Yahoo Finance D-Market Elektronik Hizmetler ve Ticaret A.S. (NASDAQ:HEPS) Q1 2024 Earnings Call Transcript
D-Market Elektronik Hizmetler ve Ticaret A.S. (NASDAQ:HEPS) Q1 2024 Earnings Call Transcript June 13, 2024
Operator: Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome and thank you for joining the Hepsiburada Conference Call and Live Webcast to present and discuss the First Quarter 2024 Financial Results. All participants will be in listen-only more and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Nilhan Onal Gokcetekin, CEO; Mr. Seckin Koseoglu, CFO; and Ms. Helin Celikbilek, Investor Relations Director. Ms. Celikbilek, you may now proceed.
Helin Celikbilek: Thanks, operators. Thank you for joining us today for Hepsiburada first quarter 2024 earnings call. I'm pleased to be joined on the call today by our CEO, Nilhan Onal Gokcetekin and our CFO, Seckin Koseoglu. 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 April 30th, 2024, 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 relevant IFRS to non-IFRS reconciliation. As a reminder, a replay of this call will be available on our Investor Relations website. And with that, I will hand it over to our CEO, Nilhan.
Nilhan Onal Gokcetekin: Thank you, Helin. Welcome, everyone, and thank you for joining us. I'm delighted to be with you today to present our first quarter results. It has been a strong start to the year as reflected on all our results. Notably, we beat our GMV and EBITDA guidance for the quarter. Good execution, accelerated by the favorable base effect of last year due to a tragic earthquake, drove 138% year-on-year GMV growth. Adjusted for inflation, our GMV growth was a solid 43%. Our gross contribution margin improved by 150 basis points to 12%, marking the highest since our IPO. Our EBITDA continued its uptrend, rising 120 basis points year-on-year to 2.4% of GMV on an unadjusted basis. Adjusted for inflation, our EBITDA as a percentage of GMV improved by 70 basis points year-on-year to 0.8%.
These results are a clear sign of our winning strategy. Now, let's have a look at a few of our operational metrics. Being Turkey's most recommended e-commerce brand once again with an NPS of 73 is a great source of pride. We are committed to advancing this performance to the next level. Our active customer base was 12.1 million on an additional 171,000 customers. We are glad to see growing interest in our appealing loyalty program, which has scaled to 2.6 million members by the end of May. We recorded 29.3 million orders with 22% growth during the quarter. Our order frequency over the last 12 months reached 9.8, this is up 30% year-over-year. With an active merchant base of almost 102,000, we expanded our selection by 38% to nearly 248 million SKUs. Now let me provide a snapshot of our quarterly progress on top four strategic priorities.
First is our loyalty program, Hepsiburada Premium. The program's growing customer base signals customer satisfaction with our proposition. This is also evident by program's strong NPS. Also, premium members' higher frequency significantly contributes to our overall growth. Moving on to second priority, which is differentiation with superior delivery services. Our superior delivery services is realized with our in-house company HepsiJet. Merchant preference for HepsiJet services has risen significantly this quarter. Jet delivered 68% of total parcels on our platform. This is up by 5.1% point year-on-year. It's 82% next day delivery ratio among retail orders also confirms its integral role in our ecosystem. HepsiJet brings wider satisfaction to the Hepsiburada customer.
Its fast, reliable, and high quality service reflects in our strong customer satisfaction score of 87. Our third differentiator is Hepsipay. It's scaling its offerings with additions to its already comprehensive suite of payments and landing services. Fourth is our strongest muscles -- offering our strongest muscles to off-platform customers. Let me start with HepsiJet, which has more than doubled its volume year-on-year in Q1. Accordingly, with 3.2 million parcels delivered, its off-platform volume corresponded to nearly 33% of its total Q1. On the next slide, I'll elaborate on Hepsipay, including its off-platform performance. Let me dive into how we are providing these cutting edge solutions with Hepsipay. In the current economic climate of high interest rates, being able to offer a suite of alternatives is a huge advantage.
In January, we took the further step of including our consumer finance loans to this step. Meanwhile, our BNPL solution is the largest non-bank BNPL solution in the market. Overall, our BNPL and shopping loan were utilized in over 1.1 million orders over the last 12 months. On a broader scale, over the last 12 months, total landing volume through our platform tripled compared to the same period of last year and it reached TRY8.1 billion. That's roughly equivalent to $290 million. Hepsipay aims to grow this business line in a profitable manner and take a sizable share in Turkey's $34 billion consumer loan market. In this capacity, we will continue to leverage Hepsipay solutions, as well as those of our partner banks to grow our e-commerce business.
Aside from affordability aspect, our financial services also encompasses the payments business. In offline retail, Hepsipay leads the market with its 15.7 million wallet base covering 18 million store cards. Our one-click checkout solution, Pay with Hepsipay, is also live at 28 key retailers just within less than a year of its launch. Hepsipay aims to capture a substantial share both in key accounts as well as in Turkey's sizable online SME market. And now, I'll add my part with our guidance. As we lead through the second quarter, we observe the continuation of challenging macroeconomic conjecture, cooling of consumer demand to a certain extent. And yet, our platform preserves our relevance for consumer purchases as their trusted household brand.
Accordingly, we expect to deliver growth around 75% year-on-year in Q2 2024. With that, GMV growth in the first half is expected to double year-on-year. With continued prudent cost management in place, we foresee an EBITDA within the range of 1.8% to 2% of GMV. As a reminder, our GMV in Q2 last year was 1.5%. So we expect to deliver a year-on-year improvement in our profitability in Q2. In these figures, I refer to are unadjusted for inflation. With this, I thank you very much for listening and leave the floor to Seckin, our dear CFO, to provide further insights to our financial performance.
Seckin Koseoglu: Thank you, Nilhan, and welcome everyone. I'm glad to share that we had a robust start to the year with solid performance across all metrics. Adjusted for inflation, GMV grew by 43% in quarter one. Strong GMV growth was through 17% average order value growth and a 22% increase in total orders. Given the tragic earthquake in February last year and its inevitable impact on our business, last year's low rate also has a positive impact on this growth performance. Gross contribution margin continued its improvement trend and reached 10.5%. Higher margins coupled with disciplined OpEx management resulted in TRY289 million EBITDA at 0.8% of GMV. For more color on each of these, let's move on to the next slide. First, our GMV performance.
43% of GMV growth came through 29.3 million orders in quarter one. Last 12-month order frequency also increased by 30% to 9.8. Our marketplace operations corresponded to 68% of our business in quarter one 2024, at around the same level of quarter one last year. There was nearly 1.4 percentage points shift towards non-electronics within GMV this quarter, in line with our strategy. Let's have a look at our revenue growth dynamic. 45% revenue growth in the first quarter was achieved mainly through 38% retail and 32% marketplace operations revenue growth. Delivery service revenues, which correspond to 14% of total revenues, nearly doubled year-on-year. This was mainly due to the solid momentum in our off-platform business, coupled with annual rises in unit delivery service charges above inflation.
Our advertising services revenues doubled during this period as well. Meanwhile, other revenue lines grew by 148%. Such performance was mainly through fourfold growth in loyalty subscription revenues and higher fulfillment service revenues compared to quarter one 2023. On the margin side, adjusted for inflation, we recorded 1.2 percentage points rise in the gross contribution margin, reaching 10.5%. Margin improvement was mainly attributable to higher contribution of delivery service revenues from off-platform, as well as advertising revenues. Let's move on to our EBITDA performance on the next slide. We recorded 0.8% EBITDA as a percentage of GMV in quarter one, 2024, with 75 basis points improvement on a yearly basis. This was mainly through 1.2 percentage point rise in gross contribution margin, partially offset by 0.5% rise in shipping and packaging expenses.
And now let's look at our cash flow dynamics in the next slide. The cash generated from operations was TRY1.5 billion in quarter one, 2024, up from TRY102 million a year ago. TRY778 million improvements in the change in networking capital year-on-year accounts for more than half of the increase. Others include TRY277 million increase in EBITDA, TRY137 million increase in the change in operating monetary gain, TRY136 million increase in other non-cash items, and TRY26 million increase in realized FX gains. With TRY426 million in CapEx, our free cash flow was around TRY1 billion in quarter one, 2024. Let's move on to the next slide and let's take a look at our key takeaways. We would like to leave you with the following from today's presentation.
Our robust topline growth in the first quarter exceeded our guidance. Adjusted for inflation, we recorded 42.5% GMV growth on a year-on-year basis. Our gross contribution margin continues to improve by 1.2 percentage points and reach 10.5%. We recorded TRY289 million EBITDA corresponding to a 0.75% rise in EBITDA as a percentage of GMV. With this performance, we generated a strong free cash flow of TRY1 billion. Our solid overall performance confirms our sharp focus on winning with loyalty, cultivating our sustainable differentiators, and expanding our B2B services as a turnkey e-com solution partner for merchants. As we reflect on the good start to 2024, we are committed to growing on a sustainable and profitable manner going forward. Thank you for listening.
We can now open the line for questions.
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