Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Hepsiburada Conference Call and Live Webcast to present and discuss the Second Quarter 2023 Financial Results. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Nilhan Gökçetekin, CEO; Mr.

Korhan Öz, CFO; and Ms. Helin Celikbilek, Investor Relations Director. Ms. Helin Celikbilek, you may now proceed..

Thanks, operator. Thank you for joining us today for Hepsiburada's second quarter 2023 earnings call. I'm pleased to be joined on the call today by our CEO, Nilhan Onal Gökçetekin; and our CFO, Korhan Öz. 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. Certain statements made on today's call are forward-looking statements, and 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 supplemental slide deck, today's press release, the 6-K, our Form 20-F filed with the SEC on May 1, 2023 and other SEC filings for information on 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 press release for a presentation of the most directly comparable IFRS measure and the relevant IFRS to non-IFRS conciliation.

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

Thank you, Helin. Welcome, everyone, and thank you so much for joining us. I'm really pleased to be with you today and to present our quarterly progress. In a quarter of continued tough macroeconomic conditions and uncertainties throughout the election process, we doubled our GMV year-over-year and improved our profitability margin.

Our robust performance exceeded our quarterly guidance, thanks to our operational agility. It's figuring 27.5 million orders on a 94.6% rise over Q2 '22 resulted in strong GMV growth. This was achieved through our attractive customer and merchant value proposition and compelling services.

Our focus on profitability led to a notable 10.4% gross contribution margin which is 210 bps year-over-year. This metric underscores our strategic actions of lowering promotion spending, growing the share of nonelectronics and marketplace operations in the GMV mix. Furthermore, our EBITDA as a percentage of GMV reached an impressive 2%.

It's plus 470 basis points year-over-year. This is achieved through effective OpEx management, excluding the one-off provision reversal, 1.5% EBITDA still exceeded our quarterly guidance.

Meanwhile, we remain Turkey's foremost e-commerce players in NPS with our exceptional customer service, top-notch logistics services and diverse affordability solutions. With over 1.3 million members at the Hepsiburada premium is on track to contribute to order frequency and customer retention.

Overall, our second quarter results are characterized by solid growth and higher profitability. It is worth spending another minute on this quarter's guidance performance. Our GMV growth of 101% outpaced our guidance of around 95%. Strong growth, coupled with diligent cost management resulted in an EBITDA as percentage of GMV at 2%.

This 0.5 percentage points higher than the upper end of the guidance excluding the one-off. Our performance validates the effectiveness of our strategy for driving sustained profitable growth. Our active customer base reached 12 million with more than TRY 300,000 during the quarter.

With 27.5 million orders, the order frequency reached 8.1 marking 57% growth year-on-year for the quarter. We continue to invest in our technology, coupled with our outstanding service quality, this suggests the potential for higher customer engagement on our platform. Next slide, please. We greatly value our wide merchant base.

They benefit from our full area of services, including fulfillment, logistics and advertising solutions and enjoy the rating efficiency while working with us. In the second quarter, our active merchant base exceeded 101,000 merchants and total SKUs rose by 50% year-on-year to nearly 195 million.

We continue to invest in our in-house merchant application that facilitates proactive campaign and ad management and customer communication among many other capabilities. Our merchant ad has a solid rating at the store and its ease of use increases the merchant appreciation of Hepsiburada. Next slide, please.

As ever, we diligently execute on our priorities. Our results confirm a solid execution of our strategy. We maintain our competitive edge, grow sustainably and profitably as seen in our numbers. So let me recap on our strategy, which I shared earlier this year. Firstly, Hepsiburada Premium Program.

The key to increasing customer loyalty is advancing as plan. We welcome the rising share of program numbers in our total orders. Secondly, we cultivate sustainable differentiator such as affordability solutions, excellent platform and delivery services that effectively benefit our customers.

Thirdly, our efforts to streamline costs and fine-tune core operations are well on track. This is reinforced by our progress in the quarter. Last but not least, our logistics services and Fintech solutions for third parties continue to generate additional revenue streams while supporting the growth of Turkey's total retail market.

Let's have a closer look at the fundamentals of our Hepsiburada Premium Program, which marked its first anniversary in July. Through a net addition of 500,000 in the first half of the year, total program numbers reached 1.3 million. Our initiative has advanced customer loyalty, providing operational efficiency and optimizing our marketing spend.

Premium Program members generate 1.4x the multi-order frequency after joining the program, confirming us as their go-to e-commerce platform. This quarter, we further enriched the program offering, which has already been more advantageous compared to our competitors, as shown on the right side of the slide, side-by-side.

By including summer special deals and exclusive campaigns, the program's value proposition has become even more attractive. As the program strong NPS scores, the confidence and appreciation of its numbers. It is clear that affordability has gained significance in the current macroeconomic climate in Turkey.

Therefore, setting us apart is our in-house Fintech strength that redefines the affordability in the e-commerce sector. We leverage our unique e-money and payment services license to offer a set of payment solutions. These include our own debit card Buy Now Pay Later solutions as well as top-up to wallet and point-of-sale shopping loan.

Within seconds, our customers are able to check their Buy Now Pay Later limits, complete their purchases at their convenience. Collaboration is at our core. We integrate this strategic banking partners, we enable seamless transactions. A variety of options means convenience and freedom of choice for our customers.

We will continue to tailor our solutions such as the upcoming launch of in-house consumer financing that will better respond to the customer needs in Turkey. Now let's take a look at the metrics of our affordability solutions and wallet penetration. On a quarterly addition of 700,000, the Hepsipay wallet base shared 12.5 million.

In Q2, these users accounted for 86% of our GMV. On the affordability flow, the share of total noncore affordability solutions in our GMV reached 5%, this is slightly down due to tight liquidity in market, but starting in July, we started to see already the recovery in bank lending appetite.

Covered in that ratio, our BNPL solution had been utilized by over 207,000 users by end of Q2, on a quarterly rise of 77,000. In the first six months, our calculations prove that our BNPL offering contributed positively also to our net income. Now moving on to our next strong muscle, it's HepsiJet.

HepsiJet is one of the leading last mile delivery companies in Turkey, which is an asset-light business model. HepsiJet continued offering its competitive services, including oversize delivery that differentiate us in the market.

So this and timely delivery is a core customer expectation and so HepsiJet 83% next-day delivery ratio among 1P orders confirm our commitment to that. Meanwhile, HepsiJet continued its penetration of our merchant base, delivering around 66% of total parcel on our platform in Q2 '23.

According to our internal reporting based on the survey conducted in the second quarter, HepsiJet also maintained its clear NPS leadership. In pursuit of profitability, we delivered yet another quarter of positive EBITDA fueled by our core strengths and cost management.

Our fundamental building block of sustainable and profitable growth has translated into large proven results. Notably, our EBITDA as percentage of GMV continues to improve from 1.2% a quarter ago and adjusted for inflation. We remain committed to this part given its promising trajectory so far.

As you know, offering our best-in-class last mile delivery services and our payment and lending services to other retailers is the fourth and large key pillar of our strategy. HepsiJet, a logistic powerhouse lies at the heart of this endeavor.

For that end, the share of external consumer customer volume in HepsiJet operations increased by 26% year-over-year in units. Now it reached 77% of total HepsiJet business in this quarter. HepsiJet serves nearly 1,600 external customers with some of the named international and local leading brands you see on the chart.

I believe HepsiJet is the best position to build on this momentum and grow its shares in logistics market. Now let me elaborate on the next strength, which is Hepsipay. Hepsipay is enroute to become leading Fintech player in Turkey.

In Q2, we released several noteworthy new services, including Hepsipay debit card, which provides frictionless physical and online transactions. We started payment with QR for swift platform transaction, and we launched more on top up with loans for financial flexibility. These capabilities adhere to our all days wallet motto.

Additionally, we introduced one-click checkout integration on another retailer towards building the Pay with Hepsipay proposition. The envisage growth in one-click checkout integrations will become instrumental in Hepsipay's off-platform expansion. In addition, Hepsipay has taken strategic steps towards solidifying its position in the fintech arena.

We built a five year strategic collaboration with Visa in relation to its prepaid card scheme. We invested in a leading payment orchestration platform in Turkey, Craftgate technology. Craftgate has e-commerce companies easily integrate and manage the virtual point of sale of banks and e-money institutions from a single platform.

Our investment in Craftgate is aligned with our vision of leading the financial technologies market in Turkey, and we believe that it will further foster the growth of our e-commerce partners.

Overall, Hepsipay's solid 12.5 million wallet base and most diverse affordability solutions, its own loyalty program, fast and reliable one-click checkout we offer to other retailers and our strategic alliance creates huge competitive advantage, and this is enabling us to become the leading fintech players in Turkey.

I'll end my presentation now with our guidance. Despite the ongoing macroeconomic challenges, we expect continued solid GMV growth of around 110% year-on-year compared to the same quarter of last year, unadjusted for inflation. We base this expectation on our service quality, affordability solutions and our effective loyalty program.

Our positive EBITDA trend will continue, and we expect to deliver EBITDA as a percentage of GMV within the range of 0.5% to 1%. These figures are unadjusted for inflation. Looking ahead, we are poised to print full year positive unadjusted EBITDA in '23. This is underscoring our commitment to sustainable and profitable growth.

With this, I thank you for listening and leave the floor to our CFO, Korhan Öz, to give more color to our financial performance in the second quarter. Thank you..

Thank you, Nilhan, and welcome, everyone. We gave a robust performance across all metrics during the second quarter. This performance was achieved despite election uncertainty, now over and ongoing macroeconomic challenges. On adjusted for inflation, our GMV more than doubled in Q2 on a yearly basis to TRY 18.5 billion.

Similarly, our IAS 29 unadjusted revenue also more than doubled on a yearly basis. When adjusted for inflation, GMV and revenue growth were both at 43%. GMV growth resulted from over 27.5 million orders, marking around 95% year-over-year growth. Gross contribution margin came in at 10.4%.

Adjusted for inflation, this metric rose 9.3% on a 4.4 percentage point improvement on a yearly basis. Q2 was the second consecutive quarter for positive EBITDA unadjusted for inflation. Accordingly, our EBITDA as a percentage of GMV reached 2% on a 4.7 percentage point rise year-over-year.

Excluding the positive impact of TRY 105 million Competition Board investigation provision reversal, our EBITDA as a percentage of GMV was at 1.5%. Also adjusted for inflation, this metric was at 0.3% on a 6.5 percentage point improvements.

In the first six months, our revenue growth and gross contribution margin were at 29% and 9.3%, respectively, adjusted for inflation. Our EBITDA as a percentage of GMV was 0.2% adjusted for both the one-off and inflation. We generated TRY 881 million net income this quarter, up from a net loss of TRY 783 million in Q2 2022.

This resulted from TRY 975 million improvement in EBITDA, TRY 583 million increase in net financial income and TRY 170 million monetary gain in Q2 2023, against TRY 64 million increase in depreciation and amortization. On the next slide, let's elaborate on our progress towards profitability. 43% of GMV growth came through 27.5 million orders in Q2.

This performance is a result of our value proposition supported by the Hepsiburada Premium Loyalty Program and our affordability solutions. Our digital products contribute to the order frequency of participating customer segments, yet excluding these orders, our order growth are still around 20%.

During the second quarter, we saw a 3.1 percentage point shift in GMV mix towards 3P to 67%. 1P operations remain among the key competitive advantages. On the next slide, I will discuss our revenue and gross contribution performance. First, some details on our revenues.

Around 63% revenue growth was achieved mainly by 32% increase in retail revenue and then 87% growth in marketplace revenue. Our retail and marketplace operations comprise 88% of our revenues. Our delivery service revenue comprising 9.2% of total revenue rose 67% compared to Q2 2022.

Meanwhile, other revenue, which mainly consists of our advertising services, fulfillment services and loyalty program subscription fees tripled compared to Q2 2022. Our gross contribution margin in the second quarter was 9.3%, with a remarkable improvement of 4.4 percentage points compared to the same quarter last year.

This was mainly attributable to lower quarterly inflation impact on the cost of inventory sold and better inventory management and changing GMV category mix. Let's move to EBITDA performance on the next slide.

Continued GMV and top line growth, our focus on cost and marketing campaign optimization enabled us to deliver positive EBITDA for another quarter.

The 7 percentage point year-over-year improvement in EBITDA as a percentage of GMV was mainly due to a 4.4 percentage point rise in gross contribution margin, 1.6 percentage point decline in advertising expenses, 1 percentage point improvement in other OpEx items, which includes the 0.5 percentage point positive impact of the provision reversal.

OpEx as a percentage of GMV was 8.5% in this quarter, thus 2.6 percentage point lower compared to 11.1% in the second quarter of last year. Overall, efficiency in marketing spend was achieved through our win through loyalty strategy, data-driven marketing and co-marketing partnerships. Next, a few words on our cash flow guidance.

Compared to Q2 2022, the TRY 1 billion decrease in cash flow from operating activities mainly resulted from TRY 782 million decrease in change in inventories. In addition, we made TRY 283 million payment to settle the litigation case. We continue to operate with negative net working capital during the second quarter.

The TRY 1.7 billion change in negative net working capital was mainly driven by a decrease in trade payables due to payments in Q2 as a result of higher inventory procurements and for some with shorter payment terms and increase in inventory is due to planned procurement in Q2 and a decrease in provisions due to payment to an escrow account in relation to U.S.

Litigation Settlement and the closure of the Competition Authority investigation. CapEx was around TRY 176 million. Overall, our free cash flow was negative TRY 607 million in Q2 2023. Before we end our call, I would like to highlight the five main points of our presentation today.

We delivered better-than-expected EBITDA through stronger topline growth and diligent cost management. We continue executing on our well defined strategic priorities for sustainable and profitable growth.

The 4.4 percentage point improvement in our gross contribution margin and 7 percentage point rise in EBITDA as a percentage of GMV has given us confidence for the second half. We generated a net income at TRY 881 million through improved EBITDA, strong financial income and monetary gain.

Our strong muscles including logistics and fintech services suggest additional revenue streams for our company. In the second half of the year, we will continue to work diligently to deliver best possible results, creating long-term value for all our stakeholders. Thank you for listening. We can now open the line for questions..

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

Hello. Thank you very much for the presentation and congratulations for a strong numbers. I want to follow-up with your guidance for the third quarter. It is a very strong growth as expected inflation, I think it is around 65%.

So I'm trying to understand the drivers behind this accelerated GMV guidance for the third quarter? And also, are you seeing - I mean, substantial increase in the share of non-electronics in the GMV mix also in the third quarter? Second question, we really appreciate if you can comment around the competitive environment in the third quarter, particularly from the perspective of the discounts in the market.

And finally, on the numbers, how would you guide the working capital progress for the third quarter after the buildup of inventory in the second quarter? Thank you very much..

Thank you so much, Hanzade. Let me answer the first three, and I'll let Korhan to give some color for our working capital expectations for third quarter. So in terms of guidance, we are expecting our growth momentum to continue to accelerate behind our fourth strategy. The number one is Hepsiburada Premium Program.

This program has been quite strong as we celebrated its first anniversary. The more we build members to the program, the more we have frequency increase, and it will accelerate momentum in Q3, that's number one. The second is the need for affordability solution.

As the inflation and macroeconomic context evolves partly inflation triggers consumption, but partly, it also has an impact on the need for more affordability solution. So we also believe that we have a strategic advantage with a variety of solutions we provide for the consumer.

I also believe that our B2B business, which is the bigger one being HepsiJet and fintech in development is also going to continue their acceleration, Hanzade. And I think all in all, we feel comfortable in accelerating the growth momentum. In terms of your second question, non-electronics mix.

It is not specifically - our growth guidance doesn't rely on just non-electronic mix shift, it's something we feel quite strategic about. As we build more loyalty with program, we are adding more non-electronics into the mix, but Q3 specifically is back-to-school season.

There will be an impact of absolutely a lot of electronics purchases with laptops, both for schools. So we don't specifically expect a jump for Q3, but we will continue the momentum we built. I think your third question was on the competitive environment. So competitive environment is always vivid in Turkey.

There are - we have strong competition, global competition from Amazon and Alibaba, which is Trendyol in Turkey. We also have now N11 which is coming back with some future emphasis on Turkish market from Getir as well. I think it's going to be - continue to be competitive.

But e-commerce market in Turkey, we shouldn't forget it only has 20% penetration, and this is significant momentum to still improve and create category creation for e-commerce. And despite the competitive environment, I believe in our strength, which is quite different and unique. We are from Turkey, we are very agile.

We understand the values, our four pillar strategy does resonate bit of that. So I think we'll continue to deliver value for our customers and our shareholders. Now I want to hand over to Korhan for inventory question..

Thank you, Nilhan. Hanzade, as you know, from history, there is a seasonality in our business. And especially in the second half, with back-to-school period, there's a campaign period starting, continues with the Black Friday and December period. So we will continue generating more GMVs in the second half.

And consequently, this will improve our net working capital. And as usual, we will continue to generate better net working capital in the second half and improve our free cash flow going forward..

Thanks very much. I want to make a follow-up on the competition side. So the market is still very competitive, but does it put some sort of pressure on your commission rates in the third quarter because we observed substantial improvement on the growth contribution.

I just wonder if this will continue in the third quarter?.

Our expectation, Hanzade, seeing the trends in Turkey as well, I think our plan is so strong. That's why we are gaining still strong guidance on EBITDA, which is between 0.1% to 1%. We don't have further expectations beyond what is happening today. And I feel comfortable in the guidance we have given..

Okay. Thank you very much..

Thank you..

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. The conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon..