Q3 2022 D Market Elektronik Hizmetler ve Ticaret AS Earnings Call
Speaker 1: call you may signal an operator by pressing star and zero on your telephone.
Speaker 2: In the third quarter, we showed consistent progress in our results despite continued challenges in the macro environment when inflation in 2-tier has continued to rise reaching above 80%.
Speaker 3: On an unadjusted foreign inflation basis, our GMB growth was 66% in the third quarter and 68% in the first nine months of 2022, compared to the same period of last year. Adjustment for inflation, our GMB declined by 9% in the third quarter, bringing the first line MHz to ever before in a all-time baseball tournament.
Speaker 4: GMV growth to minus 1%.
Speaker 5: On an adjusted for inflation basis, revenue growth was 7%. We delivered 8.4% gross contribution margin in Q3 with a 4.5% year on year improvement compared to the same quarter of last year.
Speaker 6: Filled by the continued momentum in active customers and order frequency, we achieved 26% order growth during the third quarter, contributing to 29% growth in the first nine months of 2022.
Speaker 7: Before I touch upon our ABCA platform, I would like to summarize our recent development and point out its effect on our financials.
Speaker 8: As disclosed, we have reached a settlement agreement related to the both PTT class action lawsuits in the U.S. has agreed to pay $13.9 million to resolve these lawsuits in entirety.
Speaker 9: The settlement remains subject to approval and or entry of judgement by the respective courts.
Speaker 10: As part of current management, we have booked a provision expense for the total at approximately 258 million Turkish lira, corresponding to 13.9 million US dollars.
Speaker 11: This expense has had one of the impacts on our financials.
Speaker 12: Two commerce is expected to contribute $3,975,000 towards the settlement amount. Once all the relevant processes are finalized, the relevant amount will be accrued accordingly.
Speaker 13: Despite this one-off, our ABCA as a percentage of GMB improved by 4.6 percentage points year-on-year to negative 5.8%. Excluding the one-off, ABCA as a percentage of GMB would have been negative 3.5% in Q3 2022.
Speaker 14: on an adjusted for inflation and negative 1.8% on an unadjusted for inflation basis.
Speaker 15: On the cash flow front, following the positive free cash flow in Q2, we are glad to have delivered another quarter with a positive free cash flow.
Speaker 16: Let's move on the next slide to look at our progress on our task profitability. Next slide.
Speaker 17: As a continuation from the second quarter, we continued our progress on our path to profitability this quarter as shown on the slide.
Speaker 18: I must emphasize that this performance was made possible through our commitment to continue optimizing end-to-end customer experience, expanding our selection and merchant base, and improving the effectiveness of our marketing through smart use of data science capabilities.
Speaker 19: Let's move on the next slide to look into our operational metrics.
Speaker 20: Next slide.
Speaker 21: All four growth drivers continued their healthy rise, both on a year-on-year as well as quarter-on-quarter basis.
Speaker 22: Active customer base grew by 11% on yearly basis, reaching 11.8 million in the third quarter. Order frequency reached 5.4 up from 4.4 a year ago.
Speaker 23: Continuous momentum in key growth drivers was at least beatable to a few factors including our hybrid 1P-3P building model, attractive galley propositions and expansion in selection.
Speaker 24: Additionally, we have improved the effectiveness of our marketing through the use of data-driven marketing tools and have sharpened focus on retention and engagement with accuracy in acquisition.
Speaker 25: We have also developed identification capabilities such as two-state offerings, which encourage interaction with our relevant customer segment.
Speaker 26: Our platform has become home to nearly 95,000 active merchants. After the third quarter, we held a similar merchant summit in three large cities to showcase our value services for them. These summits also serve to bolster our merchant relationship prior to peak shopping season.
Speaker 27: we continued our leadership in MPS in the e-commerce sector in Turkey, thanks to our excellent customer experience on the back of our technology, robust logistics capabilities and our broad affordability solutions.
Speaker 28: Also worth mentioning is our performance in gaining members to H2B premium program. In only 5 months H2B premium members exceeded 500,000.
Speaker 29: Festival at Premium members have access to a range of benefits that include free delivery and cash back subject to certain conditions and free access to an on-demand streaming service among others in exchange for a monthly subscription fee. This program has been instrumental in driving higher engagement and older frequency.
Speaker 30: Now, I'd like to switch gears and even update on our robust logistics capabilities, which are essentially enabled for our customer and merchant value proposition. Next slide.
Speaker 31: Our last mile delivery service, Hep-C-Jet, serves through a nationwide network across two tiers with nearly 2,000 carriers. As of the third quarter, Hep-C-Jet offers its customers the ability to live track their parcels prior to delivery.
Speaker 32: In the third quarter, HESC-JET delivered 62% of orders from the marketplace operation, compared to 57% quadratic and 53% a year ago.
Regarding the next day delivery performance, HPC-Jet delivers 84% of the orders from one complete operation on the next day.
FCJ's oversized cargo delivery arm, FCJ X-Large, delivers nearly 73% of such oversized parcels in R1T operations during this period. FCJ X-Large offers delivery by appointment for customer convenience.
Meanwhile, FZ Logistics added another 138 clients to its portfolio during the quarter, providing the fulfillment services to 651 clients in total.
On the next slide, I would like to give an update on our financial services.
During the quarter, with over 9 million users, around 44% of GMBs passed through our EPCPAI wallet. EPCPAI has continued its rapid penetration within the EPC wallet platform and marked a milestone by reaching 10 million users in November .
Meanwhile, our Buy Now Pay Later solution has been used by over 115,000 customers as of the end of the third quarter since its launch in January 2022.
We continue to diligently manage credit risk while maintaining our focus on growth optimization.
Post-Sug Quarter, Pepsi Pay announced new added features, enriching the shopping experience with improved customer verification and e-wallet capabilities.
In addition to the existing ability to transfer money from credit or debit cards, Hexypay users may now also top up their e-wallets by transfers from their bank accounts without needing to use a card.
On the next slide, let's take a look at our progress with respect to other strategic assets, integral parts of our ecosystem. Next slide.
Our strategic assets are cornerstones of our diverse ecosystem and suggest solid support to our growth potential. One of those is our adtech solutions. Our FTS portfolio includes Search Ads, Display Ads and Sponsored Ads which were used by more than 10,000 merchants in Q3.
2022 in line with the previous project. As said, continued its focus on enriching product capabilities.
In our international operations, we have been serving the Azerbaijan market since early this year, having chosen it as a proof-of-concept market. Through these efforts, we focus on testing and optimizing our playbook for cross-border execution. We will continue to evaluate our other international opportunities ahead.
Our online grocery business, Hexy Burada Market, continually focuses on enhancing US economics and customer experience with this new operating model. Under this model, Hexy Burada Market serves as a location-aware marketplace platform with minimal operational involvement.
Its perfect order ratio in grocery was 82% in the third quarter up by 3 percentage points compared to the second quarter.
Our flight ticket service FCBRA.com continues its focus on unlocking synergies in traffic and customer engagement for FCBRA.com's wider scale of operations over time.
With this asset-like business model to expand product portfolio, it enables sales of nearly 9,000 tickets in the third quarter, up from 9,000 during the same period last year.
Overall, we remain committed to delicious operating our strategic assets to help fuel further monetization and growth for low-load ecosystem. And yet again, we need to focus on different costs and cash management. Now let me say a few words on our guidance for the full year.
Take flight.
Having recorded 66% GMV growth in the first nine months compared to the same period of last year and considering the performance in our growth drivers, we are raising our GMV growth guidance once again from around 60% to around 70% for the full year.
In mind we are focused on the task profitability we expect to deliver this GMV growth while keeping RABCA as a percentage of GMV guidance within a range of negative 2.5% to negative 3% for the full year.
A kind reminder that our guidance for GMV growth and the VTA as an early stage of GMV is not being on an unadjusted for inflation basis.
As a final note for today, as I announce in June , I will be transitioning to a new role and Nihan Unal will be coming on board as CEO as of January 1, 2023.
I would like to say that I am grateful to have had the opportunity to meet Herciy Broda for nearly four years. And I am extremely proud of what we have accomplished as a team.
Together, we have developed and integrated technology ecosystems with strong capabilities not just in e-commerce but also in fintech, logistics, advertising, cross-border operations and more.
During my time at FC Brodas, we have played a pivotal role in the digitization of commerce in Turkey and fortified our strong position as the household brand of Turkey. Looking ahead, I remain excited about FC Brodas' journey in the future. I will now leave the floor to Korhan. Thank you for listening.
Thank you, Murat, and welcome everyone. In the third quarter, on an unadjusted for inflation basis, we generated 10.7 billion TLGMB, corresponding to 66% year-on-year growth.
Adjusted for inflation, the GMB became 11 billion TL, indicating a 9% decline compared to Q3 of last year.
This decline was mainly due to the below inflation rise in our average order value, similar to the second quarter performance while we recorded continued order growth.
The full impact of inflation does not necessarily get reflected on our GMV growth due to several reasons, including customers' tendency to substitute for budget-friendly choices and partial holdback in purchase decisions in certain categories.
We also believe that other factors, such as inventory carryovers and competitive market dynamics might affect selling prices in certain categories.
Meanwhile, the share of marketplace GNV was around 68%, which was 70% a year ago and 64% in the second quarter of this year. This GNV mix may fluctuate from one quarter to another since it's impacted from several factors including but not limited to market.
3% in Q3 compared to the third quarter of last year.
When adjusted for inflation, our revenue increased by 7%.
The reason behind 7% revenue growth despite the 9% GMB decline is mainly due to our strategic decision to focus on improving the profitability and therefore cutting back on campaigns and discounts compared to the same period of last year.
The two percentage points shifting GNV mix in favor of 1p also had an impact on this result.
7% revenue growth was mainly achieved by nearly 6-fold growth in our marketplace revenue, 10% increase in our delivery service revenue, and 85% increase in our other revenue against 7% decline in 1p revenue.
The decline in our 1P revenue reflected a trend in GME from 1P operations.
This was mainly due to the customer tendency for substitution with affordable alternatives and the increase in share of non-electronic categories contribution compared to the same period of last year.
Add to the marketplace revenue, significant growth reflects our focus on path to profitability and cutbacks on campaigns and discounts which are deducted from revenue.
The 10% increase in delivery service revenue was mainly attributable to the rising unit delivery service charges in January and also in July 2022.
Now I would like to discuss our gross contribution performance.
Our inflation adjusted gross contribution margin was 8.4% in the third quarter with an improvement of 4.5 percentage points compared to the same quarter last year. This was mainly attributable to the lower customer discounts in retail.
and marketplace operations and higher revenue from delivery service and other revenue streams.
Compared to the second quarter of 2022, our gross contribution margin improved by 3.4% in the third quarter given our focus on inventory management and the slowdown in the monthly inflation rates.
Compared to the second quarter of 2022, our gross contribution margin improved by 3.4 percentage points in the third quarter given our focus on inventory management and the slowdown in the monthly inflation rates. Next slide please.
Net total OpEx as a percentage of GMB was 14.2% in this quarter, slightly less compared to the 13.3% in the third quarter of last year.
This was mainly due to 3.8% point decline in advertising expenses and 0.7% point decrease in shipping and packaging expenses against 4.3% point rising of G&A and other expenses.
The decline in advertising expenses was a result of enhanced marketing efficiency, including sharpened focus on retention and engagement across customers' lifecycle, as well as enhanced return on marketing investments in relevant channels.
The decrease in shipping and packing expenses was on the back of decline in shipping expenses of Hips rather market.
As discussed, its business model has been pivoted to reduce dependence on owned delivery resources and keeping the operational involvement at minimum.
The rise in our DNA expenses, which includes the other OPEX as you see on the chart,
It results of several factors including salary increases, talent onboarding and the litigation settlement provision expense of 257.9 million TR. Murat has already explained the details of this settlement, so I will not take more of your time.
Excluding the one-off impact of this provision, G&A expenses as a percentage of GMV would have been 5.4% in the third quarter. Accordingly, the total net apex as a percentage of GMV would have been 11.8% on a second quarter.
for inflation EBITDA in the third quarter of 2022 was negative 0.6 billion TL compared to negative 1.2 billion TL a year ago.
This corresponds to a negative 5.8% EBITDA as a percentage of GMB in Q3 2022, indicating a solid 4.6% year-over-year improvement.
EBITDA as a percentage of GMV continued its improvement also sequentially by 0.4% from the previous quarter.
This performance was mainly attributable to improvements in our gross contribution margin and lower advertising spending.
Excluding the runoff impact of provision, EBITDA as a percentage of GME would have been higher by 2.4% in the third quarter.
Next, I would like to say a few words on our cash flow dynamics.
We generated a positive free cash flow of 331 million TL in the third quarter compared to negative 1.3 billion TL a year ago thanks to the positive cash generation from our operating activities.
Net cash provided by operating activities was 542 million TL in the third quarter, which is mainly due to lower net loss and a decrease in the change in networking capital.
CAPEX was around 211 million kiosks, around 60% of which consisted of the cost of tech-related employees, who are mainly employed for the development of web and mobile platforms.
Remaining capex mainly consisted of purchase of property and equipment and software and rights.
We continue to operate with negative networking capital and the change in networking capital in Q3 was 629 million tier.
Now I would like to share some highlights on our cash position and bank parallax.
As of September 30th, we have 4.3 billion TL cash, which is mainly in time deposits and in financial investments. This total is 234 million US dollar equivalent and as of September 30th, around 73% of this total was in US dollars.
Our strong cache position combined with our cache generating capability enables us to continue to have the liquidity to fund our operations.
Furthermore, our USD position keeps the company resilient against potential currency fluctuations.
Compared to the year-end, the decline in total cash was mainly due to the decline in negative networking capital and US dollar Turkish lira appreciation at a rate lower than inflation.
On the liability side, we have 332 million CL bank borrowings and these liabilities, which declined from 616 million CL at the end of 2021.
Please note that all of our borrowings are in Turkish data. Next slide.
As I end my presentation, I would like to leave you with a few highlights on our quarter-on-quarter momentum.
Overall, our third quarter results showed improvement on several lines, including gross contribution margin, advertising expenses and hence EBITDA and net loss compared to the second quarter of this year.
The litigation settlement provision expense had one of impact on our financials, at mainly EBTAs and net loss balances.
This process was achieved in a macroeconomic environment with continued challenges.
Looking at acknowledging the challenges and uncertainties, we are confident to increase our GMB growth guidance from 60% to around 70% on an unadjusted for inflation basis, while keeping our EBTAs as a percentage of GMB guidance.
within a range of negative 2.5 percent to negative 3 percent for the full year 2022.
We believe we are on track with our plans, on our path to profitability and we will continue to execute the discipline, cash and cost management.
This concludes our presentation. Thank you for listening. We can now open the line for questions.
Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your headset when asking your question for better quality.
Anyone who has a question may press star and one at this time. One moment for the first question, please.
Once again, to register for a question, please press star and one on your telephone.
Ladies and gentlemen, there are no questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
I'm sorry, I apologize. We do have a question. Mr. Unall Kim with Goldman Sachs, please go ahead.
Hi, thank you, Maratbe and Korombe, for the presentation, and also congrats on your new role, Maratbe. My question will be related to the new e-commerce law, and I'd like to understand how do you expect to see the impact on profitability post significant reduction.
in advertisement and the promotion budget as indicated by the new e-commerce in 2023 and how do you see this to impact competition and your market share as well as the GMM going forward? And also did you start to see, did you already start to see...
some kind of easing in aggressive discounts and advertising stance from the competitors within the sport quarter.
And also going forward, if there will be any kind of improvement in the cash on lower spending, how do you plan to spend this excess cash? Thank you very much.
Thank you, Jan. I guess I will leave the floor to Coran for cash, but I will answer the other questions first. With respect to, like, first your comment with respect to competitive landscape, I guess it's fair to say that the market continues to be competitive, where the cost of marketing and cost of growth...
remains still high. So I guess it is still valid based on our observations. And with respect to regulatory changes, like you mentioned, we expect the law to be in effect by January 1, 2023. So it is yet to be observed within the new year. But we believe the new regulatory framework will bring a more open trend.
impact of the regulatory framework is seem to be the restrictions on marketing spending and promotions and discounts and As a team, we are already actively working towards that timeline, which is January 1st 2023. With that said, maybe just as a side note, as you can see from our numbers, we are now working towards the end of the year.
and also from our announcements, we've been actively working on increased marketing efficiency and we are already actually demanding those efficiency points into our execution as we speak, regardless of the framework. Let me stop here and hand over to Korhan for the cash.
Thank you, Jan, for the question. On the cash side, there will be a reduction in the payment terms for the merchants and they are in a position to calculate the impact because the newcomers and the existing merchants will differentiate for the first six months and going forward. Thanks for the question,
To create excess cash, it depends on the GMV and how we distribute our promotions among the month and so on. This is Anders' progress and in the coming course we will be talking more about our cash flow projections. Thank you.
Thank you very much.
As a final reminder, to register for a question, please press star and one on your telephone.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Thank you. Before we close our call, thank you all once again for participating in our results announcement call and for your kind support over the years. Much appreciated. I would like to take one more minute to thank our founder, board of directors, the executive and the wider team for this trust.
and relentless support to me and the EBSI Brother mission over the years. And I also would like to express my gratitude to our customers and business partners, the investor community and to the rest of the EBSI Brother community who have been part of this amazing journey. Thank you again and goodbye.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a good afternoon.
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