D-Market Elektronik Hizmetler ve Ticaret A.S. Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 25, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome and thank you for joining the hepsimuda conference call and live webcast to present and discuss the Q1 2023 Financial Results. All participants will be in a listen only mode. And the conference is being recorded.

Operator

The presentation will be followed by a question and answer June. At this time, I would like to turn the conference over to Mrs. Nilhan Onal, Kuretake Inc, CEO Mr. Kuretake, CFO and Ms. Helene Zelik Bilik, IR Director.

Operator

Ms. Zelik Bilik, you may now proceed.

Speaker 1

Thanks, operator. Thank you for joining us today for Hepsiburada's Q1 2023 earnings call. I'm pleased to be joined on the call today by our CEO, Nihan Onaskar Kjetikin and our CFO, Corhan Oz. The following discussion, including responses to your questions, reflects management's views as of today's date only. We undertake no obligation to update or revise this information except as required by law.

Speaker 1

Certain statements made on today's call are

Speaker 2

and welcome. Our forward looking statements

Speaker 1

and actual results may differ materially from these forward looking statements. Please refer to today's earnings release as well as the risk factors In the Safe Harbor slide of today's supplemental slide deck, today's press release, the 6 ks, our Form 20 F filed with the SEC on May 1, 2023, and and other SEC filings for informational factors that could cause our actual results to differ materially from these forward looking statements. Also, we will reference certain non IFRS measures during today's call. Please refer to the appendix of our supplemental slide deck as well as today's into the press release for a presentation of the most directly comparable IFRS measure and the relevant IFRS to non IFRS reconciliations. And welcome.

Speaker 1

As a reminder, a replay of this call will be available on our Investor Relations website. With that, I will hand it over to

Speaker 3

our CEO, Nithan. Thank you, Helen. Welcome, everyone, and thank you so much for joining us. I'm pleased to be with you on my 2nd results announcement call today and present you our progress during the Q1. The obvious highlight of this quarter that I'm particularly proud of into our guidance, beat in EBITDA as well as in GMV growth.

Speaker 3

This EBITDA level marked the highest since our IPO in July 21. It's worth noting here that we achieved this despite the unfortunate range of challenges faced by Turkey. In particular, the February earthquake was the largest flash disaster to hit Turkey in over 8 years. Our robust GME growth of 78% compared to the same quarter of last year resulted from 70 and We exceeded average inflation of 70% over the past 12 months. 1st quarter GMV growth was at 15% when factoring in inflation.

Speaker 3

Continued GMV growth and our strict prioritization of profitability enabled us to surface our breakeven EBITDA guidance. This resulted from our focus on loyalty in optimizing marketing spending, growing non electronics and market into place operations and our reduced operating expenses. This milestone represented a and 4.8 percentage points rise in EBITDA as percentage of GMV over the same period of last year. And welcome. This performance was reflected in our sustained leadership of NPS in the e commerce market in Turkey, The feel of our value proposition led to a significant surge in the enrollment of Pepteburada Premium Program, which surpassed 1,000,000 members.

Speaker 3

We are proud to note that our program is the 1st membership based loyalty initiative locally developed and implemented in the market. It's worth spending another minute on our guidance feed this quarter. Our GMV growth of 78% Surface our guidance by 8 points, and we delivered a strong positive EBITDA of NER176,000,000. This performance confirms the strength of our strategy, effectiveness of our meticulous execution despite the challenging market conditions. This quarter, our 12 month active customer base remained nearly flat 11,900,000 Mainly due to earthquake impact, given its scale impacting over 14,000,000 people in Turkey.

Speaker 3

We have seen signals of a return into the Q3. Meanwhile, total orders at around $24,000,000 on 61% growth year on year. Excluding the order of our digital products such as sweets, steaks and luxuries, the order growth in Q1 was still around 9% year on year. Our order frequency rose from 4.9 to 7.5, marking a 52% growth year over year and 14% growth Quarter on quarter. I am confident in our ability to build customer loyalty and drive very strong customer engagement.

Speaker 3

These are being achieved with our customer value proposition, including super convenient delivery and return services, to our diverse affordability solutions and enhanced loyalty program. And On a yearly rise of 21%, the number of merchants who chose to capitalize on our platform had exceeded 100,000 by end of into Q1. Consequently, our selection reached 180,000,000 SKUs with a continued expansion of non electronic categories. And welcome. Our merchants welcome our end to end value proposition from logistics services to advertising solutions In addition to our toolset that enables better merchant lifecycle management, as shown on the slide, the February earthquakes and In Texas, 6,500 merchants on our platform, which almost onethree temporarily suspended their business.

Speaker 3

We have taken immediate action to help and support them leveraging our tech logistics capabilities. In addition, we launched a 2 year program to continue our support. Ultimately, we are in Turkey for the long haul. We are dedicated to leveraging all our capabilities to foster merchants and women entrepreneurs' e commerce abilities in the region. As you will recall, in early March, I outlined our refined strategies to win and achieved profitable growth.

Speaker 3

Before diving into the progress achieved on our priorities, let me summarize this. And welcome. Number 1 is winning by customer loyalty through Hepsiburada Premium. Our current estimated volume share within our own consumer Signals strong growth potential here, and we believe we'll be able to optimize our marketing spend. Number 2, and welcome.

Speaker 3

We will focus on sustainable differentiators that include our affordability solutions, high quality service levels on the platform and our and Number 3, we'll first do profitability by focusing on core operations and cost optimization. And And number 4, we'll offer our best in class payment, landing and last mile delivery services to other retailers. These are our strong muscles that we believe will expect to deliver a very strong B2B income now and in the upcoming years. And welcome. These strategies are pivotal in driving customer retention, securing our competitive position while we pursue sustainable growth and.

Speaker 3

Now let's have a look at our progress in Q1. Achieving 1,000,000 member milestone in and in 10 months highlights the value for Money for our loyalty program. We continuously look to improve this program's benefits to best serve our customers. Program members generate higher monthly order frequency than non members, which has helped to optimize our marketing and advertising efforts. Growing our membership base remains the key objective for this year, while we ensure retention.

Speaker 3

Since July, we have been offering Hepsibur at a premium and its great value for our customers. And and The independent analysis Show that the NPS of Hepta Bora premium was 12 points above the company's overall NPS. This score of 87 indicates and welcome to the strong satisfaction level from the program numbers. Now let me share some highlights on one of our key other differentiator, FCPE. On our platform, we are well equipped with payment capabilities such as payment with multi credit cards, payment in installments and instant shopping loans.

Speaker 3

And through HeptiPay, we are the only e commerce player holding payment and consumer finance licenses. And accordingly, we offer buy now pay later Here are some highlights of the Q1 performance of Hep C Pay. And welcome. We witnessed continued growth of Hexapay Wallet users to 11,800,000. This was a remarkable 66% rise on Q1 into 2020, a 7% rise on previous quarter.

Speaker 3

Around 87% of our GMV was generated by FCPay customers. The share of total non card affordability solutions in our GMV now more than doubled and reached and 5.8% in Q1 on year on year basis. Around 60% of this achievement came through shopping loans and welcome to the Q4 of 2018. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you.

Speaker 1

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 1

Thank you. Our next question comes

Speaker 3

from the line of and Buy now, pay later solution had been utilized by over 180,000 customers this quarter and. On a quarterly rise of 30,000 people, some 152,000 orders generated by using affordability into the solutions during this quarter. We are diligently managing the credit risk also associated with this solution. And with our and We continue to offer relevant accessible options that meet our customer needs and welcome to the macroeconomic conditions. Now let's move on to HEPsIGET, which is another clear differentiator into the Q4.

Speaker 3

HEPCEZ is one of the leading last mile delivery companies in Turkey. Our customers enjoy the flexible delivery options into the Q4 of 2018. These include next day delivery, scheduled same day and next day delivery, and Return pickup from customer's address, delivery rescheduling, parcel life tracking during delivery and And even address change or cancellation while on route and delivery to your neighbor. To the best of our knowledge, It's the only logistic company in Turkey to provide all of these convenient delivery options. With a strong NPS of 89.9 According to our internal reporting based on service conducted in Q1, we are reflecting its high quality of service.

Speaker 3

During Q1, our next day delivery capabilities saw solid improvement, rising to 3 percentage points to 84% year on year. This performance underscores our commitment to providing a fast and reliable service particularly through Hep CJS. Hep CJS continued its penetration on our platform delivering 63% of total quarterly into the Parcel volume up from 58% last year Q1 'twenty two. Moreover, into our ex large arm dedicated to oversized parcels delivered 60% of such shipments, growing significantly from 20 and welcome to 3% in the same quarter last year. Launched only early 2022, Hestiget Xlarger's strong customer satisfaction level has contributed to its fast penetration in our marketplace.

Speaker 3

I find it very encouraging. HSDJ's performance highlights our commitment to enhancing customer convenience and strengthening our market position. As we continued our growth, our primary focus remains on driving profitability. With this commitment, we prioritize our core commerce operations and adopted company wide frugal standing policy. We already initiated a robust review of all cost centers to identify all improvement opportunities in into the Q4 of 2019.

Speaker 3

This strategic approach has enhanced and will continue to enhance our financial performance and contribute to our long term sustainable growth. Positive EBITDA milestone in Q1 2017 was mainly Through a stronger growth contribution, optimized advertising spending and a prudent OpEx strategy, Despite the continued high inflationary environment and earthquake in Turkey, we are glad to see this promising trend in our and and FinTech solutions to 3rd parties is a key strategic priority. By externalizing this and welcome. We unlock new revenue streams, enhance our own operational efficiency and reinforce into the Q2 of 2019. This strategic priority strengthens our brand while and welcome to the Q4 of 2018.

Speaker 3

And With this approach, we are well positioned to deliver sustainable results while shaping the future of e commerce. And welcome. Our first strong muscle, HepTIGE recorded a 3 percentage point rise in Q1, reaching 22% of its total volume from off platform customers. Total parcel volume delivered of 3rd parties showed a solid increase by nearly 40% in units and welcome. Compared to same quarter last year.

Speaker 3

As a new service, Hexijet initiated acceptance of payment at the door, Which is also known as cash on delivery. Hexdjet is analyzing the possibility of making this service available for all of its customer portfolio. And by delivering exceptional value to all our partners, we anticipate further expansion of HEPCI JET throughout the year. Now let me move to our other strong muscle, Hexe Fe. In the Q1, Hexe and to CFAE continued its progress to enhance payment experience of our customers while working to expand its capabilities of platform.

Speaker 3

Recently, we launched the Hefty Pay debit card for use in both physical and online retail transactions, and welcome to the and welcome. In addition, we introduced a new customer loan feature, and and Customers will gain access to the funds that can be utilized for any purpose they desire, providing them with the financial support as and when they require. These developments, combined with our ongoing efforts to expand our product portfolio, consolidate payment options and improve the user experience, Will help us to meet our target of becoming leading fintech player in Turkey. I end my presentation with a few words on our Q2 guidance. Our robust Q1 performance confirms our successful navigation of challenging market conditions.

Speaker 3

We entered the Q2 in a similarly tough macroeconomic environment also compounded by election uncertainty. And yes, We remain cautiously optimistic based on our quarterly performance to date and strength of our strategy. Accordingly, we expect to generate around 95% year on year GMV growth in 2nd quarter. This is expected to be valuable inflation given the 12 month inflation rate of 44% in April 2023. Our positive EBITDA growth will also continue.

Speaker 3

We expect to deliver as a percentage of GMV within the range of 0 and thank you for listening and leave the floor to our CFO, Cor Honez, to give more color to our financial performance in the Q1.

Speaker 4

Thank you, Nilham, and welcome, everyone. Despite factors that affected market sentiment, we demonstrated consistent and Strong progress during the Q1. On adjusted for inflation, our GMV growth was 78% in Q1 on a yearly basis, and Reaching 14,800,000,000 GMV growth resulted from over 24,000,000 and Orders marking around 61% year over year growth fueled by the continued momentum in order frequency. On adjusted for inflation, revenue growth was 79% on a yearly basis. We delivered a 10.5% and Gross contribution margin and this represents a 2.2 percentage points year on year improvement.

Speaker 4

I must highlight here that EBITDA unadjusted for inflation at TRY176,000,000 and was the highest level since our IPO. We achieved this through our unwavering focus on optimizing customer discounts and operating expenses, plus delivering on our compelling value proposition. Let's move on to next slide to adjust In the Q1, on an unadjusted for inflation basis, our GMV and revenue growth were 15% 16%, respectively. In the same period, gross contribution margin increased to 9.3% With a 5.6 percentage point improvement compared to the same quarter of last year. Again, The key highlight in Q1 is the positive EBITDA at TRY7 million also when adjusted for inflation.

Speaker 4

Let's move on the next slide to tie this quarter's performance to our pursuit of profitability. Following the improvement trend of previous quarters, we maintained consistent progress on our PEP to profitability In Q1 2023, as well, our performance confirms the effectiveness of execution on our priorities. We navigated through the challenges successfully with our hybrid 1P, 3P business model, strong customer experience and and data driven marketing as well as diverse Affiliability Solutions. Continued GMV and top line growth, our focus on costs and And customer discount optimization enabled us to generate positive EBITDA. This milestone represented an 8.3 percentage point in EBITDA as a percentage of GMV over the same period of last year.

Speaker 4

On the next slide, let's look into details of our GMV performance. 15% of GMV growth and Came through 24,000,000 orders in Q1. This performance was attributable to our value proposition supported by the appeal of our hep into the premium loyalty program, our attractive affordability solutions and data driven marketing campaigns. And. Excluding the orders of digital products, order growth was around 9%.

Speaker 4

While these digital products generated less than 1 into the Q1 2023. We value the repeat interaction that enabled us with the participating customer segments. During the Q1, the share of marketplace GMV reached and 68% compared to 65% in Q1 'twenty two. We continue to see strategic and The advantages of 3P in our business in the long term, facilitating a wider selection, availability and the competitive pricing. With that said, 1P operations remain one of our competitive advantages in the market.

Speaker 4

Meanwhile, and welcome. The share of non electronics in the GMV split rose 1.6 percentage points to 43% in the 1st quarter and Compared to a year ago. On the next slide, I would like to discuss our revenue and gross contribution performance. First, I would like to give some color on our revenues. Around 16% revenue growth was achieved mainly by and welcome.

Speaker 4

72% growth in our marketplace revenue, 51% increase in our other revenue that includes advertising and fulfillment service into the Q3, 3rd party delivery service revenue and subscription revenues and 5% increase in bumpy operations revenue. Our gross contribution margin in the Q1 was 9.3% with a remarkable improvement of 5.6 percentage points and discounts both in marketplace and retail operations, better inventory management and the slowdown in the monthly inflation rates. Let's move to the EBITDA performance on the next slide. The 8.3 percentage point and welcome. Year over year improvement in EBITDA as a percentage of GMV was mainly due to 5.6 percentage point rise in gross and welcome.

Speaker 4

Shipping and packing expenses and 0.1 percentage point decline in payroll and outsourced staff expenses, Which partially offset by a 0.1 percentage point rise in other operating expenses, net as a percentage of GMV. So overall, OpEx as a percentage of GMV was 9.3% in this quarter, thus 2.7 percentage points lower and welcome. Compared to 12% in the Q1 of last year. EBITDA as a percentage of GMV continued its improvement sequentially and channel optimization supported overall efficiency in the marketing spending. Next, I would like to say a few words on our cash flow dynamics.

Speaker 4

Compared to Q1 2022, the TRY2.2 billion increase in cash flow from operating activities Mainly resulted from a TRY1.4 billion decrease in change in trade receivables and payables to merchants and around in to CLN270 million increase in change in trade receivables. Better inventory management resulted in faster turnover days, Which significantly helped us improve our working capital position compared to Q1 2022. We continue to operate with negative net working capital during the Q1. The change in net working capital in Q1 was TRY 7 and thank you for taking my questions. CapEx was around TRY 214,000,000, the bulk of which comprised of cost of tax related employees and welcome.

Speaker 4

Who are employed mainly for the development of web and mobile platforms. Overall, our free cash flow was a negative TRY154 1,000,000 In Q1 'twenty three compared to negative TRY2.3 billion in Q1 'twenty two. This was due to into cash generation from our operating activities, a combined result of better working capital management and significantly improved EBITDA. Now I leave the floor to Nihan for final remarks before opening the floor for questions.

Speaker 3

Before we end our call, I would like to highlight the 5 main points of our presentation today. We delivered the highest EBITDA since our IPO and of €176,000,000 And with this, we exceeded our breakeven guidance. We clearly defined our strategic priorities, and And I'm glad to see this is delivering robust performance. 5.6 percentage point improvement in gross contribution margin and 8 point and and welcome. Our strong method in logistics and FinTech Services suggest additional revenue streams for our core company.

Speaker 3

To sum up, We have a refined strategy and a strong execution capability as evident in our results. As a team, we will continue to work diligently and welcome. With enthusiasm to deliver best possible results, we'll create long term value for all our stakeholders. Thank you for listening. We can now open the line for questions.

Operator

Ladies and gentlemen, at this time, we will begin the question and answer session. In for better quality. The first question is from the line of Kirkyra Hazande with JPMorgan. Please go ahead.

Speaker 5

And Thank you very much. Nilan and Karambe, congratulations for a very good set of results. I have a Few questions that I just want to ask only 3 now. You are guiding a very high level of growth for the second And I just wonder what are the main drivers behind this robust growth that you see in the second quarter? And do you expect the positive trend continue in the rest of the year.

Speaker 5

And the second question is about your take rates. I mean, you have been building up commission rates from Veriluz, and you already reached the level of 2018. I think this was the highest level shared since the IPO. So is there any room to improve this going forward? I know you are managing this through discounts, but I don't know if you can cut the discounts further.

Speaker 5

And what could be the sustainable levels that we should assume in our models? Maybe I should stop.

Speaker 3

I'm going to answer the first one, and I'm going to let Corhan to add color on the take rate. Thank you so much, Hanzadeh. High level of growth guidance we are giving is based on couple of factors. First of all, in Q1, the growth rate is tempered and Significantly by the earthquake, excluding earthquake, we have shown much stronger growth, so we have confidence. The second is our strong value proposition, affordability solutions and premium is resonating well with our customers.

Speaker 3

And the third one is our revenue generation from HepTijet is also ramping up. We are getting Stronger attention from our merchants, partner customers. And I think, fourthly, we have We are building stronger and stronger confidence in our strategy, delivering strong results and customer appeal. So and welcome. That's why I feel very confident in reaching our guidance for Q2 we established today.

Speaker 5

And Nina, before going into Korahama, sorry about this. Do you also expect the positive trend to In the rest of the year, I mean, for the 3rd and the 4th quarter or you expect some sort of slowdown in real terms?

Speaker 3

I believe in our strategy, Hanzade. I think it's working well. It's resonating with Turkish customer. I'm cautiously optimistic in Turkey that we'll be able to deliver strong set of results in the remainder of the year as well. So my expectation is continuation of our strong trends.

Speaker 5

Thank you.

Speaker 4

Thank you, Anzade, for the question. Like 5, 6 quarters ago, we promised that we will Optimize we would optimize our discounts given to our customers. And since then, we have been optimizing all the discounts given in the markets and and The improvement is continued so far. Also, we have been uploading many new merchants on our platform, especially on the non electronics side. So throughout the time, selling more Nanoelectronics would bring more and higher margin to our platform.

Speaker 4

So we will continue into those actions going forward. And also on the platform, not only the margin, But on the OpEx side as well, we are trying to optimize all the spendings and cost components to become profitable going forward. So all of Our efforts will continue going forward.

Speaker 3

I think the other addition I want to do, Hansade, on the take rate is The non electronics take rate in marketplace is higher. And with the increase in our mix towards non electronics, I don't think we are anywhere near the ceiling, so I think the momentum will continue in the balance of the year and in the coming years as well.

Speaker 5

Okay, perfect. Thank you very much.

Speaker 2

And

Operator

Ladies and gentlemen, there are no further questions at this time.

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Earnings Conference Call
D-Market Elektronik Hizmetler ve Ticaret A.S. Q1 2023
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