position and a market opportunity that is even greater than it was a year ago. As a result, we expect to be even busier in 2017 and plan to continue to invest in product, growth and Shopify Plus. First, product, our investments this year are largely to future proof Shopify by the product through investments in our platform or data and our infrastructure. Much of the work in 2017 is to make Shopify the platform even easier to build on for both ourselves and our partners giving our developers internally and externally better tools and APIs to help keep Shopify bleeding edge position. For data, our focus is on further leveraging our vast doors of transaction data for not only our own improvements but also for merchant’s success. Just think, a new brand merchant on Shopify gets the benefits of data coming from the billions and billions of transactions that we've processed over the past ten plus years and it's growing all the time. And finally to keep our infrastructure resilient and scalable as the number of merchants on the platform grows, we plan to further take advantage of the ever improving cloud cost and capabilities. While this will result in some redundant cost in 2017, we expect to realize future benefits particularly as we scale globally. Our second major area of investment in 2017 is focused on growth, we would be crazy not to capitalize on the evolutionary moment in the development of retail. So this means a new scaled addition, build a business competition, a partner conference that will that is expected to be nearly twice the size of last year, targeted branding campaigns and doubling down on content creation. Finally, we will continue to invest in Shopify Plus in both product and growth by building additional features and functionality that optimize Shopify for high volume merchants and bring on new sales and sales related hires. With this in mind we are expecting continued strong revenue growth in 2017 in the range of 580 to 600 million and an adjusted operating loss in the range of 18 to 22 million. For the first quarter we expect revenue in the range of 120 to 122 million and an adjusted operating loss in the range of 9 to 11 million. Given our planned 2017 hiring especially in R&D, we expect stock-based compensation to amount to 55 million for the full year with about 11 million of this occurring in the first quarter. We believe our continued rapid growth indicates that the fundamental transition in retail is still in its early stages and that our growth trajectory extends well into the future. As such we believe our long-term focus combined with our business model that aligns our own interests with those of our merchants will serve us well for many years to come. And with that I'll turn it back to Katie to start the Q&A.

Thank you, Russ. All right, so before we open up the lines for questions, I want to remind everybody that we would like you to limit yourself to just one question. So everyone gets an opportunity to ask a question. All right, so Sharon can we open the lines out now please.

[Operator Instructions] Your first question comes from Darren Aftahi from Roth. Your line is open.

Just if I may on the adjusted operating guidance. Can you sort of talk about what's driving the higher operating loss at kind of the high end and just as a derivative. Can you touch on the impact of what shipping was on gross margin and kind of the impact going forward of adoption. Thank you.

Thanks Darren, in terms of the larger operating loss sort of the high end, again if you look at it for the full year we're talking about roughly a 3% of revenue or operating loss. As I think, we’ve talked about and firmly believe we're in a very strong position as the company right now and the market is in a very good spot. And so we just think investing for the long term is the right thing to do. In terms of shipping, clearly Q4 was the strongest contribution of shipping to our overall performance. Since we record shipping on a net basis, the impact is larger on the margin than on the revenue side and so definitely saw an improvement in the merchant solutions, margin for the quarter due directly to shipping as well as capital also had a very strong contribution.

Your next question comes from Ken Wong from Citigroup. Your line is open.

Hi Harley, I was wondering if you could maybe provide a little more color on the shift of variable pricing with Plus, any sense on timing and just maybe some of the mechanics around how that variable component will work?

Yeah, it’s Harley here, so I’ll take the question. So as many of you will recall, Plus really started as a bit of experiment here, we didn't really have so much data when we launched Shopify Plus a couple years back. And as we begin to get more data, we're now modifying the pricing. So the change is really moving to $2000 a month which comparatively to any other mid market solution is incredibly great value. For those selling more than $10 million a year, there is an additional fee which better reflects their use of the platform and of course our costs and that will be 25 basis points of GMV. In terms of the rollout for that, February 1 was the date for all new merchants and then for existing merchants that are on Shopify Plus already there they will have - they’ll rolled out over the next six months or whenever their contract is up. So again the change is really to reflect some of the larger merchants that are now beginning to come to Shopify Plus and their use of the platform relative to our costs. So we'll see that change pretty soon.

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

I'm really interested in the geographic breakdown of the business and where the strong subscriber growth is coming from and how much of the business do you expect to be outside of the US over the next couple of years versus what you've done in 2016. Thanks.

We have merchants now in over 175 countries on the platform, our core geographies which is really North America, UK and Australia account for a good portion of the emerging growth. In terms of merchants themselves just under 60% are coming from the US. We continue to see both in terms of the number of merchants and their impact outside of these core groups continue to grow and we expect that to continue.

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

I don't think I heard that your mix of kind of GM V is from online retailers versus brands going to direct to consumer, but kind of what was that mix. And then kind of a corollary to that then would be to what extent as you push forward towards the retailers and omni-channel and those kinds of things, why would it not make sense or would it make sense for you to push deeper into kind of either fulfillment, EDI, returns, systems and things like that and obviously you're not going to run trucks but just kind of how you think about expanding that functionality matrix? Thanks.

Okay that’s two questions, but we will take each of those…

It’s one and half.

All right, so starting with I think the brands and direct to consumer, I will give that one to Harley and then Tobi can address your fulfillment question.

In terms of brands, this sort of this whole concept direct to consumer something that's pretty new, what we're seeing now is Shopify Plus’ brands that typically never went direct to consumer in the past are now beginning to do so. Some of them start as promotions where they do you know particular marketing campaign and then realize hey there really is a business here to sell our products right to the end user. So we think Shopify Plus is really well positioned to take advantage of that particular trend. But again that's something pretty new for us. Most people on Plus initially were retailers, now we're starting to seeing these larger brands come on. Tobi Lütke: Let me just address quickly. I mean I haven't got anything really great for you on the fulfillment side, it’s like we spent a lot of time looking at it, it’s one of those kind of parts of the business for every one of our merchants that - it's very complicated but they have to [indiscernible] living room and want to sort of become more professional. We have a lot of partners together so this is really the way we’re thinking about. This will now be building great APIs to allow warehouses and fulfillment systems to pluck directly into the platform that’s working exceptionally well. And we’re also seeing like the large logistic companies like FedEx and so on thinking about some of our capabilities that larger online retailers have been building for themselves. And so we're hoping to [indiscernible] of the land for fulfillment at this time.

Your next question comes from to Nikhil Thadani from Mackie Research. Your line is open.

I just wanted to go back to Plus for a second here, as you’re sort of investing into that product and you have some data here, what does the sales cycle for this product look like and how has that changed over the past year, is the sales cycle getting compressed or is it getting elongated, just any color on what you're seeing out there. Thanks.

Hey it’s Harley, I’ll take that question. So in terms of sales cycles, first of all, I mean our sales team is getting more mature and as we get more mature we're learning how to better sell. It's a variety of different sales cycle simply because we have so many different types of merchants on Shopify Plus. Keep in mind that many of our Shopify Plus merchants today were upgrades. So obviously in those cases it's a fairly quick sale cycle to move them on to Plus. In other cases when we're working with bigger companies whether it's Nestle or the Procter and Gambles of the world that's new for them, they have most of them have not sold direct to consumer previously and so those seem to take a little bit longer but we're getting really good at figuring out what every type of Plus merchant requires and for the reduced net sales cycle.

Your next question comes from Sam Kemp from Piper Jaffray. Your line is open.

The question is, you guys called out that social channels around pacing online stores and I wanted to ask is that something that's relatively newer, is that getting stronger and then maybe a sub-question that if I may. How you guys think about Instagram and potentially having a direct integration into that channel. Thanks.

In social selling in general. Tobi Lütke: I just want to clarify that the question about Instagram. You social tenants - having trouble to figure out exactly how to address this like you know like a lot of it was forward leading from us like let’s say hey, like this is something we are seeing, in fact we've watched Instagram for years and there is countries in the work where a lot of the commerce activity happens through people taking pictures of their product next to a price tag and then you know contacting each other through Instagram. So this is a wonderful thing about commerce is really just how global it is and that almost every experiment, anything that we can dream up someone is like - is actually going on some plan. If we just look more enough and increasingly with our platform we actually have a data to when pick out where people are actually reacting like this and find it and look at it and sometimes travel and learn from that. And so you know like all of the social efforts were extractions from something people that are already doing which in my eyes is always how to make the best product like don't try to bend the world but rather like bend [indiscernible] expanding like you know it might have been just one country, it might have been just one industry which has done a certain thing and now these information are traveling, and more and more people are tapping into the various ideas and figuring out best practices. And so we are seeing that the growth is accelerating partly due to just general information becoming available like this is a problem of being very innovative. right. Like sometimes it's not just that when we you know build something completely new, we launch it and then everyone knows exactly how to use it. It's actually everyone has to kind of learn how to put these new tools to best use and frankly we have to like observe people using them to make them even better. And this process plays out over and the nice thing is we are now getting to a phase where we have been in the market for years you know some of our earlier channels and so this is now getting to you know into the face of acceleration and this is why the numbers are growing.

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

I wanted to follow up on gross margins and so this is probably for Russ. But did you expect that the improvements and I guess the trend line in Q4 for merchant solutions gross margins continues into 2017 as shipping and capital become bigger contributors. And I guess as a subplot for that, can you remind us where you think merchant solution’s gross margins can go longer term? Thank you.

So with fee as part of our sort of forecasting or projection that we do that we’ll see continued steady improvement in gross margin percentage for merchant solutions. I mean it's never going to be where we achieve on sort of the SaaS component or the subscription side of the business, but there's a number of things in play here. As you mentioned both shipping and capital continue to improve our overall merchant. On the payment side, we're already starting to see operational efficiencies that are improving in North America, our percentages that we're achieving on payments and outside of North America we currently already get a higher percentage margin on our payments business. So as that portion expands as part of the overall merchant solutions piece of the pie, we can see some slow but steady improvement is kind of what we're looking for.

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

Great. Thanks for taking my question. How should we think about customer additions for Shopify Plus, those growing on the platform versus those added by your sales force? Thank you.

I mean, our history has been that half of them have been upgrades and half of them have been new additions to the platform. As these, even brand new merchants that are starting on the platform today continue to grow, it's a very strong migration path for them that they can get access to additional functionality as well as direct contact with account managers and other support people in the organization. So we see both of them continuing to be strong parts of that business.

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

Hi. Thanks for taking my question. A question on shipping. You have relationship to that in USPS and Canada Post, you talked about, could you talk about how you're thinking to add new shippers to your platform, especially other geographies and how you're thinking about increasing penetration [indiscernible] over the next couple of years. Thanks.

Yeah. So in terms of what we have to date, as you mentioned USPS and Canada Post were two of the initial partners on that. Also remind people that we also do stuff with UberRUSH and Postmates. So that provides sort of same day delivery, which is something important for our merchants. In terms of the focus going forward, it's really adding additional carriers. So either a UPS or a Fed Ex or maybe even both of those to expand the capabilities of what we're doing in the area of shipping. We will also add geographies, but in a lot of cases, that's going to be sort of paced by the traditional providers in those places, because we need APIs, we need contracts to make all of that happen. So you'll continue to see strong movement on the shipping side. To date, the product is really focused on people shipping around 150 or less packages in a given month and so the product itself will be expanded to provide a solution for those doing a higher volume. Once you get to the higher levels, so most likely, you're using a third-party fulfillment house and as Tobi mentioned, really our job there is to work effectively with those, so that the merchant gets a seamless solution as they grow their business.

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

Thanks very much and my congratulations as well. Harley, just on Plus, curious have you already tested the variable pricing with some merchants, have you got some entail on the readiness of the base to adopt that? And then second, related to that, can you help us understand how big the GMV from the Plus merchants are relative to the total. Thanks.

Yeah. To start with in terms of the pricing change, so as I mentioned, the pricing change went into effect Feb 1 and obviously we’ve been signing Plus merchants since that point. So those that are coming on are well aware of that pricing change. Just keep in mind, relative to the other players in that space, we think we're providing a ton of value relative to what we're providing them with. Really, the pricing change comes from now having a couple of years of data to look after and understanding what some of the more, the largest merchants are using on our platform. We needed a way to properly reflect their use as well as our cost and we think that pricing change makes a lot of sense. Keep in mind that for most people, they're not necessarily selling $10 million on day one on an annual basis and so $2000 a month is still an incredible value.

And on GMV, do you have a rough estimate of Plus GMV versus total?

Yeah. I mean obviously as we add more Plus merchants, it's going to grow relative to Shopify.

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

Thanks for taking my question and congrats on the quarter. Russ, just -- can we just touch on capital for a minute. So last quarter, you ended up with 15.5 million outstanding. You closed this quarter at 30 and it sounds like you're at 35 now. Can you just tell us a little bit what the accounting on that side, I’m assuming you take provisions upfront and your target was about nine month pay back with low-teens kind of interest rates. Can you just talk a little bit about how you’re accounting for that and if you look into 2017, how big is that 35 million going to grow to? And then second question real quick, can you confirm that you're still committed to reaching operating profit of 1 billion in 2017. Thanks.

Yes. So I'll answer the second part first. So, yes, Q4 2017 is still when we're targeted to hit adjusted operating profit for the company. So no change in that. In terms of cash advances, at the end of fiscal 2016, we had advanced about 30 million. Just a reminder the real importance of doing the cash advances is to really provide working capital to these merchants as they grow their business. As a result of that, a lot of the advances happen pre sort of that holiday period. But the remittances for us are pretty strong during that period. So we ended up, if you look at our balance sheet at the end of the year at about $12 million of receivables outstanding related to our cash advances program. In terms of the revenue impact, as you mentioned, we recorded really on a net basis, so the amount that we earn is spread over us getting fully remitted on that advance, but we do take the provisions upfront. And so -- and that reflected in our G&A costs. So in terms of the timing, Q4 is a bit of, like a little bit difficult to predict, because the volume is so high that you get paid back a lot in a very short period. And so we have merchants that are paying back these advances within weeks, months on that side. In terms of the future amount, we don't have a set goal in terms of how much in advances that we are trying to do. Right now, it's available to our US merchants. So one possibility is to expand that beyond the US.

Your next question comes from Kevin Krishnaratne from Paradigm Capital. Your line is open.

Hi. Good morning, guys. Just one question. Any opportunities for you to leverage sort of your retail knowledge to make Shopping easier for the consumer. I know that you're merchants focused, but just wondering if you've ever thought about potentially even launching on marketplace, just thinking about your flash sales app. I think it was called Frenzy that you launched on Black Friday, which I do think was that pretty innovative. Just your thoughts around that? Tobi Lütke: Yeah, thank you very much. I think Frenzy is a really good example of sort of what we are doing there in this space. Obviously, a small experiment. They targeted at sort of the street where the industry. The general marketplaces, you know, as you well know, there is large and small public companies, which essentially only run the marketplace. It's a kind of, it's not the kind of thing I think you can add as a hobby, attached to the hip of an existing company that looks at something sort of tangential. But we're really interested. I think I think where we've come down, this is obviously a debate that these companies had since it was founded a few -- if you have some fun for way back machine and Shopify, you might see us be in a marketplace for about 15 minutes somewhere in 2006. So we've experimented -- I think we settled on something much, much more powerful, which is, we represent the 375,000 merchants and all of their product, all their products as sort of a unit and through our channel strategy and specifically through developer tools that are attached to this through channel SCK, it's very simple for the people who run marketplaces to come and plug into this merchant base and bring, like represent all of the products that are going on Shopify or just the vertical specific ones. We actually think that's a much more powerful position for us because the one issue we have as, being a marketplace is that the things that we look after are things that people needed actually like long before, computers, 100s of years ago, so they needed to do their bookkeeping of products and manage their inventory and all these kind of things. And they will still need to do that in 100 years from now where marketplaces are very sort of like much shorter time frame kind of thing. The example is like, if this would be, if we would be like 5, 10 years ago right now, we would very much want to be able to sell our products to MySpace, which of course now is completely without value. So the marketplaces come and go, but the back office and kind of boring parts of commerce that we are so good at have a different time frame and so I think the way [Technical Difficulty]

Your next question comes from Terry Tillman from Raymond James. Your line is open.

Hey, good morning. Practically, all my questions have been asked, but I do actually still have one. And Harley, maybe it's in -- by the way, nice job in the quarter. Maybe this is for Harley. In terms of earlier, when you were talking about the Plus traction, part of it I think you attributed to the success you’ve had with signing up agency partners. I guess as you started to work with them, are you finding that maybe your own sales resources or sales capacity you need to sell is less because they’re a lot more productive than you would have thought they would have been at the agency channel that is. Thank you.

Thanks for the question. So what we're noticing, just to be clear, the partner program we launched for Shopify Plus is a different program than our traditional partner program really, because these are larger agencies that are building online stores and retail operations for much larger brands larger and larger companies. So previously to Shopify Plus, they really didn’t have anything to offer. We've seen a lot of success from them. They're excited about the product. They like the price points that we're at. But in terms of them working with the sales team, in some cases, they bring a merchant on to Plus that is fully ready to go and there's no need for sales touch. In other cases, they work collaboratively with our sales team and obviously we adjust our revenue share to them, based on that. But we find that it's a great partnership between our sales group and those partners. And again, it's still less than a year old since we launched that Shopify Plus partner program, but so far, it's going really well.

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

Hi. Thanks. This is obviously a big investment year for you guys, especially given the revenue on that for the year. You mentioned a couple of buckets of investment in infrastructure growth and Plus. Can you just kind of help us understand the magnitude of the investment in each and then I guess more specifically to that, how much is related to around customer acquisition? Thanks.

So no real more specific than what we talked about. I mean if you think of all three, I mean it could be a third of third of third between those. I think the real important sign on the investment is that we can invest in all three to really help build the long term business here and it's very similar to what we did in 2016. Like if you look at our adjusted operating loss as a percentage of revenue, we're targeting roughly the same this year. And so again, we're doing these very thoughtful. I mean I think the one that I'll call a little bit is on the data side. I mean I think relative to lot of our competitors and other people in the industry, we just have this wealth of information and not only can we use ourselves to be more effective, but putting that now in the hands of the merchants, so they can do things that like figuring out what are the right sales channels, reducing their risk of accepting chargebacks, even on ourselves making sure that our underwriting is much more sophisticated and I think really add to the value of the platform. And so I think given again our leadership position and the state of the market, it just really makes a lot of sense to go all in and invest and we're not again talking about incurring big losses and stuff like that. It's going to be the same thoughtful process that we've applied in the past.

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

Hi. Good morning. Thank you for taking the question and congrats from me as well. Maybe this one is for us, Russ. Russ, as we look at obviously asset results for the quarter, and we've called out a couple of things in the past like the datacenter spend and a little bit of pressure that that might have on the margins, but as you think about your estimates going or your guidance going forward, what are the primary things that investors should focus on where we just need to keep an eye out to make sure we don't get ahead of ourselves so to speak, little bit too aggressive, given the strength that you had in the quarter, but pace of the growth that you have in 17?

Yes. So, I think 2017 will follow a similar pattern to 2016 and even prior years. So, Q4 is always our strongest quarter. I mean the fact that the adjusted operating loss was only 800k for the quarter, I think, should give people a lot of comfort in terms of our projection of being profitable in Q4 of 2017. I think, we'll see a little bit more seasonality just because now in addition to the payment side of merchant solutions for the fourth quarter, we also now have shipping and the fact that cash advances, there is such a high level of remittance that obviously ties into the revenue that we generate from that. And so I mean the way we look at the business is really MRR and GMV and so I would just keep looking at those two metrics as you really try to sort of get a feel and size.

Any way to think about take rate, and all these levels of take rate, given the growth of Shopify Plus?

Yeah. So the take rate was strong in the quarter, up from the previous quarter. Again, we see slow steady improvement on the take rate as shipping and capital become a bigger piece of the pie, as we add payments to more geographies, even as merchants themselves get more successful, all of that contributors to that take rate, but again don't -- our internal view is really a slow and steady increase there.

Your next question comes from Todd Coupland from CIBC. Your line is open.

Good morning, everyone. I wanted to ask about competitive landscape. Could you give us some color on how much of the merchant account improvement came from share gains and where you're seeing that? I think you've talked about in the past, Magento, you had picked up some share and if you could just provide color on that, appreciated and whether or not you expect that to continue in ’17? Thanks.

Hey, it’s Harley. I’ll answer on that Magento question. So we've mentioned in the past that in particular, Shopify Plus, we feel that the Magento merchant base is an interesting prospect for us. With the Magento 2 upgrade required, it's just a perfect opportunity for us to start looking at getting those merchants on to Shopify Plus. And so certainly that's been a good channel for us for merchant acquisition on Plus, but one of the things I mentioned earlier on the call is that a lot of the merchants that we're seeing on Plus as well are new to e-commerce, either they were never selling direct to consumer before or it's a celebrity brand like the weekend or a Kanye or Drake who simply never sold merchandise direct to their fan base. And now, they're coming to Shopify Plus to do that. Obviously, we're doing these pop ups in person with them as well. So in general, I think on the Shopify Plus side at least, we are seeing merchants come from all different types of either migrations from other platforms or better new e-commerce game.

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

Thanks guys for taking my question. Just one on the App Store. Are there any categories that you're seeing more traction than maybe you would have expected in the quarter or even for the year across inventory management accounting that are just the different categories that you offer? Thank you.

Hey, it’s Harley. I'll take that question too. I think generally across the entire app store, you're seeing all categories are getting a lot more or hitting a lot more interest from our merchants. The nice part about Shopify is that, Shopify’s core offering doesn't most people need most of the time than for everything else to really personalize your retail experience you go to the app store. So no two merchants are the same, if you're selling shoes, you may require some functionality that a t-shirt retailer may not need. So all categories are really growing nicely in the app store and we're seeing more apps and more app downloads from our merchants than before. So that's really healthy for us and really great for our ecosystem.

Your next question comes from Abhinav Kapur from BTIG. Your line is open.

Thanks for the question. Just a question on the new Plus pricing, the $2000 flat fee, is that going to be applied to all Plus merchants because I think earlier, the ones that were graduating up from lower price plans were initially on a lower monthly fee? Thanks.

Yeah. It’s Harley. I’ll take that question again. So everyone who's on Shopify Plus, existing merchants will be moving to that new price point eventually. Some of them obviously are in contracts and so waiting till that contract expires. But we are getting a six month period before anyone has to upgrade to ensure that we properly explain the pricing change. For those that are on that really came on in the early days to Shopify Plus, we're going to ensure that there is a graduation to that $2000 a month price plan, but ultimately and eventually, everyone will be on that new pricing.

[Operator Instructions] Your next question comes from Eyal Ofir from Dundee Capital. Your line is open.

Thanks. Just a quick question for you guys and congrats on the quarter. As we look into 2017, the cost base obviously, it seems like you’re going to be investing into the OpEx line heavily as well, just trying to gauge how we should think about the investment in sales and marketing versus the research and development line? And then just another question, obviously, you guys talked about on the revenue front, both mobile being strong and social channels. I was trying to understand if there's a significant correlation between the two and so I would expect there to be one. Thanks.

Yeah. In terms of, on the expense side, our largest driver of expenses is people. We added roughly 1000 new employees in 2016 and we'll do roughly the same in 2017. In terms of the R&D side, that is really driven by people. I mean if you look at our ambition and our roadmap, if we can hire faster there, definitely we will do that, because every day, there's new things that pop up, but we could be working on to improve both our position in the platform itself. On the marketing front, Unite for example as Harley mentioned, big -- it'll be bigger than the past year. So more dollars going there. The build the business now has gone from one competition to more of a franchise type approach and so build a bigger business is something that we just recently introduced with Tony Robinson, so other than that, a lot of it's going to be continued smart spending on advertising associated with that. One area that we've built into the plan is in terms of our infrastructure. Currently, we do use some cloud computing as part of that, in addition to our own data centers. We'll be doing some more work associated with cloud capabilities in 2017. So there will be a little bit of a duplication there as we’ll also maintain our own data centers for this year.

Okay. So we shouldn’t expect an increase in CapEx on this as well then?

Yeah. I mean as a percentage of revenue, it will decline, but in terms of CapEx, relatively, the same on sort of the data center side, but certainly on, as we continue to expand the employee base, we're constantly picking up additional facilities in the many cities that we operate in. So leasehold improvement continues to be a big part of our spend.

Okay. Great. And if you can comment on the social correlation to the mobile side of the revenue channel that would be great too. Thanks. I'll pass the line. Tobi Lütke: I'm trying to reverse engineer the angle. You're coming at that question to give you a proper answer on it. It's interestingly phrased. Like anything happening on social and anything happening on mobile, they are highly correlated in the way that they are modern, right, they’re new. They are very, like, there is a certain group of merchants that is very much looking for delays and graters to say I would like to connect with my customers in a way differently from the way big retailers traditionally have been doing this on the Internet. And so they love everything that’s mobile. They have apps in the app store, they have -- they own all social channels, they love things like Facebook Messenger and so on. And so the nice thing is and this is a really good news for Shopify is, like all the R&D for this happened, like I said earlier, partly due to us discovering some trends, but also partly due to conviction, right. Partly we said like we looked at this and said, hey, this just makes a lot of sense and we should support this. And what you always hope when you do these kind of things is that you find out that not only do they work, they actually work better than what people used to be doing and I think this is what in this particular case, you found, these approaches all look really well, they're reflected in the sales. They are high leverage opportunities for the merchants. And so what happens then after that became clear, after that becomes clear is that of a somewhat more conservative folks and larger retailers look at this and saying, hey, we believe in this too. We would like some of this and how can we get to offset some of these mobile and social capabilities, at which point, they go to their existing vendors and it usually ends up in a lot of frustration for them and then that's when they show up on these doorstep and then find a pushup of a Plus and this is why, here's how conviction plus R&D ends up in bottom line impact after a long circle of sort of interaction.

We have no further questions at this time. I will turn the call over to Tobi Lütke for closing remarks. Tobi Lütke: Great. Yeah. Really a great yeah. I think I'm very, very pleased. I don't think public companies tend to grow in sort of this 90% annual rate usually. So it's really fun to manage to pull this off. This is clearly, clearly we’re thinking internally of this company still as a growth company, much like, just like right after we took our first VC financing and this is how we act, like a little community here is significantly larger now. We can work on multiple things at the same time, which is really like, I mean, again for someone who has seen all sizes of this company. The wonderful thing is, a lot of companies when they grow up, they tend to run to problems and then they lose focus. And we’ve always been really good at keeping our focus. This is again like sort of the marketplace question placed into this. We really stayed on point of making this physically capable products, e-commerce better for entrepreneurship and then eventually stretch up market for Plus. That's just our focus. So the nice thing is now, we can actually be focused on multiple things due to our size. It's not actually that we get distracted by just looking to what a pop-up store should be like and these kind of things. So that's really what's going on here within our business. And I think it's a really, really powerful face for this business. So we continue making our merchants buy easier and more effective. We’re bending down the learning curve that people have to go to, when building online stores and that by itself expands the markets, brings more people into the funnel. They succeed with their businesses and eventually become Plus customers. And so looking forward to the next year, I think the company is in really, really good shape right now. Thank you very much for joining us.

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