Ladies and gentlemen, thank you for standing by. I am , your Chorus Call Operator. Welcome and thank you for joining the Hepsiburada Conference Call and live webcast to present and discuss the First Quarter 2022 Financial Results. All participants will be in listen-only mode and the conference is being recorded.

The presentation will be followed by a question-and-answer session. At this time, I would like to turn the conference over to Ms. Helin Celikbilek, Investor Relations Director. Ms. Celikbilek, you may now proceed..

Thanks. Thank you for joining us today for Hepsiburada's first quarter 2022 earnings call. I'm pleased to be joined on the call today by our CEO, Murat Emirdağ, and our CFO, Korhan Öz. The following discussion, including responses to your questions reflect management's views as of today's date only.

We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call are forward-looking statements. Actual results may differ materially from these forward-looking statements.

Please refer to today's earnings release, as well as the risk factors described in the Safe Harbor slide of today's presentation, today's press release, the 6-K, our Form 20-F filed with the SEC on May 2, 2021, and other SEC filings for information about factors which could cause our 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 earnings release for a presentation of the most directly comparable IFRS measures, as well as the relevant IFRS to non-IFRS reconciliations.

As a reminder, a replay of this call will be available on the Investor Relations page of Hepsiburada's website. With that, I will hand it over to our CEO, Murat..

accelerate growth drivers, differentiate and monetize via logistics and technology, and expand strategic assets to offer a diversified ecosystem. Let me quickly provide a brief insight on each. First, attracting more customers, driving further order frequency, expanding our merchant base, and increasing our selection are of strategic importance to us.

In particular, we are focused on executing segment based customer initiatives, primarily addressing women, running target marketing campaigns, scaling our automated growth agent journey, and customizing lifecycle management along each stage of the lifecycle from our customers and merchants.

Second, we have a nationwide logistic network and footprint, which we will continue to couple with our technological capabilities to further differentiate in both customer and merchant experiences, while adding monetization opportunities.

Last but not least, we will continue to diligently build a diversified and coherent ecosystem with select strategic assets such as Hepsipay, HepsiExpress, and HepsiGlobal. As we deliver on these executional priorities, our disciplined cash and cost management remains as the core guiding principle on our path to profitability.

As we wrap up, we have started the year with a solid growth performance in line with our plan, driven by strong order growth, fueled by healthy momentum in our growth drivers.

Considering the current dynamics, the limited visibility on inflation trajectory and its impact on consumer behavior for the remainder of the year, we are not making any adjustments to our GMV growth guidance at this time and keeping it around 50%.

Powered by our disciplined cash and cost management, we move forward on our path to profitability and commit to not raise capital for another 18 months from the end of Q1 onwards. I will now hand over to our CFO, Korhan, to give more color on our financial performance. Thank you for listening..

Thank you, Murat, and welcome, everyone. GMV grew by 84% compared to the same period of last year when we had already experienced strong GMV growth. The share of marketplace GMV was around 65%, same level as the fourth quarter of 2021. GMV growth is an outcome of the increase in number of orders and average order value.

In Q1 2022, strong order growth at 63% was instrumental in generating the GMV growth. These order drops came through continued increase in active customers, reaching 12 million and order frequency reaching 4.9. In our business model, the change in average order value and the inflation trends are not fully correlated.

As at the end of Q1 2022, the annual inflation as published by the Turkish statistics institute reached 61%, whereas our order value rose by 13% in Q1 2022, compared to Q1 2021. We believe that several drivers impacted the increase in our average order value in the first quarter.

First, the consumer purchases shifted towards more affordable alternatives. While making purchase decisions, taking the higher pressure on mortgage into accounts, customers tend to prefer lower priced brands or products.

Second, the unit sales of certain consumer electronics such as TV, laptops, and robot vacuum cleaners declined compared to the first quarter of 2021, which could be attributed to despite the. Third, 65% of our GMV comes from the marketplace model where the merchants decide their pricing.

Last but not least, while pricing the product, it is likely that having immensely purchased at global prices across 1P and 3P and competitive dynamics in the market play a role.

Also, let me remind you that the inflation impact is more likely to be passed on the customers across the food and grocery related product groups, which only make a very limited portion of our product mix.

It is worth mentioning that Turkey is categorized as a hyperinflationary environment by the international practices task force, due to the fact that cumulative inflation rate was greater than 100%.

Therefore, any company operating in Turkey and reporting under IFRS, including us, will be required to apply International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies to their financial statements, for the periods ending on and after June 30, 2022, which will be after more than 15 years.

Accordingly, our financial statements and non-IFRS measures such as GMV will be impacted as a result of the implementation of these standards. As of today, we cannot predict the extent and magnitude of the future impact that the application of IAS 29 and related adjustments we've had on our financial statements and consequently on our margins.

Although, we will be reflecting inflation accounting to our financials from the second quarter onwards, we believe we initially restated this quarter's GMV growth through this methodology for exemplary purposes. By using the official monthly consumer price index numbers, the restated GMV growth in Q1 2022 compared to Q1 2021 would be around 19%.

In the next earnings call, we will spend more time on the methodologies and implications of inflation accounting on our reporting. Now let's move to the next slide where I would like to discuss our revenue and gross contribution performance. Next slide, please. Our revenue grew by 82%, compared to Q1 2021, corresponding to 1.2 billion nominal terms.

This performance was achieved by 92% growth in 1Q operations, 45% growth in our marketplace revenue and 44% increase in our delivery service revenue. Our 1P operations have served well particularly at the time where price changes were inevitable as well as supply shortages due to global supply chain issues.

Our gross contribution was TRY 688 million in the first quarter of 2022 with an 8.3% gross contribution margin. While there was a 1 percentage point decline in gross contribution margin, compared to the first quarter of last year, our gross contribution margin continued to improve sequentially by 1.2 percentage points in this quarter.

This performance is an indication of our focus on the path to profitability. Now, let's take a look at our operating expenses in the next slide. Our net operating expenses as a percentage of GMV was at around 12% this quarter.

As a percentage of GMV, our net operating expenses rose 0.3 percentage points, mainly due to 1.8 percentage points increase in advertising expenses and 0.2 percentage points increase in other operating expenses, offset by 1.7 percentage point decrease in payroll and outsource staff expenses.

The 1.8 percentage point rise in advertising expenses reflects our investment in our brands and growth drivers in a more competitive market environment, where both the need and for the cost of marketing increased, compared to the first quarter of last year.

The 1.7 percentage point decline in payroll and outsourced staff expenses is through the impact of the share based payment plan that we put the provision for the cash portion in the first quarter of last year.

Normalizing for this item, our G&A expenses as a percentage of GMV would increase by 0.9 percentage points, reflecting the rise in the number of employees and also annual salary increase.

The shipping and packing expenses driven by 63% or the in unit price increase applied by our delivery partners remain unchanged as a percentage of GMV, compared to the first quarter of last year. Let's move to the EBITDA margin bridge on the next slide.

As a function of aforementioned drivers, EBITDA in the first quarter of 2022 was negative TRY 303 million, compared to negative TRY 104 million in Q1 2021.

This quarter comes to a negative 3.7% EBITDA as a percentage of GMV in the Q1 2022 indicating a 1.4 percentage point year-over-year decline, whereas it continued its improvement gradually by absorbing 4.3 percentage points from the previous quarter. Our assumption for the cost inflation for 2022 is roughly 65%.

Nonetheless, we will continue to the trajectory of the inflation rate and dynamically adapt by taking net reactions to make sure we pursue our capital profitability. Next, I would like to say a few words on our cash flow dynamics.

Net cash used in operating activities increased by roughly TRY 1.1 billion, reaching TRY 1.2 billion in the first quarter of 2022, which is mainly due to decrease in change in networking capital.

Higher volume of inventory procurements and increased trade and service table such as advertising, shipping, and other operational expenses in Q4 2021 and which were paid in Q1 2022 was the primary reason for such cash requirements.

CapEx was around TRY 119 million in the first quarter of 2022, over 60% of total CapEx consistent of the cost of employees who are mainly employed for the development of website and mobile platforms, while remaining CapEx mainly consisted of purchase of property and equipment and software and rights.

Accordingly, free cash flow was negative TRY 1.4 billion, compared to negative TRY 159 million in the first quarter of last year. Before I end my presentation, let me also emphasize our commitment to focus on sustainable growth with disciplined cash and cost management.

Our current liquidity and future plans enable us to say that we have no plans to raise any capital for another 18 months from March 2022 onwards. With this, I end our presentation. Thank you for listening. Operator, please open the floor to questions..

The first question comes from the line of Hanzade Kilickiran with JPMorgan. Please go ahead..

Hello. Thanks for the presentation. I have two quick questions. One is regarding the consumption trends in Turkey.

We have observed generally very strong reporting in majority of the Turkish companies under high inflation in this quarter and companies claimed a strong pull forward demand in their sector, do you also see the Q1 consumption trend as pull-forward demands? And how do you experience the demand in Q2 so far? Because you still keep your 50% GMV growth guidance underwriting inflationary environment, I try to understand the current ? And second question is related to your cash flow management, I mean, Korhan has already explained about the increase in trade payables, which is the main cause, I mean, majority of the working capital need is arising from this.

What is the reason of this cost in the trade payables? And do you expect to follow a different policy in working capital management in a way to create some inflow by the end of the year rather than outflow because you now have a cash in hand and I'm trying to understand the cash burn for the full-year? Thank you very much..

Thanks so much for the questions, Hanzade. I really appreciate. Maybe I can take the first question and Korhan can take the second one.

In the first question, I guess, we – you are asking the correlation between our GMV regarding inflation, as well as the consumer trends in Turkey, right? So, in high level, I guess, it's fair to say, it is still very limited visibility on inflation trajectory and its impact on consumer behavior for the rest of the year.

And also with respect to our approach, I guess at this point, I can maybe break it down in a couple of facts. One actually is our GMV, actually is a function of growth and an. In the case of our business model, Korhan explained how AOV is not fully correlated to the inflation trajectory. I already explained.

And also on the order side, from regarding the order side, I guess, we also from the consumer's point of view realized the pressure on consumers' wallet. And actually, we are still here to see what is the implication will be for the rest of the year.

That's why under these circumstances, we prepared to observe the dynamics a little further before making any adjustments to our top line growth expectations. , we are confident about our guidance in that sense. With respect to consumers, this is actually a , maybe insight I can share at this point with you.

This is definitely a pressure on their wallet. And we see consumers are seeking for more affordable solutions. And luckily, at Hepsiburada, we are well-positioned in that sense by offering a wide range of affordable solutions ranging from the multi-credit card payments, instant customer loans, installments, and now Buy Now Pay Later and so on.

So, this is the way we're going to address that need.

And also, we understand consumers are shifting their purchases towards more affordable alternatives, which is again thanks to our hybrid model with 1P and 3P with our wider selection we are trying to assess that need as well, as they shift their decisions to lower priced items and so on, we also tend to address the EBITDA.

In additionally, we cannot refer to the fact that there's a kind of a decline in unit sales of certain consumer electronics such as TVs, laptops or robot vacuum cleaners with respect to customer behavior.

I guess, in general, these are the I can refer in terms of customer insights and observations, but another detail actually I , we also kind of observe the need for trustworthy shopping experience, trusted and reliable after sales experience also becomes very important.

And also that's why our leadership in NPS actually is very relevant in that sense. It has brand over 20 years of history and with our living experience in terms of NPS, we believe we are also offering a safe and reliable option solution to our customers.

Let me now stop here and hand over to Korhan for the second question, which I guess was referring to cash flow..

Thank you, Murat. Our free cash for Q1 2022 is negative by TRY 1,360 million and out of this 360 million is comprised of net loss for the period, roughly and our CapEx spending is roughly 120 million. The remaining 1 billion is coming from the changing networking capital, mainly driven by the trade tables and inventories.

in our business and the highest advertising and shipping and delivery expense spendings are realized in the last quarters and those are mostly paid in the first quarter of the following years. With scale, those payments are getting higher through time.

Also due to global supply chain issues and high inflation expectations in Turkey, we procured more inventories during Q4 to get readiness for Q1 to ensure that our products are available on the platform and those payments are done in the first quarter of 2022.

Also during the quarter, Q1 quarter, we continued such procurements with shorter payment terms and even in certain categories like electronic we paid in advance. So, those are free cash to decrease during this period.

Having said that, I would like to mention that our cash spending will be lower during Q2 and Q3 compared to Q1 2022 and it will be minimum during Q4 if it continues to procure in advance for readiness in the following years. All these effects has already been embedded in our business plan and 18 months cash availability according to this plan.

Thank you..

Thank you, Korhan..

The next question comes from the line of Cem Ünal with Goldman Sachs. Please go ahead..

Hi. Thank you very much for the presentation, Murat and Korhan. My question is related to the Fintech arm and the Hepsipay.

Could you please elaborate further on the monetization of the Fintech arm going forward? And after 2022, like what are the plans on that point? And also related to Buy Now Pay Later segment, could you please explain how do you plan to manage very high inflation given that there's at least one month of the period that the customers buy and pay after one month? So that would be helpful.

Thank you very much..

Thanks so much, Cem, for the question. And in terms of like our overall approach in Fintech and how we also see and manage the Buy Now Pay Later in this environment, let me quickly address those questions. First of all, I guess, we believe the financial solutions play an integral role in our mission of commerce.

So, it's a very significant part of our strategy as well. And as you know, we always offer a wide range of services and solutions, which I already mentioned in my previous answer, ranging from hidden customer loans, installment multi-credit card payments, now Buy Now Pay Later and ability to charge the billing.

And also, as you know, we recently acquired a license and company to be able to offer consumer financing, so basically a large spectrum of solutions and services.

And that's why we believe we are unique license with the operational and functional capabilities are well-positioned to evolve into a leading Fintech player in this market, spanning across online and offline. So, this is our ultimate approach in our Fintech arm.

With that said, as you know, Buy Now Pay Later is a capability that we just launched in this quarter. It is one of many tools we actually in our portfolio. And with that, I also want to emphasize, we won’t compromise on our disciplined cash and cost management principles even if we keep working on these features.

And let me also replicate the fact that in Buy Now Pay Later, even though our current focus is all about perfecting the precision credit scores and making sure we show this service the right relevant services, and also making sure we continue to perfect the customer journey.

And even the early demand of this service seems to be very encouraging and promising. Actually, we remain focused on closely monitoring the credit risk behavior, including early delinquency and default rate before scaling the offer further. , I guess, the few things I want to share.

Korhan, do you want to add anything else?.

This is more of – you said everything almost Murat. Thank you..

So basically, Cem, it is one of the many steps we're going to take, but we will take already the caution and it's going to be always with a gradual rollout approach..

Maybe I can mention that we will be charging a commission fee to our customers to cover all the time lag and the for the Buy Now Pay Later products and the initial steps are really encouraging as you mentioned..

And did I maybe forget to mention and others, how the mechanics work on Buy Now Pay Later, maybe an. In general, it's actually, we’re right now use by defining the limit, the financial need for consumers from the Credit Bureau of Turkey and the shopping track record at Hepsiburada.

And right now, the current experience is offered by 1P, have to and the credit-limits are up to TRY 5,000 and up to six installments with minimal exception. So, it's kind of a verified phase for us that has strictly controlled the progress on that end..

Okay. Thank you, Murat..

Thank you..

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Murat Emirdağ for any closing comments. Thank you..

Thanks so much for listening and being with us. I just want to leave you guys with three key takeaways from this call. First one actually is, we believe Turkish market offers a sizable opportunity given the fact that e-commerce has an inflection point and expect to exceed 20% penetration between total retail by 2025.

The second one actually is, yes, there are many uncertainties in the macro level in terms of dynamic in the global and local markets.

However, the third one, actually, we have very well-defined and clear strategy in place to overcome those challenges and we continue to execute this prudently and it's very core principle, guiding principle of disciplined cost and cash management. And we are very committed to progress towards path to profitability.

That's basically what I wanted to highlight one more time. Appreciate your time, and thanks for listening..

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon..