Cellectis Q3 2024 Earnings Call Transcript

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December 10, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. I am Gaele, your Chorus Call operator. Welcome and thank you for joining the HEZYBURADA Conference Call and Live Webcast to Present and Discuss the Third Quarter 2024 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.

Operator

At this time, I would like to turn the conference over to Ms. Nilhan Onal Gokce Tekin, CEO Mr. Sechkin, Kosyoglu, CFO and Ms. Helene Zeliepellek, Investor Relations Director. Ms.

Operator

Zeliepellek, you may now proceed.

Speaker 1

Thanks, Kelly. Thank you for joining us today for hepsuburada's 3rd quarter 2024 earnings call. I am pleased to be joined on the call today by our CEO, Nihan Onal Gokcekakin and our CFO, Sergey Korsoylu. 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 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 ks, our Form 20 F filed with the SEC on April 30, 2024, 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 press release for a presentation of the most directly comparable IFRS measure and the relevant IFRS to non IFRS reconciliations. As a reminder, a replay of this call will be available on our Investor Relations website.

Speaker 1

With that, I'd like to hand the call over to our CEO, Nihan.

Speaker 2

Thank you, Helene. Welcome, everyone, and thank you for joining us. I'm delighted to be with you today to present our Q3 results.

Speaker 3

First,

Speaker 2

we are very proud to share a significant milestone in our journey. This quarter marks the first time we achieved quarterly positive operating income since our IPO in our IFRS financials. This accomplishment reflects the strength of our strategy, disciplined execution and the dedication of our team. Now let's dive into the details behind this transformative moment. We have successfully concluded another challenging quarter facing the continued macroeconomic pressures and curved purchasing power.

Speaker 2

Motifully, we delivered our GMV growth and EBITDA as percentage of GMV guidance in the Q3. Diligent execution during the back to school shopping period and the celebratory campaign for the 2nd anniversary of our loyalty program contributed to overall year on year GMV growth during Q3. On a 10.3% in the 3rd quarter, we delivered 17.4% GMV growth in the 1st 9 months compared to the same period last year, adjusted for inflation. On the profitability side, our gross contribution margin rose to 11.3% in the 1st 9 months with a 1.9 percentage point improvement compared to same period last year. Our EBITDA as percentage of GMV continued its rise, reaching 1% in the 1st 9 months of the year adjusted for inflation.

Speaker 2

Overall, we are very pleased to have demonstrated continued sustainable growth and improved profitability in the 3rd quarter. Let me now go into our performance during the quarter as well. Let's look at a few of our operational metrics. Our active customers grew by 233,000 customers to 12,300,000 Meanwhile, we are glad to see growing interest in our phenomenal loyalty program, which has scaled to nearly 3,700,000 members by November. As Turkey's most recommended e commerce brand, we once again scored an NPS of 75.

Speaker 2

Customers identified our speed of delivery, range of affordability and branding solutions and their trust in HEPs Berda brand as key factors in their preference for the platform. Continuing our appeal, in July 24, we launched our Renew Your Mobile at Your doorstep product in 8 to 1 cities across Turkey. This marks Turkey's 1st ever nationwide device renewal program at your home door. Its convenience was reflected in a vibrant customer satisfaction this quarter. I'm happy to note that this initiative is perfectly in step with our sustainability commitments.

Speaker 2

Returning to the Q3 KPIs, we recorded 32,000,000 orders on a 19% year on year growth. Our order frequency over the past 12 months reached 10.8%, up by 16%. With our active merchant base of almost 100,000, we continue to expand our selection by by 33% to 280,000,000 SKUs through the onboarding of additional brands, particularly in passion and lifestyle categories. As I do every quarter, I would like to give a status update on our 4 strategic priorities to highlight our key achievements. First of all, let's consider our loyalty driver, HEPSA BRADA Premium Program.

Speaker 2

Building on its momentum, we have reached nearly 3,700,000 members by November end. Driving higher engagement, premium members' monthly order frequency rose by 31% after joining the program. Premium members' volume frequency significantly contributes to our overall order growth. To mark the 2nd anniversary of the program, we held Hepsiburada premium base in mid July, offering exclusive campaigns to our premium numbers. The Tandy event attracted 130,000,000 visits to the platform and 4,000,000 products were ordered through us.

Speaker 2

Our customer satisfaction is clear from the program's robust quarterly Net Promoter Score of 84 points, which is 9 points above our overall NPS. We value this program for being a strong driver of frequency and catalyst for customer loyalty. Next slide, please. Let's consider another strategic priority, namely our differentiating logistic our differentiated strategy, namely our differentiating logistic capabilities achieved through Hep2Jet, both on platform and off platform customers. Hep2Jet continued its penetration within our merchant base.

Speaker 2

With a 6.8% annual rise, Hexijet delivered 74% of total parcel dispatch during this quarter. It's confirming its integral role in our delivery ecosystem. Its volume expansion and oversized parcel delivery has also been super impressive. In Q3, Hexijet X Large delivered 69% of our oversized parcel, up by 12.4 percentage points year on year. Hexijet's strong NPS underscores its value added service excellence and confirms our commitment to flexible and convenient delivery options.

Speaker 2

As another key strategic pillar, HSDJet also continues its off platform expansion and doubling its volume year on year. With 9,800,000 parcels delivered, its Opdivas for volume corresponded to nearly 35% of total volume in Q3. Let's move on to our strategic priority, capitalizing on our clear differentiation through lending solution. Our solutions include in house buy now, pay later solution, in house consumer finance loans, shopping loans from partner banks and general purpose loans for shopping on our platform. This proposition is unmatched in the Turkish e commerce sector and has increased our relevance in this challenging economic climate.

Speaker 2

The quarterly share of these solutions in GMV rose to 8.8%, up from 8.1% a quarter ago. A superior user experience is enjoyed by our platform throughout the Buy journey. HEPTI BORIDA is Turkey's largest non bank BNPL solution provider. Our BNPL volume more than tripled year on year during Q3. Moreover, in house consumer finance loans have the highest conversion rate compared to all other partner banks providing shopping loans in our platform.

Speaker 2

Our BNPL cost of risk was around 2.6% in Q3 'twenty four, in line with our projections and pricing assumptions. We aim to grow this business in line with profitability to claim a sizable share of Turkey's $40,000,000,000 consumer loan market. In this capacity, we will continue to leverage our solutions and those of our partner banks to grow our ecom business. On the payments front, Hexi Pay continues to increase its penetration. Hexi Pay stands out in the market with its 17,600,000 VoIP customers, storing around 21,000,000 cards by the end of November.

Speaker 2

We are determined to scale our convenient VanClick checkout solution, pay with Hefty Pay, among other retailers, also beyond our platform. This solution is already live at 127 key retailers, doubling its total payment volume in Q3 compared to Q2. Help to Pay remains committed to becoming

Speaker 3

Turkey's go to digital wallet in both physical and

Speaker 2

online retail. In both physical and online retail. Let me take a moment to talk about our November campaign performance before I dive into our Q4 guidance. Our preliminary results indicate that this year, we delivered yet another strong performance in November despite all the macroeconomic challenges. We recorded the highest daily traffic in our history on Singles' Day, and our platform received 500,000,000 visits during the month.

Speaker 2

We greatly welcome Turkish customer appreciation for our superior service and solutions and all our campaigns in the busy month of November. And now our guidance for Q4 and its implications for the full year. As we executed on our strategic priorities throughout the year, we stayed very focused on achieving sustainable growth and enhancing our profitability. Accordingly, we expect to deliver around 75% GMV growth in the full year. This is roughly 13% growth as adjusted for inflation compared to 23%.

Speaker 2

Such growth will be the end result of our guidance of 50% to 55% GMV growth for the Q4. On the margin side, our 4th quarter guidance for EBITDA as percent of GMV is 1.8% to 2%. Consequently, our full year EBITDA as percentage of GMV is expected to be around 2.2% and 2.1%. Both Q4 and fiscal year signals continued margin expansion. These figures are unadjusted for inflation.

Speaker 2

Before I hand over to Tejcan, let me say a few words on Heksebrada's forthcoming ownership transition. As announced, Kabi has signed an SBA with

Speaker 3

our

Speaker 2

founder and the members of the DAAN family to purchase a controlling 65.4% stake in Hepsiburada. Approval from the Turkish Competition Authority was granted on November 19. The transaction awaits certain regulatory approvals and involved parties expected to be closed in early 25. We are extremely excited about the synergies that will arise from this deal as CASB is the preeminent in payments, marketplace and fintech of the system in Kazakhstan. Our shared customer centricity and service quality orientation confirm the strong cultural fit necessary for success.

Speaker 2

We believe Caspi's expertise in fintech, technological capabilities and experience will be significant accelerators for us, and we are now in a stronger position to remain a preferred companion in the people life. With this, I thank you so much for listening us and give the floor to Tejkir, our CFO, to provide further insights into our strong financial performance.

Speaker 3

Thank you, Nijan, and welcome, everyone. I'm delighted to be with you today to present our 3rd quarter results. Despite the ongoing macroeconomic challenges, I'm pleased to report that we maintained a strong upward trend across all key metrics in our 3rd quarter 9 month results. With 10.3% GMV growth in the 3rd quarter, our GMV rose 17.4% in the 1st 9 months compared to the same period of last year. On the profitability side, the gross contribution margin rose to 11.3 percent in the 1st 9 months with a 1.9 percentage point improvement compared to the same period of last year.

Speaker 3

Our EBITDA as a percentage of GMV continued its rise, reaching 1.2% in quarter 3 and 1% in the 1st 9 months of the year. Let's go over the details of this performance. In the 3rd quarter, GMV growth came mainly through solid order growth and higher AOV when digital products are excluded. Fashion and lifestyle, appliances and mobile phones are the top three categories of growth. We achieved a gross contribution margin of 11.5 percent in quarter 3 2024, while our 3rd party logistics business was a key driver.

Speaker 3

This expansion was also supported by an easing inflationary impact on our cost of inventory sold in retail operations compared to the same period of last year. In quarter 3, we reached a milestone with positive operating income EBIT of TRY32 million in a first since our IPO. Our EBITDA as a percentage of GMV continued its rise to reach 1.2%. This is a 1.3 percentage point rise year on year when excluding the one off contribution from Turk Commerce towards the settlement of class action lawsuits in quarter 3 2023. Let's move on to the next slide to see our GMV breakdown.

Speaker 3

In quarter 3, around 10% of real GMV growth came through 32,000,000 orders and a higher average order value. This performance results from our value proposition and investment in both our selection and user experience, supported by our loyalty program and affordability solutions. Our digital products contribute to the order frequency of participating customer segments. Excluding these, our order growth was at around 5%. During quarter 3, we saw a 4.9 percentage point shift towards our marketplace operations compared to quarter 3 last year.

Speaker 3

And our 3P operations corresponded to around 70% of our business. This shift came as a result of a 2.6 percentage point shift towards nonelectronics, which is in line with our broader strategy. Let's have a look at our revenue and gross contribution dynamics. 1st, some color on revenues. Our revenue grew by 1.7% in quarter 3, bringing our revenue growth in the 1st 9 months to 13.5% compared to the same periods of last year.

Speaker 3

Quarter 3 revenue growth was mainly due to a 6% rise in 3P revenue, 47% increase in delivery service revenue and 82% increase in other revenue. These were partially offset by the 9% decrease in our 1P revenue compared to quarter 3 2023. The decline in 1P revenue was mainly due to a 4.9 percentage point shift in GMV mix towards 3P. The gross contribution margin improved by 2.1 percentage points to 11.5 percent in quarter 3 compared to quarter 3 2023. This margin improvement was mainly attributable to our strategic priority to expand our logistics and fintech services to 3rd parties 1P margin expansion, primarily due to the impact of higher discounts on cost of inventory sold due to purchases on credit and scaling our advertising services and our loyalty program.

Speaker 3

Let's move on to our EBITDA performance on the next slide. We recorded 1.2% EBITDA as a percentage of GMV in quarter 3 with a 1.3 percentage point yearly improvement, excluding the one off item from quarter 3 of last year. A 2.1% rise in gross contribution margin, partially offset by a 0.4 percentage point rise in payroll and outsourced staff expenses, 0.3 percentage point rise in shipping and packaging expenses and 0.1 percentage rise in advertising expenses. The rise in payroll in outsourced staff expenses came from the rise of employee number in line with our talent on boarding for our subsidiary. The increase in shipping and packaging expenses as a percentage of GMV was mainly driven by higher parcel volume and the rise in delivery fees per unit due to the fuel price and annual minimum wage rises outpacing average inflation in quarter 3 compared to last year.

Speaker 3

Next, let's have a look at our cash flow dynamics. In quarter 3 2024, cash provided by operations decreased by €1,200,000,000 compared to a year ago. This decrease was mainly due to a €1,400,000,000 decrease in monetary gains on operating activities, mainly on trade payables due to lower inflation TRY 917,000,000 decrease in realized FX gains against a TRY 682,000,000 increase in the change in net working capital and the TRY 376 million increase in EBITDA. With TRY 359,000,000 in CapEx, our free cash flow was around TRY1.6 billion in quarter 3 2024. Considering the 1st 9 months, we delivered nearly TRY2.1 billion free cash flow on our continued cash discipline.

Speaker 3

Next slide please. We'll leave you with the following takeaways from today's presentation. In quarter 3 2024, we recorded real double digit GMV growth. Building on our strategic priorities, we marked a milestone with positive operating income in our IFRS financials for the first time since our IPO. Supported by the 2.1 percentage point rise in gross contribution, the rise in EBITDA continued to nearly TRY508 million corresponding to 1.2% of GMV in quarter 2.

Speaker 3

Having posted solid results in the 3rd quarter, we remain committed to growing sustainably and profitably going forward. With the expected forthcoming ownership transition to CASB, we are entering a new period in HIFSIBORODA's history. 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. There are no audio questions at this time. I will now pass the floor to Ms. Celine Belek to read written questions. Thank you.

Speaker 1

Thank you, Gelli. One question is on our expectations for 2025. How do you think about macro landscape and your immunity to potentially shrinking demand in Turkey? So first of

Speaker 2

all, Helene, we should remind that Turkey is a very high potential country for e commerce, large population with 80,000,000, half of them is under 24 years old, high mobility and with large interest to e commerce. So we believe in long term potential of the market. Next 6 to 9 months, there will be shrinking in demand for discretionary products in following the much more orthodox policy from the government. We think this is beneficial for long term in Turkey. And short term, we have significant building blocks, 2 really rallied through this period in a half way.

Speaker 2

1, Heteburada low prices offer a great value for customers during macroeconomic challenges. 2nd, we have the widest options for lending services, which means that consumers, in the time they need affordability, they'll get more and more. The third, our premium offers, premium loyalty program offers a great service level for customers. So in a nutshell,

Speaker 3

yes,

Speaker 2

next 6 to 9 months is going to demand certain immunity from the retailer players. But HEKTORADA, with its 25 years experience in 13, it's in tough times and better times, and we are ready to ride it through this period.

Speaker 1

Thank you, Neha. Another question is about our loyalty program. The question asks about our long term targets with regards to the program and its growth potential.

Speaker 2

Perfect. So Hepsiburada premium program is very critical for future of Hepsiburada. Once a consumer enters this program, thanks to its amazing value proposition with free cargo, free return from your door, 3% cash back and with Werner growth package included, and this offers great service. Consumers, when they enter this program, their frequency is increasing by 30%. And we have been in 2 years, just we exceeded our 2 year mark, we already reached $3,700,000 When you look into very developed e commerce marketplaces like Allegro, Mercado, we see that almost half of their active customers is now part of their loyalty program after RediKate.

Speaker 2

Hence, we should definitely aspire ourselves to get at least half of our customer sales. That would be our long term objective. But the key thing is that we aspire ourselves to get at least half of our customer sales. That would be our long term objective. But the key thing is sustaining an amazing value for customers, retaining very strong NPS, keeping premium as a growth fly deal for Hefseborada Group.

Speaker 1

All right. Thank you for that. We have another question coming up. Gelli, will you be reading the question, please?

Operator

Yes, of course. So we have from our webcast participant, Ronald Gadhia, can you share data on value of transactions on Hepzi Wallet and take rate on the same? Do you want me to read the rest of them as well?

Speaker 1

No. We'll answer this one. Okay.

Operator

Thank you.

Speaker 3

The current transaction volume going over the wallet is basically predominantly our e commerce volume. So based on our 30 plus 1,000,000 orders over the quarter, around 85% of this volume is going towards through the vault.

Operator

Thank you. The next question is from the line of Evgeny Vasilev with VR Capital. Could you please clarify the 1.2% EBITDA in Q3 actual compared to 2.2% guided in September?

Speaker 3

The difference is basically the adjusted and unadjusted numbers. We are giving guidance on unadjusted EBITDA and growth. So in terms of unadjusted EBITDA, our result is in line with the guidance that we have provided. And the EUR 1,200,000,000 is in line with the adjusted numbers in our financials.

Operator

Thank you. And the next question is from our webcast participant, Mujarem Guiseberg with KCA. Why is there no increase in active merchants for the past 8 quarters in a row?

Speaker 2

I can answer this question. So with our active merchants, we actually we are covering most of the high potential hero merchants in Turkey. And our success with these merchants is quite adamant in our selection results, which is increasing every quarter. So we are looking for quality of the merchants over quantity. We want to work with high potential merchants that will be active, that will delight our consumers.

Speaker 2

And we believe that over time, our active merchant base will also increase. But for now, we have been working on monetizing this merchant base with high retention, serving them with our logistics services, bringing them to our successful Vanfilik execution as well. Last quarter, I want to give some light to our active merchant members why they didn't increase. So Turkish government created a new 2 factor authentication and verification mechanism. Without it, we would have seen a different number.

Speaker 2

But with this new higher bar, which was quite fair for higher security of the transaction, we have seen a whole thing down.

Operator

Thank you. And another question is from Eiran Teffik with Digiterra. Do you think the collaboration with Blu TV will be affected by Caspi's acquisition?

Speaker 2

So our Blu TV collaboration is a very strategic and important one. As you know, recently, Blu TV is acquired by Warner Bros. And we made a 5 year deal with them, exclusive deal with them with Turkey. We don't expect any negative impact deterioration. And actually, Blu TV just announced transition to mix with amazing content next year.

Speaker 2

And they also highlighted their partnership in this press release and their delight with Hepsiburada Premium product, how it has to acquire new customers through their ad life program as well. So we are quite excited about the mix transition, and we think we will continue to have this strong collaboration in the coming 5 years as well.

Operator

Thank you. And the next question is from the line of from our webcast participant, Frederic Kotek with SGCM. What are your plans to in source your FinTech segment through the help of CASP, as in stop securitizing or outsourcing to banks?

Speaker 2

Sorry, I want to clarify what does in source means?

Speaker 1

Let's move on to the next question

Speaker 2

while the Freezing answer is there. Yes.

Operator

Okay. Thank you. And the next question is from mukharem gulsaver with KCA. The cash outflow from early collection of credit card receivables is higher than EBITDA. When do you expect EBITDA, CC commissions, to turn positive?

Speaker 3

Thanks a lot for this question. Actually, as you can see, we are improving our EBITDA quarter over quarter, and the interest rate has increased versus last year significantly, and the credit card costs have gone up as well. But going forward, as the overall interest rates in the country are going to be decreasing gradually in line with inflation, We will continue to increase our profitability. So this data will close, and we will definitely be having a positive EBITDA minus credit card costs in the next years.

Operator

Thank you. And from Ronak Gadia from Don Ross, what is the take rate of underlying interest rate on BNPL loans?

Speaker 3

The BNPL loans have different annualized interest rates depending on the number of installments. So it ranges from 80% to above 100%. But on average, we can quote around 95%, including tax.

Operator

Thank you.

Speaker 2

I think I got the gist of the question now from Frederic as well. So first of all, our BNPL and Hepsiburda finance loan solution is done through our own P and L. This is half of our outstanding loans. And the other half, which is constituted by shopping loans and JPLs, is coming from banks. Our current strategy is continue offering our customers this widest spectrum of services where we will continue with general purpose loans, which we will delight on with multiple banks.

Speaker 2

It's the marketplace getting the best rate. As much as we continue frictionless, very strong BNPAR and hep C finance loan proposition. So far, this is our strategy. We don't plan any change. And obviously, if we would have new news to share with you, we would share it in the following call.

Operator

Thank you. 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.

Speaker 2

We want to thank you so much for listening and trusting Keb HEPsabrada. We are excited about our future. And in case we don't talk before, we would like to wish you all Merry Christmas and Happy New Year. Thank you.

Operator

Ladies and gentlemen, the conference is now concluded, and you may disconnect

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Cellectis Q3 2024
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